It’s not something anyone wants to say right now:  Data from across the financial world is starting to reflect a level of panic similar to the days before the passage of the TARP.  The bad signs are coming from different sectors of the economy this time around:  Libor rates fell for most of the week.  Friday’s jobs data, however, was incredibly bleak: The final loss of over 500,000 jobs was worse than the predictions of any of the seventy some odd economists that Bloomberg asked.

Meanwhile, the value of treasury bonds remains sky high, with traders digesting the now-fully-developed consensus that this recession will be the worst since the Great Depression.

In perhaps today’s most powerful illustration of the fundamentally unhinged — literally — nature of the markets these days, the forex markets reacted today to the horrible jobs report by buying dollars… That is, the jobs report was so bad that the flight to safety caused by the horrible-ness of the data actually outweighed the normal effect of the horrible-ness of the data.  It’s a dynamic we’ve all seen before, but rarely to jobs reports.

With the behavior of libor returning to something approaching normal, it’s not as if the dynamics today are those of the pre-TARP disaster time are the.  With Congress moving to aid the automakers, and speculation on the stimulus package moving up to the $700 billion range, investors are not especially worried about governments responding aggressively to the recession.  Rather, the macroeconomic data is just so horrendously bad that the worry is whether or not governments will even be able to spend their way out of prolonged retraction of most major economies — and that has left investors with few places to hide.

There has even been talk of a bubble in treasury bonds — talk that surely is not good for the US dollar in the long run.

Large drops in the price of oil led to a rally in US stock markets and a dive in the Loonie.  The effect of today’s drop in commodities, of course, has little effect on the US economy in comparison to the massive job losses.  It’s an additional sign, however, that markets are behaving in a mode that can only be described as systemic panic, however much investors try to put a positive sign on it.

Much as a person prone to delusions is prone to moments of mania, so have the markets reacted with mania to any significant positive news the past week.

The lesson for forex traders is this:  Generally speaking, markets have become far from efficient information filters these days.  More specifically, things have gotten so bad that flight to safety will keep the dollar strong for the time being, and .  When the dollar does begin to fall, though, that will be a sign that global the flight to safety is nearing its end.  At that point, large institutional investors would rather be caught dead then holding T-bills.  Look for much of that capital to leave the US; and look for the dollar to depreciate sharply against the euro.

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