Subprime lending is moving into catastrophe mode and taking the rest of the market with it. I'm eagerly awaiting the capitulation but using today's weakness to build a bull put spread on Altria, my defensive name that should rally first after the damage is done.
The short trade in NFI, LEND, NEW (now delisted!) is over -- the whole world is short these guys; there are no shares to lend out.
Since this economy depends so heavily on the consumer, anything that threatens his profligate spending should be viewed with serious concern. A blowup of the subprime guys will definitely impact lending. This market should be down hard.
In the long term the bull case/goldilocks scenario remains. Plenty of guys are waiting for lower interest rates to make capital purchases and the labor market is still very tight. This leg down will be a terrific opportunity to move capital from the sidelines.