This report shows a wage growth of +4.0 pct over the past year in the U.S. Tied to the rapidly slowing economy, which this report reflects in declining house construction and related manufacturing job numbers, and the inverse bond yield curve, a rational person has to admit that the U.S. economy is stagflating.

As I have repeatedly stated: stagflation is a killer of stock and bond prices.

There are two scenarios that are likely for equities: (1) prices crash " deeply and quickly over 0-3 months " which would serve to radically change spending (consumption) and investment attitudes and behaviour, or (2) a long drawn out period of 12-24 months where the air is slowly let out of credit bubbles, and adjustments are made slowly.

More on this later.

Econoday.com usually has a good review of the U.S. Jobs Report, which will be updated here later this morning. I hope they don't get caught up in the headline number or the prior month's adjustment number because that is not where the focus needs to be.

We " the buy-side and sell-side together -- have to confront the problem, which is stagflation " a condition of the economic and capital market cycles that has not been with us since the 1970's.

As somebody pointed out to me (or the blog) yesterday, what we face in the equity market today is much like November 1972. And, I'll tell you, starting early in 1973 through much of 1974, it was a tough market to accept as bid prices and volumes disappeared. That is scenario 2 that I pointed to above.

I'd much rather have a shock to the system, like October 1987, so we can get back to reality, allowing the bankers in the U.S. to write off bad debts, and bring equity prices back into line.

With securitization of mortgages, and globalization that has happened since the last time we faced stagflation, the problem has become hugely complex. When I step back and consider whether Scenario 1 or 2 will happen, I believe that Scenario 2 (long and painful) is unlikely. At the first hint that maybe two years will be required to work out the structural problems, I think the foreign investor in U.S. debt (mortgages and Treasuries) will disappear.

Better that everybody recognize that markets need to be rebalanced and take the action immediately.

That still won't bring the G-20 economically advanced nations to the table for a new general agreement on currencies though, and until we have one, we are going to have protectionist practices trying to protect local vested interests, which will result in sub-optimal international trade, and perhaps trade war.

If you truly believe that the stock market is a leading indicator, and a Dow 11,900 is a fair measure of equity prices, then for Dow 12,000, 13,000, 14,000 ; will need annual hourly wage growth of 5-pct, 6-pct; That's just not possible without increases in money supply, higher inflation, higher commodity prices, higher interest rates, and ultimately an even bigger equity market crash than what I expect will happen sooner than later as it is.

As you know, we can only resolve a problem if we acknowledge it.

The Dow opened down -50 points in the first ten minutes. That's a start.