Is sanity returning to the financial markets?

What a change from a little over 24 hours ago. Then, the major European indices were up 0.5%-1%, apparently on the news that Heineken and Carlsberg were interesting in buying rival brewer S&N. The US markets then opened higher following the news that housing starts had declined by a very large number, and inflation was slightly higher than expected.

Now, the european indices are down considerably, bonds are trading much higher, and the yen is rising. What happened to the no-brainer risk trade? Have people finally realised that the Fed cannot save the day? Is sanity finally returning to the financial markets?

It will take several weeks, if not months to answer that question. In the meantime, I hope to start seeing some positive returns from my short position. During the collapse in the US markets yesterday I added to my short position, buying 2 units of SDS at 50.40. After the rally at the end of the day yesterday I thought maybe I was a little hasty, but it looks like today's open will redeem my decision. This sell-off/correction (call it what you will) is starting to feel as if it has some legs, and may continue for some time.

MARKET POSITION: SHORT - EQUITIES (6 units); LONG - GOLD (1 unit)