There was more head-spinning volatility with the markets opening up extremely weak in the morning.

By the afternoon the S&P stock index closed +4.6% higher on the day.

The market has become completely unhinged; the fear, even on up days, is very palpable.

One needs only to look at the sharp moves in stocks over the course of a few seconds when program trading kicks in; swings of 2% or more have become "normal."

The credit markets almost broke down completely this morning as rumors circulated of yet more European banks facing trouble.

Corporate bonds essentially went bid-less.

While the rumors were quickly denied, players vividly remember Lehman Brothers' statements before its liquidity quickly dried up.

A recent single-A rated new bond issue from WellPoint, a health benefits company, illustrates the market's fragility well.

WellPoint issued $700 million of 10 year debt at +160 (spread over benchmark Treasury) and $400 million of 5 year debt at +155.

When the bonds were priced yesterday, they were priced more than 20-30 basis points cheap (at a lower price) relative to their comparables (similar bonds from other companies or old issues from the same issuer).

On the break, once the bonds started to trade in the secondary markets, the bonds traded as wide as +183 (23 bps wider than new issue price).

In the past, when a bond would come to the market, the market would say "Wow this deal is 30 bps cheap…Buy! Buy! Buy!"

Now, the market seems to say "S*** the outstanding bonds are 30 bps too rich!!??!!" and panic selling ensues.

The investment grade credit index opened the day as much as 10 bps wider with the high yield index as much as 50 bps wider as the market felt very weak; the investment grade index is closing unchanged and the high yield index is closing 12 bps tighter.

Now that is credit volatility.

The analogies to 2008 are slightly off mark.

This latest storm that is brewing in the bowels of the bond markets could be worse than 2008.

This time around there are no silver bullets left; there is no panacea.

To call this latest market turbulence an extension of the 2008 crisis would be a misnomer.

This crisis dates back to the easy credit that former Fed Chairman Alan Greenspan provided to the markets in 2001.

That easy credit gave rise to an asset bubble over the following years culminating in the mortgage meltdown of 2008.

Enter Fed Chairman Ben Bernanke and his proclivity to print money.

Loose monetary policy bought the markets time to continue to appreciate despite underlying weakness in the real economy.

By taking its eye off the fiscal ball and over-focusing on monetary policy, the administration's response to the economic malaise did not help.

And now Europe's credit chickens are coming home to roost, reminding investors how tenuous the global economic "recovery" remains.

Little remarked about has been the beating that many funds have taken recently.

A wave of redemptions will be coming due soon with investors pulling their money out of these funds.

That will likely lead to a further leg lower in the markets.

The equilibrium for the markets clearly appears to be lower.

Legendary investor Jeremy Grantham has been making this case consistently for years based on historical P/E valuations.

If the pattern of the past few days holds (complacency one day followed by a sell-off the next), Friday could be another down day.

Advance retail sales and University of Michigan consumer confidence numbers are out on Friday.

IG16: 116 (unchanged)

HY16 (trades on price, not spread): 93 ½ (equivalent to -12 bps tighter)

UST10: 2.33% (10 year Treasury yield; 16 bps wider; price and yield move in opposite directions)