Stocks traded heavy in the morning on the back of weakness out of Europe.

And then the Philly Fed Index numbers came out…

And stocks went over the proverbial cliff.

The S&P stock index closed more than 4% lower on the day (intra-day the S&P plunged almost 6% lower).

Investors clamored for Treasury bonds in a massive flight to quality.

The yield on the 10 year Treasury bond dipped below 2% intra-day (as this letter has long maintained it would).

The dismal Philly Fed Index number points to the obvious: the real economy never quite recovered from the 2008 recession.

Making matters worse, rumors of more European banks facing liquidity and funding issues and extraordinary Federal Reserve meetings injected another dose of fear into the mix.

Liquidity in the bond markets started to resemble the nadir of last week.

An outsider would think that Wall Street was in dire need of laxatives.

"Trader is in the bathroom" was the most common refrain heard by anyone calling in to trade off of a quoted price (the trader was more likely hiding under his desk).

A trader at a large British bank even refused to sell bonds at his own offer level.

The non-finance equivalent would be a car-dealer publicly advertising the sale of a car for amount X but stammering "Wait a minute…the price must be too low if you are willing to buy at that level…I would no longer sell it at level X…"

You know liquidity is poor when dealers not only do not want to bid for bonds, but they are even afraid to offer them.

The one certainty is that players will be glad when it is Friday and the week is over.