As regular readers know too well, a long-running peeve for Zero Hedge has been Goldman's purported ability to take advantage of its huge monopoly in flow trading to the benefit of its prop positions. In fact, Zero Hedge has engaged in direct communication with Goldman in the past on numerous occasions, in which we have alleged that Goldman's prop desk is bad, and Goldman, logically, took the opposite side. We have just learned that Goldman, according to CNBC, is preparing to spin off its entire prop trading division. We consider this a huge victory for capital markets, if indeed this rumor is true, and a huge loss for Goldman, which contrary to representations by Messrs. Viniar, van Praag and others, probably generates well over 50% of its revenue courtesy of some form of interaction with its prop desk. This is a small but critical start to fixing the improprieties of a leaking Chinese Wall" flow-vs-prop problem, that has allowed a two-tiered market to flourish over the past several years.

Mr. Greenspan and Mr. Bernanke have alternatively said over the past decade that monetary policy was not responsible for bubbles, could help deal with the aftermath of bubbles hence it's not the Fed's job to cool the market off, and now over the past couple years Mr. Bernanke (maybe to address the markets' worries) stated that the Fed is very aware of the risks of bubbles associated with excessive liquidity. Still though, it seems to me that the real statement should be: in an over-leveraged system prices of assets respond uniquely to the supply and demand balance for monetary liquidity. Too much cash in the system leads to bubbles, and not enough leads to a collapse. Markets are so highly correlated due to advances in technology, correlation trading, and information circulation, that the system has become completely binary and relying solely on monetary availability.

Yesterday was the inflection, today is the continuation, as the BDIY drops another 7 points to 1,957. Is the dead cat bounce officially over?

• BP Controls Gulf Well That Caused Record Oil Spill (Bloomberg)
• ABC Consumer Comfort index plummet near 2010 low at -50, from -48 week prior (ABC)
• California Democrats Unveil Budget Plan (Reuters)
• Foreclosed on - by the U.S. (WSJ)
• Japan Concerned as Yen Rises Towards 15-year High (Reuters)
• Australia Has Record Trade Surplus on Coal Demand (BusinessWeek)
• Moscow Urged to Ban Grain Exports (FT)
• Bank Rossii Bonds Hit Record $34 Billion in Anti-Inflation Push (BusinessWeek)

Another disconnect is forming out in Europe, where the much more popular overnight lending metric Euribor rose by 0.001% overnight and hit 0.900% for the first time in 2010. At the same time, EUR Libor dropped slightly to 0.83031 from 0.83156. Alas, the latter datapoint seems to be less relevant: as we have long observed, European interbank liquidity is contracting, confirmed by Market News: "On Tuesday, in the ECB's full allotment Main Refinancing Operation banks tapped E155 billion of 1 week liquidity. With this operation replacing a maturing E190 billion MRO, as economists at Citi noted the reduction in overall liquidity in the euro area is continuing." Market News also points out the obvious lack of correlation between Libor and Euribor: "In theory this is likely to carry on feeding through to higher short term money market rates. Euro 3 month LIBOR rates, however, have not risen since July 29, after their prolonged move higher."We hope for Europe's sake that ever increasing reliance on the ECB for all sorts of liquidity requirements, both short and long-term, will be offset by the export boom, which is now unfortunately over, courtesy of a EUR which any day now will be back to the mid/upper 1.30s. The result will be a continuing game of currency devaluation ping pong, so that one quarter Europe can benefit from an export surge, the next one: the US. We also hope, there is someone left out there to import all this stuff. As we saw in China's trade balance data, the trade deficit was a one time affair, and for the third month running China is again running a trade deficit. So just who is this net importer?

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/08/10

Associated Press reports: "A handmade grenade exploded Wednesday near President Mahmoud Ahmadinejad's convoy in western Iran, but the leader was not harmed, a conservative website reported." We are trying to determine just how this news will be spun to push the red futures (probably the first day in two weeks futures have been negative, and one of several times in the past two months this has happened) back into the green.