Subprime's Salvation Is Fed's Conundrum

On the flipside, Halliburton(HAL - Cramer's Take - Stockpickr) gave lower first-quarter earnings guidance, sending its stock down 5.8%.

See No Credit Crunch

Similar to hedge funds that provided rescue loans to energy companies El Paso(EP - Cramer's Take - Stockpickr) and Williams Cos.(WMB - Cramer's Take - Stockpickr) in 2003, Farallon may be betting that its $200 million loan will help Accredited get through this subprime storm. It may think Accredited is one of the good eggs with solid assets behind it and that it'll be sold or come out the other end a decent company.

Maybe. But there is no question that Farallon, which gets 13% annual interest on the five-year loan plus a payment of 3.3 million in-the-money warrants, is partly banking on liquidity in the stock market to help its cause. On the warrants, which give Farallon the right to buy the stock at $10 per share, the hedge fund already made about $2.6 million, or 8%, just on Tuesday. That's the "in-the-money" part as the stock opened Tuesday over $10 per share and closed up 20.3% at $10.77. Volume was about five times its average as Accredited has become a day-trader favorite.

So "there is no evidence of any seizure of liquidity," says Michael Darda, chief economist at MKM Partners. "This narrow space [subprime] where risk was mispriced doesn't mean credit or liquidity is not available."

Spreads, or risk premiums, are also still tight in high-yield bonds. Commodity indices are recording new highs. Unit labor costs have hit a six-year high, and core inflation remains stubbornly above the Fed's so-called comfort zone. Likewise, industrial output is snapping back, and jobless claims are falling back to lower levels.