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CNBC's Domm: Today's Agenda in the Markets, With the Benefit of Hindsight

Credit worries cling to the stock market like fleas to a dog.

One of today's headaches came from the Canadian asset-backed commercial paper market which traders here are eyeing nervously. Meanwhile, U.S. brokerage stocks and banks have been pulled into a spiral of selling, amid rumors that any one of the firms is facing credit issues. "They're all getting beaten with the ugly stick today," said Fast Money's Jeff Macke on Power Lunch today.

Another slice of the financial industry was also hit. Shares of mortgage lender Thornburg Mortgage saw a near 50% decline today before the stock was halted for news. The company said it would not accept new lock-in requests for mortgages for four business days. It blamed "unprecedented and irrational sentiment in the secondary mortgage market." Thornburg, facing margin calls, said it was postponing payment of its dividend.

Meanwhile, the Dow lost 207 points to close at 13,028 in rocky trading. The S&P was off 26 and the Nasdaq was off 43 points.

The Canadian story started yesterday when Coventree, a structured finance firm, disclosed it was unable to place asset-backed commercial paper in the market Monday. Since then DBRS, a Canadian rating agency, said 16 other issuers in the market are in the same boat and have requested back up funding from banks, claiming market disruption. Collectively, the Canadian asset-backed commercial paper market totals a bit more than $100 billion. That market in the U.S. is more than $1 trillion.

Why do we care? These markets don't have borders. It's not clear all these issuers will get funding and if they don't, DBRS says if they could slowly start to default. But Reuters reporter Al Yoon, who has covered the credit markets for many years, says the U.S. commercial paper market may have sidestepped the contagion from north of the border. In a report today, he said there are different rules in the U.S. and Canadian that dictate credit terms. He explained that U.S. asset-backed commercial paper conduits can tap liquidity agreements as long as they are not insolvent but Canadian issuers have to show that there is a general market disruption.

"The market is preoccupied with cross-border short term financing. Coventree is kind of the canary in the coal mine for today," said CNBC's Rick Santelli.

In the credit markets today, "there was a lot of non action," Santelli said. "Very few trades pushed these spreads wider. If you look at some of these credit default swaps that were rated triple A thirty days ago, some of those are trading for $0.72 on the dollar."

In a report late yesterday, Bank of America's credit market strategist Jeffrey Rosenberg spelled out what he sees in the asset-backed commercial paper market. "Asset backed commercial paper took center stage in the spread of subprime risks to the broader financial market," he wrote. "Our continued caution on credit ... reflects our concerns that further distress for the market now emanating out of the s short term market could yet be in store, best illustrated by today's late announcement from Coventree of its failure to place its ABCP."

Rosenberg sees further distress for the market and says there could be further pressure on corporate credit spreads. Banks balance sheets could start to balloon with the paper. Also, structured investment vehicles could be forced to sell the same paper, creating more downward price moves leading to further mark-to-market losses.

In another corner of the financials, Sentinel Management, a relatively small cash management firm for institutional investors, was seeking to halt redemptions. CNBC's Steve Liesman reported the story, prompting a statement from the Commodities Futures Trading Commission, which said it was monitoring the situation. The futures exchanges, meanwhile, were seeking other firms to take Sentinel's $1 billion plus portfolio to halt the problem from spreading.

Not All Gloom

On the bright side, there's a new hot tech stock in the market today. VMware, spun out of tech giant EMC , soared above its $29 offer price by more than 75%.

Gloom

Wal-Mart reported quarterly profits today and cut its outlook for the year. The company earned $3.11 billion, or $0.76 per share, at the bottom half of its targeted range. CEO Lee Scott says Wal-Mart isn't performing up to its expectations and said "many customers around the world continue to be under economic pressure."

CNBC's Bertha Coombs listened to Wal-Mart's conference call. Scott, on the call, commented on how consumers are being squeezed by higher costs.

"Wal-mart customers are running out of cash at the end of the month. He talked about how they were paying more for mortgages. Their gas costs are high. They're basically facing higher monthly costs, and the same is true in Canada and Mexico," she said.

Merrill and J.P. Morgan both downgraded the stock to neutral.