White House Causes Correction

Charts: The S&P 500 closed at 1092, down .4%. The market is in a correction.

Fundamentals: After Obama-Care flared out the President tacked hard to the left with his proposed tax on bank assets. It is now apparent that the tax would destroy the $3.8 trillion treasury repurchase market, which provides liquidity to money market mutual funds, short term commercial paper, and other short term credit markets. Also, it would prevent the Fed from controlling the overnight target rate, upending the entire economy. The tax is so poorly designed it will singlehandedly plunge the world back into the Great Recession if enacted. Today’s decline was led by large cap financials.
China made yet another move to tighten monetary policy Tuesday. China is very aware that the sequence leading to Japan’s two decade decline started with a real estate bubble popping. China will not let its real estate market turn into a bubble no matter what.

Geopolitics: In his most recent audio tape Osama bin Laden attacked Israel. Whenever Al-Qaeda attacks Israel it is a sign of desperation. Al-Qaeda’s core belief is that Israel is much less of an impediment to recreating the Great Caliphate than the Saudi royal family and American troops in Muslim countries. Al-Qaeda doesn’t really care about Israel but the rest of the Muslim world does. Team Obama is tentatively starting a new push for Israeli-Palestinian peace talks. The Team needs to get over Obama-Care, stop bashing banks, roll up its sleeves, and focus on these talks because a breakthrough will hurt the bad guys.