A Bear Growls

Charts: The S&P 500 closed at 1093, down a sickening 2%. The major indexes have all smashed through 50-day moving averages in big volume. All technical indicators have turned negative. The VIX is once again measuring fear as it rockets up; not good news, its pace signals panic. Wall Street can hear a bear’s growl. We’ll know soon enough if it turns into a full-throated roar.

Fundamentals: One of the reasons why General Motors was bailed out is its size. To prevent it from being bailed out in the future the government could force it to lose money and shrink, perhaps by making it illegal to produce cars in popular paint colors like silver. Team Obama is doing something like that to large US banks. The so called Volker Rule takes away banks’ proprietary trading desks, where they make “obscene profits.” Team Obama is reading opinion polls that say reducing bank profits is a political winner and will mitigate the damage caused by the flame out of Obama-Care. Democrats in general are attacking Wall Street, an attempt to regroup after the Obama-Care failure. Sen. Boxer says she will work against Fed Chairman Bernanke getting reappointed: “It is time for Main Street to have a champion at the Fed.” If Bernanke is not reappointed the market will keep tanking. If the Volker Rule is passed the market will keep tanking.

Geopolitics: Al Qaeda is taking over various Talibans and jihadist militias in Pakistan and elsewhere. It is taking over LET, the terror group created by the ISI to go after India. Defense Secretary Gates says that Al Qaeda is stirring animosity between India and Pakistan with terror strikes on both sides of the line of control (military border) in Kashmir. Indian and Pak troops are now sporadically trading fire across the line of control although peace talks are ongoing between the two nations. Because of this the Pak Army has told Gates it cannot attack N. Waziristan or Baluchistan for at least 6 months. N. Waziristan is Al Qaeda headquarters and Baluchistan is another Pak tribal land that is headquarters to Mullah Omar and his Afghan Taliban. In any case, the Pak Army is still bogged down fighting in the Swat Valley and S. Waziristan where 9 bad guys and 1 good guy were killed Friday.