What a wild market.

The data show clearly that very high two-way volatility incidents (4 out of 5 days moving by more than 4%) only occur very rarely. Further, the macro picture is quite grim, with a real estate collapse, banks buried in bad loans, and a general unwillingness to lend due to a lack of accounting transparency.

The 1987 volatility incident suggests that we might rebound soon. If so, there will be plenty of time to get on that train; corporate profits are very unlikely to return to “Dow 14000″ levels within 3-6 months.

The 1929-1933 incidents suggest that we *might* see a vicious circle leading to a 75% decline. There is much less time to get out of a crashing bear-market train than to get onto a bull train leaving the station. And unfortunately I’m no longer optimistic about this government’s ability to prevent such a calamity.

In my opinion the risks outweigh the likely immediate returns.

There is certainly a tendency for politicians to game money supply to try to assure re-election, but a belief in their omnipotent ability to accomplish this is where I find fault in the presidential cycle.

I fell victim to this kind of analysis in early 2001 when the Fed cut rates again. All the historical numbers showed that the stock market “never” went down after x number of rate cuts…yada yada yada…and 18 months later the market was significantly lower.

There is no question that the poles will TRY to juice things and they surely have played almost all of there cards already. What if it doesn’t work this time? How big could the capitulation be if such a major rescue effort doesn’t support the markets?

The reality is that these bailouts will do little to help stave off the major problems over the next 6-12 months. We are in recession and it is getting worse and may be turning global. House prices are not stabilizing – ECRI’s leading index is still heading down! Given that backdrop, I would say that gambling on the presidential cycle or the government’s ability to pull a rabbit out of their hat is extremely aggressive!

Thanks for the update.

Steve