Is this capitulation?

Holy! We got a brief reprieve yesterday. But today is another brutal carnage on the Wall Street. Dow is down almost 450 points, or 4.1%, Nasdaq down 109 points, 4.94% (!), and S&P off by 57 point, 4.71%. This is breathtaking! Dow is now below 12000. Gold shot up almost 12% and silver up more than 14%. All these was precipitated by the Fed's $85B bailout of AIG. Fear! Is this the final capitulation? It certainly feels like. I have gone though the dot com bust. I thought that was brutal. Lord, Lord, Lord! Please save us!

In my yesterday's post, I analyzed that Corporate sector (Business Sector, outside of the financial) of the US economy is pretty healthy. It is the government sector and household sectors that are debt-ridden and under strain. Judging from retail sales and consumer spending, I think households are starting to de-leverage and repair the balance sheet by cutting spending. But the government sector has yet to show any sign of restrain in spending. That is because the twin wars are costing us dearly. We GOT TO STOP the senseless and wasteful wars! We may not be able to end it abruptly. But certainly we have to start the process of pulling out of Iraq! That is why it is so crucial to elect Obama, and pressure him to rein in defense spending.

I understand why people sell financial stocks. But I don't get it why people are selling shares of perfectly healthy and strong companies such as Intel and Cisco. We are living in fiat money society. Cash is worthless paper. Why sell the income-producing assets (common stock) in exchange to fast depreciating cash?

I guess fear is now the dominant force of the market. I think when everybody is selling assets and demanding cash, (the Fed will keep printing cash to meet the demand), the smart move would be to go against the herd. But you have to have the stomach to take it.

Confidence takes a long time to restore. We are still in the dark tunnel.