Top 10 Myths of Tuesday's Correction

8. The Fed stands by ready to cut if this gets much worse.

It's become the rallying cry of the bulls: The Fed is cutting! The Fed is cutting!

The problem is that card has already been played and we know how that turned out. The Fed did this during the last recession/market crash (2001-03), and the resulting rampant inflation, unaffordable housing boom, $75 Oil and $750 Gold is what they have to show for it.

Inflation, though moderating, still remains elevated. I suspect the Fed will be somewhat reluctant to open the spigots again anytime soon. Ben Bernanke knows all too well that there is no free lunch. He is well aware that inflation is above all a monetary phenomena.

Hopes for rate cuts are misplaced. If we are to believe the Fed's jawboning, it is inflation, and not stock prices, that has the Fed most worried. That concern is warranted, going by the recent Core CPI and PCE data. Oil, medical care and food prices all remain quite lofty.

9. The market is not forecasting a weakening economy.

For the past six months, I have heard repeatedly that the markets are forecasting economic growth, and that the rally was proof that the economy was not slowing.

Apparently this is part of the "ratchet wrench approach to analysis." It only works in one direction -- e.g., oil is disinflationary coming down, but somehow not inflationary going up, or lower gold prices are proof of low inflation, while higher prices are proof of speculation.

The lack of symmetry is revealing of bias. If you believe that markets discount the future, then it's all but impossible to say that a 500-point intraday drop has no economic significance.