We're in a Bear Market

Getting back to "Kudlow & Company," I thought the first segment of the show, which incorporated a Fed discussion with Bill Ford, Lyle Gramley and Wayne Angell, was the single best learning experience I have ever had on CNBC as Sir Larry's experienced and informed panelists were straightforward in their visions of the current economic landscape and recommendations on how the Fed should proceed. (Note: Though the attached tape of the segment is for subscribers only, it's worth the price of admission.)

On the show, I told Larry that one can attempt to solve the market's riddle (and future direction) by distilling it into one question: How much of the past prosperity of the last five to seven years in the real economy and in the financial vehicles that rule the universe (i.e., hedge funds) was based on the unusual creation of debt and leverage?

To make matters worse, we are now moving from an environment of high liquidity and low volatility to a period of low liquidity and high volatility. That means rapid and unpredictable market swings, not business as usual (or at least as usual as the last five years).

I went on to say that this decline has exposed the irrelevant rating agencies, opaque quants, misguided and momentum-based funds of funds as well as the avaricious packagers of stupid products on Wall Street. All will pay a price in this cycle. What I didn't have the chance to say is that all of the recent developments will likely serve the 2008 election to the Democrats on a silver platter, providing yet another headwind.