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Isn’t it inspiring to watch these partisan political speeches on the Senate and House floors? The people falling asleep in the background aren’t props – they get it. These are painful days for American Capitalism.

Bush’s SEC chief, Chris Cox, spent 17 years in those hallowed halls of said “free market capitalism.” Seventeen years in Congress! No wonder why the best thing he has going for him is his hair cut. When it comes to the intricacies of how modern American free markets trade, this guy is proving to have no idea. At the market top in 2007, he eliminated the uptick rule (paving the way for short sellers to sell stocks as they are going down), and now at the market lows of 2008, he blames those same people he empowered, calling them evil doers, and banning short selling altogether. This is both embarrassing and un-American all at the same time.

Last night, Cox and Co., moved the goal posts in the middle of the game again, pushing out the short selling ban to October 17th. This was pseudo expected by most of my contacts in the business, mind you no one had the specific date. This ridiculously random decision making by the said referee of the US stock market makes it virtually impossible for a hedge fund manager who actually manages risk to do so. As a result, my “Beware, October 3rd, 2008” call (www.researchedgellc.com, 9/19/08), renders itself null and void – the dates/rules are being changed so I need to change with them. One of the main drivers of that short term thesis was letting the short selling players back on the field. Instead, they may as well pull up a seat in the back benches of Congress and take a nap while this socialist circus plans its next act.

Over on the Senate floor, they finally passed the bailout vote. Hooray. Now we can slap this toxic waste on the US government’s balance sheet and really dig into what Goldman and Morgan Stanley didn’t want to show their shareholders. Isn’t this great news! Now what?

Contrary to domestically myopic economic beliefs, Asian investors have TVs and this American circus of reactive crisis management is being ‘You Tubed”… they see this emotional and alarmist behavior, and they sell into it. Regionalism is a becoming an unfortunate output as a result – expect it to continue. It remains global this time, but taking care of the locals appears to be a logical priority.

In Japan, the local mess is one of stagflation. The best thing investors can do in Japan is sell what they should have with the Nikkei 23% higher in June. Japanese stocks closed down another -1.9% overnight, despite CNBC’s fanciful notion that if they bring you a television broadcast called “Wall Street Crisis” and give you a “live” look on Asian markets reacting to a US Senate decision that Asians are dumb enough to follow the script of this compromised and perpetually bullish narrative. Japan was the worst performing market, but Taiwan, South Korea, Australia, and Indonesia all closed lower as well. Now what?

In Europe, markets opened stronger, but the “Trend” there remains broken. Markets like Ireland, that have been bludgeoned, are moving 500 basis points at a time, but Irish eyes aint smilin’ with stocks down -55% from their October 2007 peaks. Russia is not participating in the western European dead cat bounce this morning, trading down once again, taking the cumulative loss in the Russian Trading System Index to -52% since May alone. The worrisome combo of the geopolitical risk associated with “Regionalism” and economic growth slowing has former beacons of western capitalist hope (Poland, Ukraine, Romania, Czech, etc…) swooning. Now what?

In Israel, stocks are trading down over -2% this morning as reports are hitting the wires that American soldiers are being stationed “permanently” there for the first time in forever. Consider the tail risk associated with an Obama win, and an Israeli attack on Iran… now what?

I am writing this note from Canada this morning. In Minneapolis and New York yesterday, airports were as dead as I have ever seen them. Within this shameful political cycle, a nasty economic cycle is unwinding. Commodities had their largest down day this week since 1956. The 2nd largest fertilizer company, Mosaic, is trading down -20% pre open. Global travel titan, Marriott Hotels, is guiding down big. Toyota is doing the same. Asian currencies are melting down. Regionalism is challenging free trade. Socialism is challenging capitalism. Now what?

My downside targets for the S&P 500 is moving to 1109.

God Speed,
KM