The market took a nosedive yesterday, directly to 1197 support. In addition to the plummet, and sadly for the bulls, volume was high.

Financials have clearly driven this rally. And it makes sense - this rally is being built on a bailout designed to help banks.

Good economic numbers and average earnings helped the rally, but for the most part the indices rallied on the bailout rumor.

All of these ridiculously expensive bailouts have the effect of lowering our sensitivity to crisis. Like a diabetic with insulin resistance: every dose of money raises our tolerance to the psychologically effects of deficits and crisis.

While I don't view Greece as an issue, a slowdown in Europe would be a big deal.

October 3rd was the first trading day of the month, and the S&P 500 dropped 32 points. Yesterday, October 31, the S&P 500 dropped 32 points. Coincidence? Absolutely.

One thing that seems to be missing is the timetable for Greek default. It would be good to know exactly when the Euro-banks have to book the losses.

The stock market always seems to believe best and discount the worst. Any reprieve in bad news is taken as good news. Any good news is good news. No news is good news. Sometimes, even news that is bad, but not AS bad as expected is taken as good news.

The risk for Europe is not doing enough. If you give Greece debt forgiveness of 30%, but Greece still can't make its payments, then you haven't really accomplished anything.

Don't let the financial pundits capitalize on your fears and concerns! They want you to take all of your personal wealth and buy gold bullion.

The loss of the U.S. manufacturing sector is a function of wage arbitrage, made possible by technology and globalization. Tariffs aren't going to change that.

Economists have been extremely inconsistent with their economic projections over the past few months, as their views and outlooks seem to be swayed by their emotional response to the economy and stock market.

Despite the threats that the EU debt crisis may spill over and affect U.S. GDP growth, economic data has come in pretty good lately.

Stocks just ended their worst quarter since the financial crisis. The Nasdaq and S&P 500 each lost more than 12%.

The market collapsed last week. For the past month, I've mentioned how difficult it will be for SPX to break the 1250 hump. And during the first half of September the bulls made a desperate attempt to hurdle the 1250 level.

The bulls managed to bring the SPX within a few percent of 1250 just hours before Ben Bernanke was scheduled to speak. And clearly, the bulls wanted (and were ready to get) QE3. But instead of QE3, Bennie and the Feds announced "Operation Twist."

And investors in the market shouted "SELL!"

After Congressional Republicans sent Fed Chief Bernanke a letter that politely demanded the Fed cease on desist on all stimulus activities, I half expected Bernanke to drop a liquidity bomb on the market yesterday.

The market seems to be expecting Bernanke to do something. Perhaps he will announce the "twist" selling out of short-term Treasuries and buying the long ones.

Ben Bernanke is expected to announce "Operation Twist" this afternoon.

Forgive me if I am forced to delve into Europe and its debt again today.

The market took a pause, finally, and declined roughly a percent yesterday. At the open, the indices gapped down by more than 2%, but a last hour surge by buyers recouped a large portion of those loses.

Volume was below average. And the hardest hit areas were financials (that's why we own ProShares UltraShort Financials ETF (NYSE:SKF)) energy and industrials.

U.S. Money Market funds aren't buying as much Euro-bank debt anymore.

Not only are we failing to get any traction to employment due to the stagnant economy, companies that have screwed up are continuing to shed payroll to get costs in line with their revenues, companies like Bank of America (NYSE:BAC) and Cisco (Nasdaq:CSCO).

It's becoming increasingly likely that Greece will default on its current debt obligations. Germany just doesn't seem to have the will to continue with bailouts. 

Government debt is likely the biggest problem for the stock market these days.

The market tanked on Friday and it appears ready to tank again on Monday. Volume was high as SPX shrank nearly 3% and the bulls lost 1175 support. The declines were everywhere, but financials once again fell the most.

Financials are down 18% in the last three months and 25% in the last six. Big banks have taken the brunt of selling this year and for good reason. Economic conditions have weakened and European nations could still leave the euro zone or declare bankruptcy.

The market blasted higher yesterday and the bulls recovered a lot of lost ground. The volume yesterday wasn't all that strong, but the bulls were able to overcome resistance zones. SPX blasted 3% higher, which put it way past 1175 and took the index all the way up to 1197 resistance.

Now that 1175 has been reclaimed that area needs to be support. I didn't like that SPX went below the 1175 level on Tuesday, but it recovered fast enough to give the bulls a second chance at 1250.

President Obama's upcoming jobs proposal just might be the final piece of the puzzle to guarantee a huge upswing in gold prices and silver prices.

To QE or to not QE? That is the question.

Whether 'tis nobler in the markets to suffer

The slings and arrows of outrageous inflation,

Or to take arms against a sea of deficits,

And through austerity, end them.

Recently, I sat in on a meeting with the top researchers, analysts and investment gurus here at Wyatt Investment Research. In one room sat many decades of investment experience, two MBAs in Finance, and each person with a specific skill-set that's unmatched anywhere outside of a multi-billion dollar i-bank or fund.

When the Federal Reserve announced last week that it would keep interest rates low until mid-2013, it did so despite the dissension of three Fed governors.

Yesterday, one of the dissenting governors, the Philadelphia Fed President Charles Plosser told Bloomberg radio that the Fed's decision to keep rates low for another two years was "the inappropriate policy at an inappropriate time."

I was kind of surprised by this type of strong statement from a sitting Fed president. Most of the time, Fed insiders wait until they're not inside the Fed before they start throwing mud.

President Obama's upcoming jobs proposal just might be the final piece of the puzzle to guarantee a huge upswing in gold prices and silver prices.

Why? Well here's what we know so far:

1. He plans on spending money to create more jobs.
2. He plans on tackling the deficit.

What do we know about his first goal...

"Uncertainty is the worst of all evils until the moment when reality makes us regret uncertainty." - Jean-Baptist Alphonse Karr (1808 - 1890)

The French novelist Alphonse Karr had another apropos quote, "Plus ça change, plus c'est la même chose." Translated this means, 'The more things change the more they stay the same'.

How do his words fit my message today?

According to the Congressional Research Service, the debt ceiling has now been raised 75 times since 1962.

The market stabilized yesterday as a long term support zone was tested. The bulls protected 1250, but the countertrend move higher did not look enthusiastic. This was despite the fact that volume raced higher again on Wednesday and total volume is way above average this week.

The high volume could turn out to be a good thing if the bulls can protect 1250 over the next week or so. But if the bulls lose that support, those additional buyers from earlier in the week will quickly look to cut their losses. And by cutting those losses, there will be another stint of selling that would push the market lower, perhaps by another 10%.

The debt deal in Congress is as good as passed. And yet stocks sold off hard yesterday. And today isn't shaping up to be much better. The reason, in my opinion, has to do with government spending cuts, austerity and what that means for economic growth.

Yesterday, I asked the question "where will new demand come from?" And I recently received a reader question that hits the same theme...

Back in November, I made some predictions about the then upcoming second round of Quantitative Easing, aka QE2.

In short, I predicted that QE2 would disappoint the market. As a consequence, I thought that most asset classes would trend lower as the dollar strengthened.

I hoped that such an action would occur, because I believed, and still believe, that the commodity market still has plenty of upside, but that such a disappointment would create a stellar buying opportunity to load up on my favorite commodities.

I was wrong, of course. Bernanke’s announcement of $600 billion only encouraged the markets higher.

Everything’s more expensive now – which is exactly the type of market movement that’s highly unlikely if not completely impossible under normal circumstances. Normally, if widget X goes up in price, commodity Y and wage Z will fall. Normally, prices don’t all rise at once…

In a speech at George Washington University today, President Obama outlined his proposal to cut the federal deficit by $4 trillion in the next 12 years.

And with $65 trillion in current unfunded liabilities for Medicare, Medicaid and Social Security, it should be no surprise that cuts to these programs are in the works.

Medicare and Medicaid spending alone amount to $12,000 a year per recipient right now. At the current rate, that amount will balloon to $44,000 a year by 2040.

Indeed, according to a study done by Mary Meeker from Kleiner Perkins Caulfield & Byers, the Congressional Budget Office reports that if nothing is done about entitlement and debt, "...entitlement and net interest payments combined will equal all federal revenue by 2025, just 14 years from now."

For over a year now, I’ve casually mentioned that the leadership in the West, including the United States and Europe is not just unwilling to take the steps needed to nurse the economy back to health, but that they’re increasingly incapable of understanding what needs to be done.

Case in point: you can’t turn on your TV, open your email or look at a newspaper today without seeing headlines about the impending United States Federal Government shutdown.

But as I’ve noted, the amounts of money being quibbled over are pretty insignificant.

You can do the math for yourself. The total outstanding Federal deficit is now over $14 trillion.

Divide $33 billion or $40 billion by $14 trillion and you get 0.0023 or 0.0028. Multiply those decimals by 100 to get the percentage.

So, $33 billion and $40 billion amounts to 0.23% and 0.28% of the total Federal deficit. Even with these cuts, the deficit will grow because they’re not even close to the amount of spending reduction we need to actually put the Feds back in the black.

Energy analysts like the well-respected Charles T. Maxwell of Weeden & Co. rightly issue dour warnings about our inability to maintain and/or increase oil production:

“Currently, we are utilizing about 98% of our world crude oil-producing capacity. The system should be considered stressed at a 95% utilization rate. We are no longer investing enough to lift capacity additions above the level of future demand growth on a consistent basis.”

That’s a big problem, because as he says, the demand for oil doesn’t stay still. Each year, oil demand from the developing world increases total demand by 2%. We don’t have very many months left of that kind of oil demand growth.

So, that’s bad.

You might remember that in the late 1970s, early 1980s, gold prices didn’t cease their march until Paul Volcker famously raised the Federal Funds rates to slow down inflation. It’s crazy to think how high he raised rates, but peak rates got up to 20% in 1981.

That pushed Treasuries to yield more than 20%!

I’m certain, of course, that raising interest rates to Volcker levels would result in falling gold prices. I’d love to own an asset that returned 20% a year, regardless of whether it’s called dollars. Heck, if horse manure paid 20% you wouldn’t turn up your nose.

There's no doubt that the Federal government's deficit spending is a problem. Deficit spending is expected to run at approximately 10% this year. And efforts by Congress to force budget cuts by refusing to raise the government's debt ceiling may prove effective in cutting some spending.

It could also cause a big sell-off in Treasury prices if the word "default" starts getting thrown around.

I didn’t pay much attention to President Obama’s State of the Union address on Tuesday night.

Most of my colleagues in this business use these types of major news events as a pump-primer for sales efforts.

But to be honest, I just can’t get myself psyched for this type of marketing opportunity. I see these State of the Union addresses the same way I see the cheerleaders at football games: nice to look at, but really of not much material importance.

Our Federal Government is beyond broke, and they have no coherent plan to either cut spending enough to allow current taxation to start paying down deficits, nor do they have any stated plan to raise taxes to the sky-high levels that would be necessary to fund deficits.

As a result of our Federal Government’s inability to cut spending while at the same time extending Bush era tax cuts, our country’s debt is in danger of being downgraded from its triple-A rating.

What it means: future bond rates will necessarily have to go higher. You don’t get to keep selling low-yield debt when your ability to pay it back is universally recognized as not-quite-prime.

Don’t get me wrong: I’m not saying that we should raise taxes. But I am saying that you can’t cut taxes unless you’re prepared to cut expenses. If it seems like an extreme position, then I take that as good news for my gold and silver holdings.

The Federal Government is even more clueless than I previously suspected.

I’m speaking specifically about a White House commission’s Federal Deficit Reduction plan.

Surprisingly, the White House released this plan earlier this week.

I say “surprisingly” because the plan is so weak, so obviously ineffective - that anyone with the intellectual capacity to know how to read should be completely outraged at this plan.

They should have never let this plan see the light of day.

The Wall Street Journal outlined the underlying problem implicit to this plan:

“Overall, the plan would hold down the growth of the federal debt by roughly $3.8 trillion by 2020, or about half of the $7.7 trillion by which the debt would have otherwise grown by that year, according to commission staff. The current national debt is about $13.7 trillion.”

There's a hidden tug-of-war happening right this minute. On one side stands a massive and hugely popular contestant, with millions of fans and groupies.

And this contestant gets bigger every day, every moment, even. He's closely acquainted with President Obama. He's best buds with Nobel Laureate economist and New York Times columnist Paul Krugman. He and John Maynard Keynes go way back.

You might know him as 'debt' or maybe 'deficit' if you want to get formal about it.

He's currently facing an opponent that no one really pays too much attention to. Sure, they'll pay some token lip service to debt's opponent - but c'mon; who is kidding who? Debt is WAY bigger and more robust than this puny shrimp.

Before I get in trouble - I want to make it crystal clear that I don't have a letter from Federal Reserve Chairman Ben Bernanke.

What I do have is the letter that I would need to see him write in order to convince me to sell my gold and silver and hold dollars instead.

Seeing this letter is not the only condition under which I would sell my precious metals, of course, but since Bernanke is the dollar's Commander in Chief, he certainly has the sway to pursue the types of policies that would turn me dollar bullish.

Without further ado, here's the letter I'm waiting for:

"Dear America,

I'm sorry. I was wrong.