Updated from 2:32 p.m. EDT

The stock market tumbled Thursday as traders fixated on the negative implications of falling crude: a slowing global economy.

Update: In the worst decline since June 6, the Dow fell 345 points, or 3%, to 11,188. The S&P lost 3% to 1237 and the Nasdaq fell 3.2% to 2259.

The decline was significant and suggests the S&P will break 1200 before long, says John Roque, senior technical analyst at Natixis Bleichroeder. After being "tremendously oversold" in mid-July, with an accompanying, historic spike in new lows "you shoulda rallied good," Roque said.
"We didn't. [The S&P] couldn't get through 1300. That's bad."

Thursday's surge in weekly jobless claims and weak same-store sales data were cited as the primary catalysts for the slide -- and strength at discounters like Wal-Mart is evidence of a struggling consumer, not a strong one.

Adding to the anxiety, Pimco's Bill Gross is warning about the potential for a "financial tsunami" if the U.S. government doesn't do much more to bail out both lenders and borrowers alike: "If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury -- not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions," Gross writes.

In addition, a series of other developments in recent days have offset stronger-than-expected reports on ISM services, productivity and factors orders, as well as last week's GDP report, including:

• The ECB's downgrade of growth expectations, and a rate cut by the Australian central bank.
• Warnings from Corning and Ciena about slowing spending, and cautious comments about the cell phone market from Qualcomm's CEO.
• Terex's warning about waning demand for construction equipment from Europe and the U.S.
• Sluggish auto sales, most notably from Ford while GM's 49% owned financing unit, GMAC, slashed workers and announced cutbacks on mortgage lending.
• Snags in Lehman Brothers talks with the Korean Development Bank (KDB) over both price and KDB's potential partners in a consortium.

Given all that, on the heels of last week's cautious comments from Dell, Toyota, Diageo, and others, and it's no surprise traders are coalescing around the "slowing global economy" theme.

Stocks began September with an upside flourish thanks to tumbling oil prices and renewed deal talk for Lehman Brothers.

In recent trading, the Dow was up 1.75%, the S&P higher by 1.4% and the Nasdaq was up 1.6%.

Stock futures pointed to the strong opening after crude futures plummeted to under $110 per barrel after Hurricane Gustav proved less-destructive-than-feared to offshore oil installations.

Falling commodity prices -- gold also fell sharply early Tuesday -- reflect both traders renewed comfort with owning stocks, as well as a slowing global economy. It is this latter point that should provide some caveats to the excitement being expressed Tuesday morning.

In addition, the stock market is not cheap (and arguably expensive) based on both trailing P/Es and cyclically adjusted earnings, as Henry and I discuss in the accompanying video.

"The time to be aggressively bullish was at the mid-July 'lows', not here," writes Raymond James strategist Jeffrey Saut, who sees a near-term move to 1,320-1,330 if the S&P can close above its Aug. 11 high of 1,305.

In sum, stocks looks better positioned as a short-term trade vs. a long-term investment.

Just last week, several leading global players in different industries either cut forecasts or warned about slowing growth, including: Toyota, Dell, Samsung, Sony and Diageo.

But the emerging market growth story is alive and well, according to Joseph Brusuelas, chief economist and VP of global strategy at Merk Investments, who notes central banks in places like China are "under enormous pressure to maintain growth and employment," even if it means letting inflationary pressures run.

At the same time, a "structural shift" in the emerging and developing worlds means "demand for commodities, energy and oil will continue to increase," Brusuelas predicts.

In other words, the recent trend of a rising dollar and falling commodity prices is "transitory," he says, and is recommending Merk's fund managers position themselves accordingly.

Change your direction.

You ain't gonna change it.

Can't rearrange it.

Can't stand the pain.

Failing miserably to build on Thursday's big rally, major averages tumbled into the weekend leaving some (older) traders humming a few bars of Aerosmith's classic "Same Old Song and Dance." (It's from 1974!)

Weak personal income data and Dell's disappointment were cited as catalysts for daily declines of 1.2% each for the Dow and S&P, and 1.6% for the Nasdaq. But Friday's setback marked a repeat of the prevailing pattern where sustainable gains remain elusive and seemingly every up day is met with an equal (if not greater) down day. A bear market is what a bear market does.

Actually, Friday was a reversal of the pattern seen in the month of August, which itself was a reversal of the prior several months. (So a reversal of the reversal. Got that?)

August was characterized by strength in stocks - led by consumer discretionary and tech names - and the dollar, accompanied by weakness in commodities; most notably oil, which fell 22% from its mid-summer high before finding a floor.

For the month, the Dow rose 1.5% while the S&P gained 1.3% and the Nasdaq climbed 1.8%. Consumer Discretionary was the best August performer among the S&P's 10 industry groups with an 8.1% rise, according to Bloomberg.

At this point, August's advance - and the bounce off the mid-July lows - can best be described as a bear market rally. I mean, do you really think hotel, retail and restaurant stocks can continue to lead given the trends of falling personal income, higher inflation and rising unemployment?

Still, bear market rallies tend to be impressive and last longer than most traders expect. That being the case, and with many pundits already talking about how September is historically the worst month for stocks, there's probably more gains to be had before the bear reasserts itself. (Strength in September and October would probably surprise the most traders, something the market has a proclivity to do.)

In the very short term, there's a lot of economic data packed into next week's holiday-shortened week: construction spending, factory orders, ISM reports on services and manufacturing, plus Friday's all-important jobs report.

On that note, a healthy and happy holiday weekend to all, and thank you for tuning in and helping make "Tech Ticker's" first seven months a success. It's been a great ride so far. (Now, if we can stick around half as long as Aerosmith, that will be something. )

Although interest rates remain historically low, Brusuelas says deficits definitely do matter from an economic perspective. The U.S. current account and fiscal deficits (a.k.a. the twin deficits) have directly resulted in "reduced purchasing power of the U.S. dollar" since 2002, meaning "higher inflation and a reduced standard of living for all Americans," he says. (The economist - who helps set strategy for the Merk Hard Currency fund - is not a believer the dollar's recent bounce is sustainable.)

Looking ahead, Brusuelas sees the U.S. federal deficit reaching $550 billion to $600 billion in fiscal 2009, which begins Oct. 1, up from the CBO's estimated $400 billion deficit in fiscal 2008.

In addition to increased spending by whoever becomes President, Brusuelas sees a likely need to aid the FDIC with problem banks, as well as potential bailouts of GM and/or Ford. And let's not forget, the official federal deficit stats don't count "off the book" transactions to fund the wars in Iraq and Afghanistan, he notes.

As bad as that sounds (and is) Brusuelas says what he calls "Globalization 2.0" is being characterized by emerging market economies spending more money at home on infrastructure vs. exporting deflation and capital to the U.S. as in "1.0."

"The free ride we've gotten from the global economy visa vis massive injections of [foreign] capital may not hold," he warns. As a reult, Americans should brace themselves for having to work longer, with reduced benefits while likely paying higher interest rates and taxes. (Good times!)

In the end, and going forward, deficits very much do matter.

Updated from 6:00 a.m. EDT

Lost a bit amid vacations, stay-cations and the Democratic convention, a series of reports this week have shown the U.S. economy to be in not as terrible shape as many believed.

A trio of reports Monday and Tuesday showed some glimmers of hope that the housing market's descent has slowed - a key first step toward a bottom (however tentative.)

Wednesday and Thursday brought more unambiguously positive data - at least the headlines - in the form of stronger-than-expected reports on July durable goods and second-quarter GDP.

But "don't get too excited" about the data, says Joseph Brusuelas, chief economist at Merk Investments, a California-based mutual fund family with over $430 million of assets under management.

Update: As Brusuelas predicted in the accompanying video, Friday's personal income and spending data marked a "180 degree" turn from the strong reports earlier in the week.

• Personal income fell 0.7% in July, the sharpest decline since after Hurricane Katrina in August 2005. The consensus was for income to stay flat last month.
• Consumer spending rose 0.2%, as expected. But that's the slowest gain since February, and spending dropped 0.4% on an inflation-adjusted basis, the biggest slide in four years.
• The personal consumption expenditures index rose 4.5%, the steepest since February 1991. Core PCE rose 2.4%, the biggest gain since February 2007 and well above the Fed's "comfort zone"; but don't expect a rate hike anytime soon, as Brusuelas and I discuss in the accompanying video.

As with other economists, Brusuelas notes the 3.3% second-quarter GDP figure was goosed by the one-time factor of tax rebate checks. There will be a "payback" for the fiscal stimulus in the third- and fourth-quarters, the economist says, predicting a very soft holiday shopping season.» More

Whether Hillary Clinton's speech accomplished party unity grabbed the headlines from day two of the Democratic convention in Denver.

But economic issues were also a major theme among the speakers, including Sen. Clinton, who talked about creating "a clean energy economy that will create millions of green-collar jobs."

Energy independence and alternative energy initiatives were also the key theme of a speech by Montana Gov. Brian Schweitzer, who declared: "The petro-dictators will never own American wind and sunshine." (Schweitzer did not, however, give as much attention to "clean coal" technologies, of which he is a big champion.)

Former Virginia governor Mark Warner also talked about alternative energy and generated a flurry in the Twitter community by declaring, "Just think about this: in just four months we will have an administration that actually believes in science."

Henry Blodget says the alternative energy talk was nice, but wonders "where's the beef?" -- i.e., specific policy recommendations, which were lacking amid the rhetoric. Henry also thinks the GOP convention (which, yes, we'll be covering with equal verve) will likely tackle similar themes of energy independence. Still, I wonder if John McCain will focus more on drilling for U.S. oil vs. alternative energy policies, even though he supports such "green" measures.

At this point, there's only one "candidate" who is talking about doing both offshore drilling and pursuing alternative energy policies: Paris Hilton.

From a long-term perspective, Todd Harrison, CEO of Minyanville.com is about a bearish a market watcher as you'll find: He believes the credit crunch is far from over and sees a four -to-five year cycle of deflation that will be good for the dollar, but little else.

For these and other reasons, Harrison is maintaining a 100% cash position in his long-term investment basket, which he calls his "nest egg" that he can't afford to risk losing.

But Harrison also "comes to play [the market] every day" via his short-term trading basket. In the accompanying video, Harrison discusses some of his short-term trades, including a long-side bet on Tech Ticker's parent. Harrison likes Yahoo as a potential takeover candidate -- but not the acquirer you're probably thinking of.

Harrison and I also discuss the challenges hedge fund managers are now facing as the downside of that particular boom begins to claim more and more victims. To wit, he believes the closing of a yet unnamed commodity fund could explain Friday's big slide in oil.

The dollar slipped early Monday and oil rose, interrupting a recent trend of "strong dollar/weak commodities" that some traders say will persist for some time.

Todd Harrison, CEO of Minyanville.com, is among those who believe the dollar -- which is up 8% vs. the euro and 5% vs. the yen since mid-July -- has begun a sustainable rally. After falling vs. other asset classes from 2002 through mid-2008, "the dollar has turned a corner," Harrison says.

Harrison believes the greenback has begun a secular advance based on the strength of the U.S. economy relative to Europe and Japan, as well as foreign investors' desire to see the dollar advance after having lost big on dollar-denominated assets in recent years. The veteran trader and market commentator also believes the U.S. could be heading for a dis/deflationary environment in which the hoarding of dollars could emerge as Americans cut back on consumption and begin to rebuild savings.

The Wall Street Journal also examined the case for a sustainable dollar rally today but (at least) three caveats must be noted:

• The U.S. economy only looks good relative to the weakness in Europe and Asia; it's not strong on an absolute basis as plunging prices in this morning's existing home sales data suggest.
• Ben Bernanke and other Fed officials may talk about their concern about inflation, but their actions don't support the rhetoric. By contrast, the ECB has been willing to sacrifice growth in order to fight inflation.
• Any presumptive bailout of Fannie Mae and Freddie Mac would add about $5 trillion to the debt obligations of the U.S. government, and that can't be good for the long-term value of the currency.

Two disparate events -- the Beijing Olympics and the Russian invasion of Georgia -- are just the latest examples of what Financial Times U.S. managing editor Chrystia Freeland calls a "new age of authoritarianism." Apparently, the end of the Cold War as signaled by the fall of the Berlin Wall in 1989 wasn't quite as complete as the West had hoped.

In the accompanying video, Freeland explains how oil wealth bolsters neo-authoritarian regimes, and how such dependence makes countries like Russia and Venezuela vulnerable. We also discuss what this means for U.S. investors (many of whom turned a blind eye to the run-up to Georgia), as well as how foreign companies can continue to do business with Putin's Russia without simply providing spoils for its kleptocrats.