Don't Overreact: Obama's Bank Proposal Doomed, Says James Altucher

U.S. stocks were down modestly midday Friday, on track for a third-consecutive decline.  The possible causes for the sell-off are many.

--    It could be a reaction to President Obama's proposed "Volcker Rule" that would prohibit banks from running hedge funds, private equity funds and partaking in the profitable practice of proprietary trading.

--    It could be continued concerns that China is cooling off their red-hot economy.

--    It might also be the increasing opposition to Ben Bernanke's reconfirmation as Federal Reserve chairman.  (We all know how well his cheap money policies have benefited Wall Street.)

Or as James Altucher of Formula Capital says, it might just be "people taking profits after such a great run." Let's face it, stocks rarely appreciate so much and for so long without a correction.

If the market is indeed selling off because of the President's proposal, Altucher believes "this is a total overreaction." He doubts Congress will quickly pass this proposal and/or banks won't find ways around the new rules. 

He's also not sure seeking counsel from Paul Volcker, as President Obama has done, is such a wise idea.  Volcker is viewed as a hero for clamping down on inflation as Federal Reserve chairman in the 1980s.  But not to Altucher.  "Paul Volcker destroyed thousands of small businesses and families all across America," he tells Aaron in the accompanying clip, "when he raised interest rates to close to 20% in the early eighties."

Instead of panicking about the start of a bear market, Altucher says use this dip in bank stocks as a buying opportunity.  By doing so, he points out you'll be following the lead of two of the best investors in the world -- Warren Buffett and John Paulson -- who both have large holdings in some of the largest banks.  Not a bad side of the trade to be on.