S&P Down 25; Dow Down 250 & Farewell to CNBC

The catalyst as we all know for Friday's market drop was the weak August employment report featuring a slide in non-farm payrolls of 4,000. If that wasn't bad enough there were downward revisions totaling a combined 81,000 in June and July payrolls. Manufacturing lost another 46,000 jobs last month and construction lost 22,000. In the household survey, the government estimated that 592,000 people left the labor force (job leavers) and shows an "employment" drop of 316,000. As usual, it's all smoke and mirrors. The real. or traditional unemployment rate if you throw all the so-called adjustments out, is up to around 12% and even the adjusted U.6 measure shows unemployment at well above 8%. The birth/death assumption added 122,000 to non farm payrolls, with - get this -- 15,000 added to construction jobs, which was the same assumption as a year ago when things were a lot better in construction world. Talk about a fairy tale which is what the monthly employment report as been all along. For whatever reason, BLS decided to throw a little fear into the markets by presenting a surprise lower than expected headline payrolls numbers. But anyone half awake at the switch knows there's been growing economic weakness since late last year.

The Friday selloff was unusual in that the usual bounce back failed to materialize after 10 a.m., as the 1-minute chart (below) of the Dow shows:

Employment growth has long been heralded by the bulls as a reason why there was little chance of recession and reason to buy on the dips, if not buy, buy, buy. Factors are coming together for a re-test of the August S&P lows and perhaps a slide down to 1325 (which was an upside resistance point in the Spring of '06. A retest of the March lows on the Dow at around 12,000 would also do plenty of damage -- perhaps as early as this month.

Make no mistake about it, another big market slide will not go unnoticed and without a response from Washington. While GW Bush may not know the difference between APEC and OPEC, The President's Working Group on Fiancial Markets, often referred to as the Plunge Protection Team will be on the case. Bernanke could make an ecstatic utterance and you might see the market turn on a dime. So volatility will reign supreme in the days ahead and given the V shape bottom forged out 3 weeks ago, be prepared for that potentially happening again unless there's total systemic chaos (and we are close to that chaos now).

While odds have increased for a half-point cut in the federal funds rate September 18 (25 bps has long been baked into the cake in fed funds futures), there was disappointment in some circles that the Fed did not immediately ease by the 25 bps Friday morning.

No doubt a rate cut is coming, though Bernanke seems content to sit on his hands and wait until at least the 18th with the usual caveat that if things really fall apart Bernanke will show up with his "tool box" beforehand. The Bernanke Fed wants to portray the illusion, imho, it's not Alan Greenspan, who probably would have cut by at least 75 bps by now. Caught in the cross hair is the reserve currency of the world....

Yep, the dollar -- once again, back at the 80 critial point of reference and no doubt doomed to a steady chiseling. As events unfold and the "de-leveraging" process continues, you can bet that Bernanke will be no better than Greenspan and will bow to everyone from Bush to the hedge fund and will go from garden hose (repos and the like) to the fire hose to try to meet liquidity demands and in a vain attempt to stop recession from deepening. The Fed, not that lower interest rates would cure massive mortgage defaults, is impossibly behind the curve now. They've blown it.

I'll have more on the markets Sunday evening and a special options screen later in the weekend.
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FYI, I extricated myself from my freelance CNBC.com position Friday... just not my cup of tea. CNBC going to have a lot of problems battling Fox is all I will say in this revised post.