I've been so preoccupied with the news here in Bangkok that I've not been paying attention to the markets back home. What a day. Dow down 7.7%? S&P 500 down 8.9% and the NASDAQ down 8.9% also? Declining stocks overwhelmed those advancing by a 7.6 to 1 ratio? The Dow is now at 8,149? To top it all off, the New York Times reports that the recession began last December? So, we're a full year into it? None of this surprises me. What does surprise me is how so many market savy-seers I've relied on in the past to help me better understand where the markets are going are now consistently wrong and/or just as confused, although they won't admit it. But one can tell by what they write from week to week. No real sense of panic has set in yet among the major market participants, and I'm talking about the stock market here, not the credit markets because they are still distressed and panicky. A good example is Jeffrey Saut at Raymond James, whose strategy of buying 'stuff stocks' over the last several years made a lot of money. But now? His strategy notes have become almost schizophrenic. Take Monday's note:

Speaking to “the market advances or refuses to go down following the receipt of bad news,” two stocks that have been in a death spiral for months “coughed up” some pretty horrific news recently, but their share prices actually went up. Not only did they rally, Citigroup (C/$8.29) has gained 172% since a week ago Friday while General Motors (GM/$5.24) tacked on 136%. Moreover, since the October 10, 2008 “capitulation alert,” the economic news has been dour yet stocks have not meaningfully traveled lower.

Now, one could say I was being unfair to Saut, as how could he know what would happen today, especially as he penned this note over the weekend. But that's really the point isn't it? The volatility has been intense and although the market has been appeared to be in a test-retest phase, I don't think that's whats going on. I think the market has lower to go. Why? Manufacturing is a good proxy.

More after the jump.

I've long complained how America doesn't make anything anymore. I've written several times over the last five or six years how America's manufacturing base has been eviscerated under the Bush Administration. And it seems to be accelerating:

Part of the drop may have reflected profit-taking after last week’s surge in stock prices, but it also came in response to new data showing that manufacturing activity dropped to its lowest point in 26 years.

That data is only going to get worse as the situation in Detroit moves from farce stage to out and out calamity. Other than the automakers, Boeing, and the weapons-makers, what else do we manufacture? Some heavy equipment and semiconductors but that doesn't employ a lot of folks.

I just don't see a scenario for a big market rally, as Saut does. Last week was a nice little rise, but we coughed it all up today. When markets rise in the face of bad news, that's the time to look for a nice rally. But when they fall on bad news, it's time to look the other way. I'm afraid we're looking at another down-leg here, as market participants start to factor in the earning devastation that will arise out of the credit crunch.