The glow is coming off yesterday's huge Fed rate cut. Just as I expected, the market gave back much of yesterday's huge gains.

Investors sent the Dow Jones industrial average down 293 points, or 2.36%, to 12,099.66, while the Nasdaq Composite Index fell 58.30, or 2.57%, to 2,209.66 and the S&P 500 tumbled 32.32, or 2.43%, to 1298.42. Market watchers, who were jubilant yesterday, were downright depressed today.

"This whole market is driven by fear right now,'' James Gaul, a portfolio manager at Boston Advisors LLC told Bloomberg News. "Investors are thinking more and more this will be a long and drawn out recession, and that pulls down commodity prices and energy prices.''

"Clearly there is fear. I would say the needle is pointing more toward fear than greed right now," said
George Shipp, chief investment officer at Scott & Stringfellow, in an interview with the Associated Press.

O.K, we get the picture. People are scared. Fear rules the day.

That's the case for now, but the funny thing is this fear will not last. The slightest good news will send the market skyward yet again.

You can get whiplash watching this market rise and fall.

People who are opposed to the legalization of drugs should consider the following: cocaine is having a better year than the stock market.

This fun fact courtesy of WallStreetFighter paints a very grim picture of the War on Drugs. Addicts are paying more for less-pure Bolivian marching powder. From January through June, the average price per gram of domestic cocaine purchases rose 24% from $95.89 to $118.70, while purity fell. Retail (involving 10 grams or more) prices rose 15% while "mid-level" wholesale prices surged 33% and wholesale (1 kilogram or more) prices jumped 11%.

Cocaine is a helluva drug -- just ask any celebrity. Heck, read any story on TMZ.com about Britney Spears and you'll understand. Supplies are down and demand is steady. That's the type of stable cash-flow business that usually attracts private equity, no?

Now consider that the Dow Jones industrial average rose 10.8% this year. The S&P 500 Index is up 7.98% while the tech-heavy Nasdaq Composite Index has surged more than 14% Cocaine has had a better year than many blue-chip stocks including General Electric Co. (NYSE: GE) (up 10%), News Corp. (NYSE: NWS) (up 5.5%) and Procter & Gamble Co. (NYSE: PG) (up 9.7%). Google Inc.'s (NASDAQ: GOOG) 35% does beat cocaine but not by much.



Unlike most products, cocaine really does sell itself as does pornography. Lots of people -- mostly really bad people -- are getting rich off drugs. Why shouldn't the federal government? Researcher Jon Gettman estimates that the government loses $31.1 billion in taxes because of the prohibition against marijuana, according to the Marijuana Policy Project. You can bet that the figures would be similar for cocaine.

Imagine how much money Uncle Sam could reap if he taxed cocaine or marijuana? What does the War on Drugs cost? Hundreds of millions? That money could be used to fund a real war on drugs -- treating addicts whose lives have been destroyed.

The Dow Jones Industrial Average took 208 point nosedive today as investors' confidence, which already was shaken by the subprime mortgage meltdown, further eroded after Wal-Mart Stores Inc. (NYSE: WMT) Chief Executive H. Lee Scott said people will face "difficult pressure economically."

But wait, there's more.

The world's largest retailer also slashed its earnings forecast for the year. Facing panicky investors, money manager Sentinel Management Inc. asked for permission to halt withdrawals by investors. Financial stocks including Citgroup Inc. (NYSE: C), Merrill Lynch & Co. (NYSE: MER), Fortress Investment Group LLC (NYSE: FIG) and Goldman Sachs Group Inc. (NYSE: GS) took a beating.

Prices paid to producers rose 0.6% in July, higher than the 0.2% gain forecasted by analysts surveyed by Bloomberg. The trade gap narrowed 1.7% to $58.1 billion in June, according to the U.S. Commerce Department. Unlike in previous trading days, the Fed didn't pump more money into the market.

But by about 1:20 p.m. Eastern time, the Dow fell more than 125 points to 13,111.27. The NASDAQ Composite Index was at 2,521.99, down 20.9 points. The S&P 500 dropped 15.47 to 1437.45. These dire numbers make it tough to forget that the market is still up for the year -- at least that's the case for now.

The Chinese stock market has been on an incredible tear in recent months, despite government efforts to restrict credit and clamp down on aggressive speculation. Since December, the Shenzhen Composite Index has gained more than 57%.

However, if you overlay a graph of the Chinese market on that of the NASDAQ Composite Index from around the time the dot-com bubble was bursting seven or so years ago, it appears to paint a picture of a potential train wreck-in-the-making.

In other words, if things hold true to historical form, the parabolic rise we've seen so far in Chinese shares could be reaching its zenith . . . and then it's all downhill from here.

No doubt such a turnaround could have unsettling implications for markets and economies around the globe.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.