To a lesser extent than in February, this morning the Shanghai flu is back. Today, Bloomberg News reports, the Shanghai Composite Index plunged 6.8% after the Chinese government raised a stock trading tax there to cool economic growth. And U.S. futures are down in sympathy. TheStreet.com reports that S&P 500 futures were down 6.5 points at 1516 and were 3.5 points under fair value. Nasdaq futures were losing 8.3 points to 1898.25 and were 5.4 points below fair value.

The same pattern -- a decline in Shanghai leading the U.S. to tumble -- took place on February 27th. Then an 8.8% drop in the Shanghai index sparked a global decline, including a 416-point drop in the Dow in the worst day for U.S. stocks since the resumption of trading following the 9/11 attack in 2001.

As I posted over the weekend, the big problem we face is that our market is linked to Shanghai's -- which is heavily dependent on superstitious individual traders. I really don't think that we can do much about the Shanghai market but I wonder whether we can do more to delink our market from Shanghai's.

Otherwise, when a butterfly flaps its wings in Shanghai, it will unleash a hurricane in U.S. markets. And that will not be good for anyone.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

If hoards of novice retail investors pouring money into the market is the sign of a top (It sure was in the early 2000's in the United States), investors in China may in trouble. The Shanghai Composite Index was up 130% in 2006 and another 50% so far this year, and according to the Associated Press, "Nationwide, the number of trading accounts has soared by 30 percent over the past year to 95 million, one-sixth of them opened in the past four months, according to the China Securities Depository and Clearing Corp., which is owned by China's two stock exchanges."

The average Chinese household saves about 40% of its income but savings accounts only pay about 3% -- so it's natural that they would look to a booming market to earn excess returns. And while earnings growth is strong in China, the market's price/earnings ratio of over 40 may not be sustainable (In fact, I would say that it isn't sustainable), so company's will need to continue to grow rapidly to avoid deflating stock prices.

It's been said that the time to get out of the market is when making money gets too easy. With cleaning ladies doubling their money in two months, the Chinese market is looking a little too easy.

If anyone on Wall Street is up at this hour, they were probably holding their collective breath as the clock ticked toward the open of China's markets today. Would more losses come out of the East? Would the Dow enter a spiral, instead of a "correction"? And at the opening bell, the Shanghai Composite was, indeed, down. But soon the market rallied and, by the end of the trading day, a nice 3.94% gain had been registered for a close of 2881.07.

You can let out your breath, now. Well, maybe not entirely; though China is doing well for the moment, Japan's Nikkei 225 Index fell 2.85%, or 515.80 points, to close at 17,604.12. Markets throughout Asia, in fact, were down in amounts ranging from tiny (Sri Lanka) to severe (the Phillipines), but for Taiwan (up 0.02%) and China.

What would Europe do? Evidently, continue along the downward path. At the FTSE's market open, the index fell, and at 3:24 a.m. EST was already down 2.31%. Will the markets keep tumbling, each one in reaction to the other, like so many global dominoes? Or will the U.S. again follow China and bounce back? Either way, the Dow Jones Industrial Average is still awfully close to record territory; I think we have a few percentage points to fiddle with before I'm hitting any panic buttons.

If we didn't need reminding, this morning's news from China and Afghanistan re-alerts us to how sudden turbulence from afar can smack financial markets.

The Shanghai Composite Index tumbled 8.8% today on fears of new Chinese government austerity measures. And other Asian markets slumped in harmony. Meanwhile, the Dow opened down 134 points and the NASDAQ fell 45.

But that's not all. This morning also featured a failed assassination attempt on Vice President Cheney in Afghanistan. And US saber rattling against Iran raises the possibility that the price of oil could hit $125 a barrel in the event of a US air strike on Iran. The reason is that Iran could blockade the 20-mile wide Straits of Hormuz through which 40% of the world's oil exports must flow in order to reach the market.

Meanwhile a weak durable goods orders report is reinforcing fears stoked by former Fed Chair Alan Greenspan that a recession is in the cards for the US economy. With Fannie Mae (NYSE: FNM) announcing this morning that it will tighten its subprime mortgage standards, the hissing sound of a deflating housing bubble just ramped up its decibel level.

No wonder Americans would rather bury their heads in news of Anna Nicole Smith and Britney Spears. And for frightened investors, the best refuge may be money market funds and gold.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Fannie Mae.