By Greg Peel

The Dow fell 203 points or 1.6% while the S&P lost 1.5% to 1343 and the Nasdaq dropped 1.4%.

Well, you can't say we haven't been talking about this for a while now, particularly from a couple of weeks ago when the Dow started trying to breach 13,000 and constantly failed. Ditto the Nasdaq and 3000. Indeed, it's a lot easier to come up with reasons why Wall Street took a tumble last night than it has been of late to come up with reasons as to why it hasn't.

Wall Street ran up very sharply from its lows late last year, posting a 20% gain. A 20% straight gain in itself is enough to start talking "breather". The more often Wall Street tried but failed to breach psychological levels, the more likely it was that the buyers would finally relent. Volumes have been insignificant. The US December quarterly earnings season showed signs that earnings growth had likely peaked for now. US economic data have been better, but more recently have waned a little.

Resolution for Greece provided part of the impetus, but the reality is that Greece is far from resolved and probably never will be. Earlier relief has given way to growing fear that Thursday night will bring news that private sector bondholders will not take up the restructure offer to the level of a two-thirds majority required, in which case the Greek government can force a restructure. If that occurs, Greece will have officially defaulted, triggering claim on credit default swaps.

It's a bit of a no brainer that Europe might be looking at a tough medium term future economically given the levels of austerity being imposed across the continent, but rapidly weakening European data releases of late have begun to really drive that point home. Then China steps up to downgrade its GDP growth target to 7.5% from 8.0%. And last night Brazil announced its 2011 GDP result as 2.7% growth, down from 7.5% in 2010. The global economy, it would seem, is slowing.

None of the above should, however, come as much of a surprise. We were hearing talk all last year of how Brazil was slowing from its earlier frenetic pace of growth, to the point of requiring stimulus through easier policy. The Brazilian government last night vowed to step up that easing. Economists have been forecasting a 2012 Chinese growth rate of around 7.5% for many months now, and Beijing's target downgrade only draws attention the fact that all the time the target was 8.0%, Chinese growth never once reached that low (not counting the brief GFC blip). There is a growing school suggesting that a Greek default is probably a good thing in the end.

The Fed has vowed to keep its cash rate at zero out to 2014. Why? Because everything is so fine and dandy? QE3 may have suddenly disappeared out of the rhetoric but Bernanke is yet to sound anything less than cautious over US growth. Japan has stepped up its quantitative easing, and has the UK. And Mario Draghi ? new boy at the ECB ? has been up all night every night printing off fresh new euros ever since he took over the job. Central bank stimulus may provide a safety net for stock and commodity investment, but it also means the economy is in need of stimulus. Is that a reason for prices to fly to the moon?

There have been plenty of traders and investors waiting for exactly this sort of pullback, indeed more than just 200 Dow points, in order to feel more comfortable. Looking locally, the results season just past was not a great one. We may today see the December quarter GDP come in a bit higher than expected but at the end of the day the Aussie, rising costs, rising funding costs and weak financial market activity are all providing headwinds one way or another across all sectors. We are all sick of reading stock analyst reports suggesting "the cycle will shortly turn". It's been the mantra since 2009. Of course the analysts are right, but so is a stopped clock ? twice a day. It's just a matter of when. And "now" does not seem like the "when". Markets globally are trying too hard, after over three years of pain, to call the next raging bull market. Bull markets do not jump out to greet you, they sneak up on you. You will not realise you're in one until you have been for a while.

At lower levels, we can reassess.

Movements in other markets last night came as no surprise for a "risk off" session. The US dollar index rose 0.6% to 79.81 and the Aussie has fallen 1.3 cents to US$1.0544. Traders always turn gold into cash at these times, so gold fell US$34.90 to US$1671.10/oz. Base metals all fell 2-4%, and oil lost US$1.89 to US$122.10/bbl in Brent and US$1.83 to US$104.09/bbl in West Texas.

The US ten-year bond yield fell 6 basis points to 1.94% and the VIX popped up to 21.

The SPI Overnight fell 59 points or 1.4%.

A lot of the fall on Wall Street occurred from the opening bell, with a steady decline throughout the session following. It was not disorderly, and volume, while noticeably higher than in recent times, was far from spectacular. It's the first triple-digit drop in the Dow since December and the first 200 point drop since November. Notably, the selling began in Australia yesterday. Wall Street did not much respond to the Chinese news on Monday night. China is a good excuse but as I have pointed out above, to blame China would be to misunderstand the bigger picture.

Australia's December quarter GDP result will be released this morning.

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