QVM Clients:

The attached letter provides charts showing evidence that we are in, or nearly in, a global bear market for stocks.

Important news events that will impact the coming week are:

1. The rebel victory in Libya tonight. The first impact might be a somewhat lower oil price, as concerns about future oil supply decrease. However, the pace of getting production back on line is uncertain, and while the battle with Gaddafi is over, new battles between factions among the rebels may delay stabilization of the country. As one commentator said, the situation now is like the dog who finally catches the car he was chasing -- what does he do then?

2. Utterances from Merkel of Germany and Sarkozy of France concerning the European financial stability fund, and more importantly the German reluctance to accept creation of Eurobonds. Eurobonds would permit financially weak countries to issue debt backed by Europe (read that as in great part Germany). Markets will be on edge about that. The story there is far from over, and not solved.

3. On Friday, Bernanke is making an important speech in Jackson Hole (titled "Near- and Long-Term Prospects for the U.S. Economy"), on which the market will hang on every word. The Fed has made the unprecedented decision already that the economy needs low interest rates until 2013. Will he announce some further action?

4. Some other data of importance next week, in addition to continuing second quarter earnings reports: Tuesday (July new home sales), Wednesday (July durable goods orders and petroleum stockpiles), Thursday (weekly initial and continuing jobless claims), Friday (Commerce Dept. second quarter revised GDP estimate; and the Thompson Reuters/University of Michigan consumer sentiment index for August)

5. Lastly, the President will be back from vacation soon with some form of plan to be announced for revitalizing the economy. That will have the potential to move markets either way, but the more we talk about the need for government action, the more nervous markets may become.

Looking out a little further, the super-panel in the US will possibly have public leaks of their debate prior to their recommendation in late November. Then the full Congress gets the ball back in their lap, where they must once again make a decision in December. The chance that the battle between the members of the super-panel is likely to be any less bitter and stalemated than the full Congress is unclear at a minimum. The chance that the Congress will be settled enough to approve the super-panel without a nasty fight is low. We should expect some market gyration leading into Thanksgiving and approaching the New Year relating to that mess.

All the while, economists, analysts and central bankers are reducing global economic growth projections in developed and emerging markets alike. Can corporate earnings growth projections be far behind? No. If corporate earnings growth projections decline, can we expect valuation multiples to resist some compression? No.

These factors will quite possibly act as forces tending to keep the short-term momentum on the downside. Defense is the best policy at this time. Better risk entry points probably are farther in the future -- either at lower prices, or at prices that have rebounded sufficiently to allow belief that the market up trend has resumed.