Dear Friend,

Last night, America voted to put junior Illinois Senator Barack Obama in the White House.

“Change has come to America,” said Obama in last night’s victory speech.

He wants to restore patriotism and rebuild America, “calloused hand by calloused hand.”

According to Bloomberg, “Obama inherits the toughest environment for a new president since Franklin D. Roosevelt.”
We don’t doubt it.

The 47-year-old faces a cracked financial system, an economic recession, a raging bear market in stocks and a trillion dollar budget deficit… for starters.

The economy is bigger than the president, says Andrew Gordon in Investor’s Daily Edge. And it is heading “irresistibly down”.

Nowhere is that more apparent than in the labor market.

The economy shed 157,000 non-farming jobs in October. And economists expect…

This from Taipan Publishing’s emerging markets blog:

As climate change and energy independence have headlined a number of events during the past two years of presidential campaigning, I’m happy to see alternative energy back in the investment ring.

Surprisingly, many top-notch European companies see the U.S. as a major growth region for the renewable energy business, and they are coming over in droves to set up shop.

Let’s take a look at just one of the technologies…

This from Taipan Publishing:

’Tis the season of too damn many cocktail parties. I simply don’t have the stamina for so much small talk and gossip, and don’t much care for finger food – or weak drinks.

But this time of year they are simply unavoidable (i.e., my wife makes me go). And so, all too often, I am forced to put…

This from Taipan Publishing:

’Tis the season of too damn many cocktail parties. I simply don’t have the stamina for so much small talk and gossip, and don’t much care for finger food – or weak drinks.

But this time of year they are simply unavoidable (i.e., my wife makes me go). And so, all too often, I am forced to put…

This from Taipan Publishing:

Everything you really need to know is published below the fold. What’s really going on. Who’s lying to you. Who’s going to fail next. And how to capitalize on their nonsense.

Everything.

This concept harkens back to the bad old days when I still lived in the Big Apple and newspapers were made of, well, paper.

Each morning, I would hit the local newsstand for a copy of the Daily News (the Times was a deeper read, but it weighed a good bit more, too, and really was more suitable to hard, end-of-day thinking).
Then I and thousands of my very close personal friends would cram ourselves armpit to elbow into hot lurching subway cars for the ride downtown.

There we would hang on, one handed, to leather straps or wooden handles (later stainless steel, but where’s the joy or mystique in that) and attempt to take in the morning’s critical news.

Knowing that straphangers all folded the paper in half, publishers took to putting the most lurid headlines and leads above the fold. Grotty, boring, critical, details went below, and sports on the back cover.

Being a bit of a contrarian, I have always made a habit of starting below the fold, and I suggest you do the same.

Today for example, “above the fold” may very well be the cable TV talking head or corporate news Web site shouting at you about the global rate cut that most every central bank in the world just executed.

This is not quite the shocking event it is purported to be, as our own Fed Reserve Chairman, Helicopter Ben Bernanke, has been telegraphing his punch for days now.

I will say that the global scope of this move is impressive enough. ’Course, you would have to read on a bit to know that even China’s central bank cut their interbank rate by 27 basis points.

But even that is not the real item you need to pay attention to in today’s paper. That is buried deep below the fold, where Wall Street’s cheerleaders hope you will completely overlook it.

I am speaking of Bank of America’s (NYSE:BAC) complete capitulation to the global recession. We are talking white flag here. Full-blown dishonorable retreat.

For months, Wall Street’s cheerleaders have quibbled as to how there wasn’t really a recession, just a few slower quarters; and how as one of America’s biggest banks (perhaps the biggest these days - it’s so hard to tell anymore) BoA was uniquely positioned to ride out this short-term credit storm.

And then suddenly, two weeks before they were due to report, and on a day when the headlines above the fold were certain to distract readers’ eyes, BoA execs tried sneak out the fact that third-quarter profits were down 68%.

How to Tap the “13F Distribution Plan” for “Free Money” Payouts of $4,570 per Month! After years of giving special treatment to America’s financial elite, the U.S. government is finally helping the “little guy” for a change. Here’s how to put your name on the “Free Money” payout roster…

And that they had to set aside an additional $6.45 billion against further mark-to-market losses.

Oh, and they are halving their dividend.

Wait wait, there’s more: They now completely concede that we are headed into a recession of epic proportions. And to raise enough capital to stay afloat, they are forced to dilute shares with an additional $10 billion offering.

Now one would think that this should shock a few folks who haven’t been paying attention, or are unable to add two and two. Could there truly be anyone who didn’t see this coming?

Apparently there were more than a few investors who were indeed fooled by BoA’s smoke screen, because BAC shares had more than doubled in price since July, which is when I advised readers to buy puts against this stumbling giant.

Indeed, this position looked rather forlorn this summer, when everyone was reading above-the-fold headlines claiming that Washington could and would always cover Big Banking’s naked rear.

Now we know different. Now we know that even the trillion dollars that Washington is raining down on Wall Street is probably still not enough to prevent a marked economic downturn.

And if you turned to the very middle of your paper, or Web site or whatever, where the option and stock prices are listed, you would see that BAC shares are flirting with their 52-week (and five-year) lows again.

And those put option contracts I begged anyone who could add and subtract, and could read the real facts to buy? They hit 214% gains this week.

The devil is always in the details, folks, and the details, the truth, and the profits are always to found below the fold.

Source: The Devil -- and the Profit -- Is in the Details: How to triple your money off Wall Street’s smoke and mirrors 

This from Justice:

FOR BOTH: Given that the U.S. has spent its money, bled its blood, strained its economy, blown up its budgets, and ballooned its deficits on the Iraq War, what are we going to do with Iraq once that war is won -- if it ever is? In other words: We've already made ourselves into imperialists, so can't we just keep the oil? If not, why not... and by the way, how will you respond when a nuclear-tipped Iran comes into play?

FOR OBAMA: In April, you conceded the fact that reductions in capital gains tax rates have historically spurred both economic growth and increased revenue. So how can you square your stated desire to raise capital gains taxes by 20%-28% with your stated desire to boost America’s economy and reduce its deficits? Is that what I can look forward to with Obama-nomics? Do you use water instead of lighter fluid to start your charcoal grill?

FOR MCCAIN: In the past, you’ve talked a lot about The Incredible Disappearing Issue: Immigration Reform. We’ve heard you endlessly advocate “border security,” but what does that really mean? In the spring of 2007, you said, “We’re not going to erect barriers and fences,” yet in Mexico City in July of this year, you said, “The American people want our borders secured... That will require some walls.” You've advocated AND opposed paths to citizenship for illegals already in the U.S. You’ve been on both sides of the guest worker issue -- and even invented some new ones. Do tell, Senator: How do we feel about immigration reform THIS week?

FOR OBAMA: Even in your too-short-to-be-president political career, you’ve managed to amass one of the most lopsidedly hostile records against firearms rights in American political history. Do you not understand the U.S. Constitution, or are you simply willing to ignore it? How am I supposed to defend myself against the jack-booted revenuers you’ll be sending out to collect on all your new taxes? Should I beat them over the head with my phonebook-sized copy of the Emergency Economic Stabilization Act of 2008?

FOR MCCAIN: In recent years you have had some very nice things to say about Fed Chairman Alan Greenspan. Most memorably you said that if Greenspan died in office, you would want to give him dark sunglasses and prop him up a la Weekend at Bernie’s. Humor aside, it is now plain to see that Greenspan was a huge culprit in creating this steaming financial mess we’re in. “The maestro” never came across a deregulation plan he didn’t like; touched off multiple bubbles even while denying they existed; dropped interest rates to 1% and held them there for a year; amassed a remarkable track record as one of the worst forecasters in economic history; and then, as the piece de resistance, suddenly learned plain English in the nick of time to blame everything on his successor! Question being, have you gotten any more savvy with all that’s happened, or are you still willing to let these two-bit financial wizards blow smoke in your ear?

FOR OBAMA: Senator Obama, you are all about “change.” Your campaign has soared above the clouds on the refreshing rhetoric of change. It’s in your slogan: “Change we can believe in.” It’s in all your make-‘em-swoon speeches, woven into delicious phrases like “We are the ones we’ve been waiting for.” And yet how is it, Senator Obama, how can it be, that you came up through one of the most corrupt, glad-handing, backroom-deal-ridden political systems in American history -- I’m speaking here of the infamous Chicago political system -- without actually changing a damn thing? Not only did you fail to repudiate the “Chicago way,” sir; you actually embraced it. You were a staunch backer of Richard Daley, a candidate for the political corruption hall of fame. You made no waves on the way to the top -- only friends. You even won a primary contest by getting a team of lawyers to throw your opponents off the ballot! With all due respect, Senator Obama, you are one of the great rhetoricians of our time. But where is the evidence of this “change” you speak of?

FOR MCCAIN: Earlier this year you flatly stated that Russia should be kicked out of the G8. You were also lightning quick to side with the alarmingly brash Mikheil Saakashvili in the Russia-Georgia conflict, boldly declaring that “We are all Georgians now.” You seem ready and willing to crank up a new cold war with Putin’s Russia, one that could turn “hot” with the wrong misstep... and Russia seems happy to oblige. Putin has already stepped up money and technology transfers with Venezuela and Iran, and shows zero intention of backing down. Senator McCain, we know that you are a “maverick” who “relishes a fight”... but how exactly do you intend to take on a Russian strategy of “dissension and discord” (i.e., wreaking havoc via outside agents like Venezuela and Iran) when American blood and treasure is all but spent? Furthermore, given your legendary belligerence, your shaky medical history and, quite frankly, your 72-year-old heart, why, oh why, did you pick perhaps the least appropriate running mate possible when it comes to following your footsteps on the path to war?

FOR BOTH: Nowhere on your campaign Web sites does it list your reading speed in words per minute. How fast can you read 451 pages of legalese? It must be really fast, because you’re both on record in instant support of the “bailout bill” -- sorry, the Emergency Earmark Act -- damn, I mean the Emergency Economic Stabilization Act -- at every one of its incarnations, from three pages to 451. Do you think the American people are so stupid that they don’t realize that both of you Econ 101-flunking goofballs are endorsing something you don’t fully understand, before you’ve even attempted to read and understand it? And by the way, how do you feel about the billions in funding for things like “mental health treatment,” “rural school aid” and makers of “wooden toy bow-and-arrow sets”? Is this the kind of “fiscal responsibility” we can expect from both of you?

Whew! That felt good.

Source: What Would YOU Ask the Presidential Candidates? (Now's Your Chance...)

Justice Litle isn't fully sold of the bailout. But he says it isn't an option to let Mr. Market sort himself out this time: the US is too leveraged to follow Andrew Mellon's "liquidationist" approach during the Great Depression.

That's why the feds will do whatever it takes to prop up the system... and run the dollar into the ground. And that's why you should buy gold now.

This from Taipan Publishing:

The problem, in a word, is leverage. Rightly or wrongly, we all got leveraged up to the eyeballs these past few years. Not just the Wall Street banks (though they were the worst offenders) but everyone, including U.S. consumers.

As we all know by now the offending financial institutions - be they bought out or bankrupted or absorbed - were leveraged by as much as 30 or 40 to 1. That’s the equivalent of making a $100 bet with two or three bucks in your pocket, declaring yourself “good for it” if the bet goes bad.

So now, thanks to the laxity of Greenspan, Bernanke, the SEC, Congress and others, we’re saddled with “capitalism on the upside and socialism on the downside,” as some have aptly put it. Wall Street’s stupidly big bets have become everybody’s problem.

But you know what? Joe Sixpack got himself nicely leveraged, too.

Spengler of the Asia Times observes, “Leverage is the secret of American wealth. The average American family in 2004 had a net worth of US$448,000 on an income of $43,000, according to the Federal Reserve's survey.”

When Americans talk about their net worth, they are largely talking about two things: the value of their homes and the value of their investment portfolios. Both those numbers are greatly inflated by the built-in leverage of the system.

For example, what is a house worth? Whatever someone is willing to pay for it... the “multiple” of which depends greatly on a few key things. (Like functional credit markets, for one.)

And what is a stock worth? Whatever multiple someone is willing to pay for the company earnings stream... again based on a handful of key factors.

The upshot is that the average American is leveraged, too, by a factor of 10 to 1 or more. And we’re only talking about Americans with positive net worth here -- not to mention the trillions in pension funds.

If the financial house of cards comes crashing down, it doesn’t just crush Wall Street. It crushes Main Street, too. This is what the Cool Hand Lukes who want to say “screw the system” don’t understand: We as a country are too deep in the system to survive its sudden demise. When you’re in up to your neck, you can’t walk away.

The Mellon Plan: Not an Option

Andrew Mellon was the only Treasury secretary to have served under three U.S. presidents. He held office from 1921 to 1932.

After the crash of ’29, as the Great Depression got underway, Mellon made his position known as a “liquidationist.” Mellon’s famous advice in response to the budding ‘30s crisis: “Liquidate labor, liquidate stocks, liquidate farmers.” In short, liquidate everything in sight. Let the weak fail... and let God sort them out.

That’s simply not an option today. Our entire system is built on leverage. That is the Achilles’ heel of modern financial markets.

In normal times, it’s a good thing that a young couple with a promising future can buy a house on 20% down. In normal times, it’s a good thing that a single mother can get a low monthly payment on a car so she can drive to her new job. In normal times, it’s a good thing that an entrepreneur can get a loan to start up a small business.

But all those good things require debt and leverage... on at least one side of the equation, if not both.

Leverage, like debt, is not an inherently bad thing. It’s a tool that can be used or misused. The ability to use leverage efficiently has played a large part in our current prosperity. But as a result, the use of leverage has become too common and too widespread to just say, “liquidate.” We’re in too deep... we no longer have access to the “Mellon plan.”

The Nuclear Option

This is why I think the powers that be will go “nuclear” in a way we haven’t yet seen.

That is to say, when the depth of the danger really hits home... when it sinks in that the viability of the entire system is at stake, and that we are all at risk of being sucked into the deleveraging vortex... the public and political resistance to a full-blown, no-holds-barred rescue will evaporate.

We haven’t seen the full-blown response yet, only shades of it. But it is coming.

On Monday we got news that Wachovia (NYSE:WB), another major American banking institution, would disappear. The Fed took great pains to clarify it was “not a failure” like WaMu (NYSE:WM)... but another giant bites the dust nonetheless. We also got word that Fortis (EBR:FORB), a Belgian bank, is on the brink. (Welcome to the party, Europe.)

In response to all this, the Fed announced plans to pump $630 billion into the global financial system, according to Bloomberg. By the time you read this they may well have pumped a lot more. (Tell me again why $700 billion is supposed to a big number?)

The plumbing of our global financial system is rotten. Pipes are bursting left and right. A bunch of fat-cat bankers may be the ultimate culprits, but we all played a part... and it’s the only system we’ve got.

Really, what other option is there?

We cannot just “ride this out.” We cannot just “let it pass.” Full-on liquidation would be the equivalent of economic and political suicide. It is going to keep getting worse until the powers that be come up with the most dramatic response they can muster.

We haven’t gotten to that point yet. The “nuclear” option -- in terms of flooding the system with enough dollars to flood the Panama Canal, or even writing outright checks for U.S. equities a la Hong Kong in 1998 -- has not been tried.

It’s going to get worse from here. And so the government is going to do more. And they will keep doing more until things have been turned around, at least on paper.

“This Sucker Could Go Down”

“This sucker could go down,” as President Bush so eloquently put it last week.

The U.S. electorate and Congress did not really believe the Commander in Chief, seeing as how he has been so dead wrong on so many other things. They thought the crisis could be handled with a helping of provisos and quid pro quos -- a little urgency with a little temperance, too. They didn’t really believe that the entire global financial system as we know it was at stake.

But, like it or not, it is at stake. As much as I find it surprising to agree with Dubya, this “sucker” really could “go down.” I view this not as a moral assessment, but a structural assessment... like an engineer testing the joints on a suspension bridge and finding it in danger of collapse. It doesn’t matter whether the situation is fair or unfair, or who screwed up the bridge or built it poorly in the first place. It just is what it is.

When the truth sinks in, the powers that be will do all they can to prevent collapse from happening. The blame game will by sidelined by emergency the task at hand.

And how do I know Washington et al haven’t “done all they can” yet? Because the dollar, heading into its twilight days as the world’s reserve currency, has not yet been destroyed.

That’s the final outcome of the von Mises prophecy... the final reality of the Austrian Endgame. And it’s where we are headed. When the dust clears, it may be recognized that we had to pass through this panic point, to reach the height of realization of what’s at stake, before the true “nuclear” measures were implemented.

Gold Shines Here and Now

There are few areas where I’d be willing to buy with both hands right now. There are some incredible bargains out there to be sure. But as the market bleeds, they are just becoming even more incredible.

I still think the “stocks in the stratosphere” scenario as laid out last week is likely to play out, as the flipside of a U.S. dollar meltdown plus hyperinflationary stimulus.

I think that, with the Dow in full-blown crash territory, we are closer to that “nuclear” trigger point now than we were before. It’s a bit of a counterintuitive thing... before we get paper asset lift-off, things have to get bad enough to panic the powers that be into creating the inflationary conditions that fuel lift-off.

In other words, you don’t walk the path of Zimbabwe and Weimar Germany if you can avoid it. A big part of my thesis is that America’s path is predestined -- and we’re being forced onto that path now.

Being a trader at heart, I prefer to buy when the prices of things I like are going up, even when I’m buying for long-term investment purposes.

Today, what’s going up is gold.

Gold stocks aren’t following suit in the short term, but that’s because frightened hedge funds continue to dump assets left and right. We are witnessing a fire sale of epic proportions. I believe that hard on the heels of this we will see a stimulus injection of epic proportions, and that will push a lot of hard assets higher.

So you could do far worse now than to get your hands on gold: physical gold, gold ETFs, gold stocks. That’s the general ranking in order of safety vs. risk. I like them all now. Gold and gold stocks also make a compelling case for a trade from the technical side.

On the fundamental side, as the reality sinks in of what’s ahead of us, I believe gold will punch through its old highs and keep going (and going... and going... and going...).

Keep a cool head, and I’ll do my best to keep you informed.

Source: Why the “Nuclear” Response to the Crisis Is Still Coming... and What to Buy Now