Imagine if you will someone who just bought his or her first car. As they leave the dealership they are reminded by the dealer to keep pressure in the tires above some minimum level. The new owner dutifully follows the advice. As soon as the pressure in the tires drops bellow the desired point the owner pumps air and all is well. As the tires get worn out the owner’s frequency of pumping air increases. Then one day the car gets a flat tire. The driver makes it to the service station and starts pumping air into the flat. Unfortunately, no matter how much air he pumps, the tire still goes flat after just a few minutes. Fairly soon the car’s owner will realize that a hole has permanently altered the tire and the previous solution of pumping air will not work. He will have to fix the tire another way.

As you might have already realized, the tire in this story is our economy and the driver can represent any number of government agencies and politicians who advise policy makers on economic decisions. As it appears now, apart from a number of ultra conservative and libertarian politicians, the government’s weapon in fighting the recession has been pumping money into the economy in the form of stimulus and bailouts. So far that has not worked. At some point, and this point might very likely be now, it should be worth asking: "Has the American economy fundamentally changed? Are we pumping air into a flat tire?"

If you are like most people, you probably feel that capitalism has taken a beating this year. You might even think that it’s on the ropes waiting for the final knockout punch. Local far left liberals like Michael Moore and radical socialists abroad have been pointing to America’s recent economic troubles as evidence for the ultimate failure of capitalism. And yes, the recent loan to America’s struggling automakers might seem as yet another triumph of socialism over capitalism.

However, a closer look reveals that capitalism is still way ahead of its competitors. While I concede that American automakers have failed in the current environment, it is no secret that the biggest catalyst for that failure has been the domination of the workforce by the labor unions. And let's face it; labor unions such as the UAW are one of the biggest barriers to free market capitalism. As everyone already knows, foreign owned automakers that manufacture cars in the U.S and are free of unions have been doing significantly better than their unionized American counterparts.

Many novice gamblers who play roulette or other similar casino games at some point in their careers usually conjure up the following simple strategy: Bet $5 on red, if I lose I will double the bet to $10, if I lose that I will bet $20, and so on. Eventually red is bound to hit and then it's payday. This type of strategy known as the Martingale betting system, which was popular in pre-industrial Europe, works by simply doubling the last bet after every lose. Needless to say, the strategy is not very successful even at a fair odds game, which most casino games are anything but. Players who choose to employ such as a strategy on the roulette wheel will at some point be faced with a long streak of black and not be able to post the increasingly large bets.

Stock market investors have a similar strategy known as averaging down. Buy a stock at $50 and wait for it to go up. If it goes to $25 double your investment so that you're breakeven at $37.5. If the stock goes down to $12.5, double the investment again so the breakeven point is at $25. The obvious Achilles Heel of this strategy is that the stock might never go up and any subsequent drop in the stock price will cause catastrophic losses for the investor. Such strategies often bankrupt amateur investors. However, we might expect more from professionals working on our government's economic policies.

In the last few months I have been doing some thinking about what kind of economic and political system we are living under. On paper we are still a market-driven democracy, but in light of recent market and political events it is starting to look more and more questionable.

For example, what kind of economic system would continue to bail out companies that lose billions of dollars each quarter? I can certainly tell you it's not capitalism, which in its purest state is a form of economic Darwinism (only profitable companies survive). Are we becoming more socialist or communist even? Certainly we are not communist, since none of the failing industries have been nationalized. And as far as I understand it, socialism's aim is to provide a safety net for citizens, not for corporations. So what are we left with? We are left with a government without principles or a basic philosophy, a government that arbitrarily decides what companies it wants to save with taxpayer dollars i.e. [[AIG]] and Citigroup (C), and what companies get the axe, i.e. Lehman Brothers. And while on the subject of taxpayer dollars, let us acknowledge that the ability of the government to bail out these failing institutions translates into billions of extra hours ordinary Americans must work to pay their taxes.

Last Friday was shaping up to be another gloomy day in the U.S. markets. The Dow, which attempted to rally during the afternoon, was again down at 2:40pm. Then, at around 3pm, NBC announced that Timothy Geithner would be Obama's pick for Treasury Secretary, and just like that, investors forgot about Citigroup's (C) stock dropping below $4 a share, about the impending collapse of America's auto industry, and about every other issue that has been plaguing the market this year.

By the time the closing bell rang, the Dow had closed up almost 500 points, seemingly based on that one piece of news.

Financial literature and "how to" books about the market are filled with anecdotal advice on catching market bottoms.  And who can blame them.  Investing at or close to a bottom and realizing maximum returns from a sustainable bull market is the eureka scenario for any investor.

A lot of bottom-catching advice is contrarian in nature and goes something like this: If The New York Times declares that a full fledge bear market is upon us, that means that the bottom has been reached.  Or if your aunt Judy has thrown in the towel and liquidated her 401K and mutual funds, it is now time to buy since aunt Judy represents the panic and misunderstanding of the market by the common people.

Let's for a moment travel to one likely version of the near future. The date is November 4, the time around 11pm, and just moments ago all major news networks confirmed that Barack Obama will be the next president of the United States. Index futures plummet on fears that Obama's policies will hurt big business and increase taxes on the very wealthy.

But this is no time to panic. With any change comes opportunity. And with big change, the opportunities can be even more rewarding.

Let's imagine for a moment that someone who earns close to minimum wage receives a credit card with a $150,000 spending limit. Excited by this newfound buying power and concerned that the credit card company might at any time change its mind, this person goes out and spends the full amount. However, since we all know that credit isn't free, the unlucky individual soon receives a bill for the amount spent. Of course, making minimum wage and having no savings, he or she can't possibly pay off the debt. In fact, this person can't even make the minimum payment. For several months the person tries to pay off as much of the debt as they can with little success.

At this point one of two things can happen. If the individual bought tangible goods that retain their value, such as jewelry or cars, the credit card company will confiscate the products and resell them with little or no loss for itself. In this case the owner of the credit card will be the loser since they will forfeit the money that they had already paid off. In another scenario the cardholder buys items that have no real value for confiscation, such as trips, services, and clothes. In this case, the big loser will be the credit card company that has nothing to confiscate and is unlikely to ever get back its 150K from the card holder.

In the beginning of the 2001 film Blow, which told the story of one of the 1970s largest cocaine importers; the father of the boy who would become the cocaine dealer tells him during a family financial crisis “ Money isn't real, George. It doesn't matter. It only seems like it does”.

The line stuck with me. Not in the sense that money isn't important or shouldn't be desired, but that money is an abstract idea, whose value is often disassociated from any practical or economic reality. Ask any professional poker player who during the year will see his or her cash reserves swing wildly, and they will tell you, that if you hold money to be something sacred then you will never make it in the money making game.