Happy Thanksgiving, fellow Americans! Being a Colorado mountain boy, I've loved the cozy, warm smells of this holiday since I was short enough to win at hide-and-go-seek by just running into the meadow grass. It's cold in them thar Rockies, you know, and nothing sets off the joys of a hot turkey meal better than a cold autumn day.

It was in just such a spirit that I learned to use the day of Thanksgiving to give thanks for what's right in my life. I still do that and pass along the sentiment whenever I can, pointing out our good health, our acceptable wealth, an ample stack of firewood, a car that starts in the morning. All good things, to be sure, but this year there's a glaring gift from above that just can't go without an extra serving of appreciation.

Richard Rhodes wrote in The Rhodes Report on Nov. 11:

What we find ironic about this situation where all markets are higher except for China is that the reason the markets are higher is Chinese industrial production and retail-sales figures. To wit, Chinese factories rose to a 19-month high in October, which isn't surprising, given the massive stimulus that remains in place. This coincides with other figures that show a still-large number of investment projects in the pipeline, rising real-estate spending and a very large increase in loan issuance. If there was a weak spot, it was clearly that exports and imports fell from year-earlier levels for the [12th] month in a row. Obviously, the stimulus is doing its job, but it is doing very little to stimulate the world economy as exports remain weak, as do imports.

We've seen a lot in the financial media recently contending that the reason the US Treasury secretary and other officials claim to support a strong dollar but do nothing to get one, is that they want to help US exporters earn more by keeping the dollar weak. A weak dollar makes American goods cheaper overseas and inflates profits when local currencies are repatriated to dollars.

Let's put that idea to the test. Take a stroll with me through the stores of Japan to see, (A) how many US exporters we find among the offerings and, (B) whether their goods are any cheaper than other fare, thanks to the weak dollar.

If you think the rally has passed you by, that everything's too expensive, and that's too bad because you would have liked to have played the bonanza that government is creating in the health industry, then I've got a stock for you.

Hansen Medical (HNSN) is not for the fainthearted, but it can work in the speculative part of your portfolio. From $30 two years ago to less than $3 now, it qualifies as one of the recession's bargain-bin candidates. So far this year, it's down from $8. As far as the price goes, it's cheap among the cheap.

We shouldn't have been surprised. I'm right now working on a book that exposes anew our corporate-owned government, which didn't change in any way when hope was reported to have prevailed a year ago. The new day in Washington when lobbyists would supposedly take backseats to citizen needs became instead The Washington Post calling last summer the Summer Of The Lobbyist. We're seeing now that insurance industry lobbyists did their work well.

Thus, I wouldn't get too excited about health care reform just yet. The word "historic" has been liberally tossed around everywhere since the House bill passed by five votes on Saturday night, but commentators in other countries noticed before the bill even made it to vote that it's ludicrously light fare compared to citizen health coverage in other countries.

For more than a year now, fundamental analysis of companies has been a waste of time. Stocks have traded as a block, first plummeting in tandem a year ago to March as banks froze up the financial system, then soaring in tandem as the Federal Reserve expanded the monetary supply and made cash worthless as an asset with near zero interest. The latter sent liquidity flooding into stocks, lifting all of them together.

We've seen evidence of this recently. Last week, Apple (AAPL) delivered a superb earnings report that announced its most profitable quarter ever. It sold 10.2 million iPods, 7.4 million iPhones, and 3.1 million Macintosh computers in the quarter. Reports just don't get any better.

Last week saw a subtle but important shift in the way economic data were interpreted. During most of the rally, any improvement in data was heralded as proof that the worst was behind us and the future a ramp upwards with only the degree of incline in question. Merely an upward bias in economic data was enough to give stocks an upward bias as well. Last week, however, more attention was paid to the strength of the data instead of its direction alone. Finally, the market may be asking if the recovery is good enough to justify high stock prices. Over the past two weeks the answer has been, "No."

What could follow on the heels of such a shift is a further backing up from debating the incline of recovery to questioning whether an upward bias is guaranteed after all. With loan defaults rising, jobs about as common as sense in Congress, and central banks eager to pare back stimulus, more people appear to be wondering if another leg down is inevitable.

It looks like the Iran nuclear stand-off as an oil price mover has been pushed out a few weeks. I wrote on Tuesday that the risk of military action against Iran by either the US, Israel, or both is growing, and that such action would cause oil prices to spike.

The Geneva talks concluded Thursday. Iran will admit inspectors from the International Atomic Energy Agency (IAEA) to look at its previously secret enrichment facility near Qom by the middle of this month. While some are pointing to that as major progress, it's not too impressive when you consider that as a signatory to the Nuclear Nonproliferation Treaty (NPT), Iran was already obligated to allow such inspections.

The International Monetary Fund updated its Global Financial Stability Report Wednesday. I received a barrage of emails from analyst cohorts telling me about the green lights provided by the report. I dove in, and came away with less an impression of green lights than a slight flickering of the red from being lit up so brightly for so long. I'll go through some highlights with you, and let you make up your own mind.

The GFSR thinks overall financial sector losses are less than it expected six months ago, but still staggering. "For both banks and other financial institutions, the GFSR calculates that actual and potential writedowns from bad assets such as loans and securities have fallen by some $600 billion over the past six months -- from about $4 trillion to $3.4 trillion, as a lessening in financial stress has narrowed spreads." When was the last time writedowns of $3.4 trillion were considered a pop-the-champagne moment in your experience? It expects US banks to lead the debtors list by incurring about $1 trillion of that sum.

The biggest risk of higher oil prices looks to be the latest storm brewing in the Middle East. Our contention has been that oil prices are destined to slip back to their pre-stock-bounce range once economic reality sets in and demand remains persistently low. To that end, we own a hedge against falling oil prices.

However, the likelihood of military action against Iran by either the US, Israel, or both is growing, and such action would cause oil prices to spike. Let's look at the situation and chance of an attack, and why it would put upward pressure on oil prices.

It's possible that stocks will not be worth their trouble for another many years. We could already be in a range that holds for so long that people simply move beyond stocks as a place they consider storing their money. The stock market could become a distant report for specialists only, much the way most people view esoteric investments like cattle futures. How much does the cattle report factor into the lives of most people you know?

It's already like that here in Japan. For the first five years of the lost decade of the 1990s, individual Japanese investors tried scooping up bargains on every minor bottom. The more nimble among them probably made a few yen in the bounces of 15% in autumn 1990, 40% from summer 1992 to summer 1993, 48% from summer 1995 to summer 1996, and so on. Each was heralded as the start of a new bull market, all proved false. The three bounces just mentioned were followed by respective drops of 45%, 21% then a spike followed by another 32%, and 43%. After eight years of fighting it out in the trenches, most stock investors saw their accounts worth less than half what they had been at the end of the initial drop.

Cash is worthless with rates near zero, and there's a lot of cash out there needing somewhere to go after the many bailouts and injections into the banking system that have not been converted into new lending. Lots of money into the banks with none coming out indicates that banks have taken their free taxpayer money and put it into stocks, creating a self-fulfilling balance sheet improvement tactic. Toxicity on the accounting ledger has come down as stocks have gone up.

That's one way of saying that liquidity is driving the current market, lots of government liquidity. Gluskin Sheff's David Rosenberg, however, wrote on Friday that such talk "is usually a catch-all phrase for 'we have no clue' but it sounds good."

TCW Group Chief Investment Officer Jeffrey Gundlach said at a June 2007 Morningstar conference, "The subprime market is a total unmitigated disaster and it's going to get worse. The delinquency rate is still climbing. At the same time, the ability of people to refinance is also going down. It's just not a very attractive situation." The S&P 500 traded at 1,500 back then.

On Wednesday, in a conference call titled Too Good to Be True, Gundlach said of the current market that it was about to lose momentum, and advised selling on strength when the S&P 500 is over 1,000.

It was always said that come what may, you can count on U.S. consumers. Not these days. For nearly 20 years, consumer spending has outpaced income growth in America. Credit everywhere they turned, the wealth effect of the dot com stock market, and then the ATM-like appeal of rising house prices was enough to make the word "budget" foreign to most Americans. Shop 'til you drop was the rallying cry from coast to coast.

Too bad they did just that. We haven't seen this many dropped consumer corpses in the aisles since John Steinbeck was the contemporary chronicler of American culture.

I wrote here a month ago that Japanese were wondering where talk of recovery was coming from. Japan had just reported its highest unemployment rate in six years at 5.4%, and its total number of jobless at 3.5 million. Credit Suisse Japan chief economist Hiromichi Shirakawa said, "Employment conditions are taking a turn for the worse."

A month later, they still are.

From the current Kelly Letter research stream come these two points.

Doug Kass has been the man of the year as far as market forecasts go because he confidently called a generational low in early March, as most of the herd fretted slipping into the abyss. From 666 on the S&P 500, Kass said we'd see 1050 by late summer or early fall, then take another trip lower. He still thinks so, and says the time frame is right on track. From an article he wrote Wednesday at TheStreet.com:

The following is from Kelly Letter Note 55, sent to subscribers first thing in the morning on Sunday, August 16.

We've been watching US Natural Gas (UNG) as a possible buy to track what we believe will be a gradual increase in the price of natural gas when the economy gets back on an earnest growth path.

After the torrid run higher in the market, I suggest setting trailing stops to guard profits.

After Monday's 1.5% gain, the S&P 500 sports a very overbought RSI of 75. Some points to bear in mind as we poke our heads into the stratosphere of overbought:

Here in Japan, people are wondering where talk of recovery is coming from. The world's second-largest economy just reported a 5.4% unemployment rate, its worst in six years. The total number of jobless in June grew 31% from a year earlier, to 3.5 million.

Word on the street is that big companies massaged the books to make it look like things are getting better, but workers don't see it. Just ask anybody holding down a part-time, unskilled job to make up for a pay reduction or cutback in hours.

Many people have written asking why The Kelly Letter hasn't bought natural gas via UNG yet. The following June 21 article (sent to subscribers), re-displayed here in its entirety, explains why. The addendum at the bottom shows what's happened since we ran the article.

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