Following my update, I have included an article from one of the foremost economic analysts of our time, Ambrose Evans-Pritchard. He called the subprime crisis just 6 months before it hit, and this weekend came out with extraordinary comments about the banking and currency crisis hitting Europe and parts of Asia right now.

The reasons why his warnings are important will be obvious, and it's important to remember that just as the U.S. appeared to be coming out of the Great Depression in 1932, a foreign banking and currency crisis helped to push the U.S. back into a Depression that lasted another eight years. We live in a global economy that is interconnected more than at any point in history, and as difficult as it is already going to be for the U.S. to recover from the recession / depression at hand, any kind of global meltdown will make the recovery that much more complex and lengthy.

Planet Bizarro and Merrill Lynch Predicts a Depression

Seinfeld fans will remember the episode where Jerry refers to people that appear to be the exact opposites of George and Kramer as being from "Planet Bizarro". Planet Bizarro comes from a comic book featuring Superman and Batman. On Planet Bizarro, everything happens exactly opposite to what we are accustomed seeing on Earth. They see bad as good and good as bad. Superman and Batman are villains instead of heroes, and morality is upside down. Sound vaguely familiar to the daily news we're getting?

Trillions are being spent by the US government on bail out after bail out, yet the economy continues to fade away. We’re quickly seeing the excitement from an Obama presidency dissipate, as leading Democrats (from his own party no less) openly question key components of Obama’s $2 trillion economic stimulus program.

As I’ve been writing, the key to turning around the economy is reaching a true floor in the housing market and re-engaging the American consumer, whose purchasing power is responsible for over 70% of our GDP. In turn, these changes will reverse rapidly deteriorating corporate profits, which look to drop over 30% from 2008 levels.

For the last 20 years plus I've been amazed by the vast conflicts of interest that exist on Wall Street and in the financial industry. My first wake-up call was watching my first investment firm implode because of its own internal conflicts and mismanagement of an IPO of a mortgage derivatives fund, brought to us by our new hot shot MBA CEO out of some Ivy League school. That one particular investment brought down a 100 year old firm, and lost our investors at least $50 million (this was when $50 million was a lot of money). The firm was blindsided by the upside potential of this mortgage related, derivatives based, algorithmic program that they felt was hedged in every way possible, and would earn the firm millions in fees over the years.

When the news broke about the $50 billion Ponzi scheme that Bernie Madoff engineered over a twenty to thirty year period, I knew the story rang a bell. I went back through my records and found the original Barron’s article in 2001, written by Erin Arvedlund. Included in her excellent research were quotes from several well known Wall Street veterans where they openly questioned Madoff's ability to consistently generate 15% plus returns, year after year, in good market or bad. All of the warning signs were there, and lots of bright people believed that this guy was running a huge scam. They were right, but no one seemed to care.

I contacted Erin a few days ago about the article and found her comments most interesting. “After I wrote the article, nothing happened. No one contacted me from the SEC or anything. I found that pretty strange….the story just died”.

It's probably the last thing anyone wants to hear so soon after news of the 533,000 lost jobs lost month (announced on Friday) -- but if history is a guide, it's only going to get worse from here.

First, the market rallied 240 points on the much worse than forecast numbers Friday morning, and it appears that the Christmas season bear market rally may have a ways to go. Remember, bear market rallies can be incredibly powerful…much more so than even those in a bull market. Technically speaking, and that’s basically what this rally is, the Dow could go all the way back to 10,500 – 10,800 or so and we would still be in a bear market. I highly doubt this will happen, but the possibility remains. After the 1929 crash, the market had a rally so big that it convinced most people that the worst was behind us, only to ultimately see losses that wiped out 90% of the stock market from its 1929 pre-crash high. The point being, don’t let a bear market rally fool you…regardless of how high this short term move carries us, much lower prices are still to come. Again, more on this later…

This is the scariest market I have ever seen. How can anyone be expected to trust their investments when the market can drop 300 points in less than 30 minutes? Day after day after day this is happening, and if you’re wondering what the heck is going on, what’s causing this massive, never before seen volatility, here’s the answer.

The stock market is expecting something big to happen, and that something “big” is not a positive expectation. As I’ve been writing, the economists and Wall Street analysts are way off on how bad this economy is. It’s almost like they are forecasting a completely different economy, maybe on planet Utopia.

The Wall Street Journal says that the original $700 billion bailout will not be enough (surprise, surprise), which makes it likely that Treasury Secretary Hank Paulson will be forced to go back before Congress and ask for still more money. Just amazing. Congress has a chance to do the right thing and stop this before we send the economy into another Depression. Do any of us think that they have the courage to do this? Outside of Ron Paul and a few others, it’s doubtful, but maybe we’ll see them actually listen to their constituents this time. But hey, who am I kidding?

I recently had a great talk with Wayne Allyn Root, the VP nominee for the Libertarian Party, who, along with presidential nominee Bob Barr, received the second highest vote total in history for their party, which is truly impressive as they were essentially shut out of the process. Why they were not invited into the debates, I have no clue (well, that’s not quite true), but my guess is that in four years, when Mr. Root is hopefully at the head of the Libertarian Party, things will be quite a bit different. Many of you reading this will hear Wayne speak at the upcoming WMI Wealth Conference (Nov 21-24) in Marco Island, FL. According to Wayne, things will only get worse as we abandon our capitalist system and embrace socialism, as evidenced by the ongoing nationalization of our banking system and coming auto industry bailout/takeover. Get ready folks…Wayne is going to rock the house!

"It's the Economy, Stupid."

This now famous line was attributed to George H. Bush's mishandling of his re-election bid, when Bill Clinton's victory turned Bush into a one term president. The economy was in the dumps in the year leading up to the election and Bush seemed oblivious to the recession that the country was entering.

Just a year ago, anyone paying attention would have told you that the big election issue in 2008 would be the war in Iraq. Then, Bear Stearns went under in the spring and 90% of all mortgage companies followed. Once Lehman filed for bankruptcy in September, and the stock market dropped 40%, "Its the economy....stupid" became the central theme of this election as well.