It's early in the trading day, but the bulls are already charged up by apparent good news out of China. According to Bloomberg,

production rose 16.1 percent from a year before, the most since March 2008, the statistics bureau said in Beijing today. Retail sales gained an annual 16.2 percent in October, it said. The trade surplus almost doubled from September, to $24 billion, as the slide in exports eased to the slowest pace this year.

Even though they create more than half of nonfarm private gross domestic product and employ half of all private sector employees, small businesses have borne a disproportionate share of the broad dropoff in demand and cutbacks in bank lending. Moreover, because these firms lack the influence-peddling resources of their bigger and better-connected brethren, they have been shut out of many of the "rescues" and stimulus boondoggles that have benefited firms like Goldman Sachs and JPMorgan. Under the circumstances, it's no surprise that, as the leading association representing small and independent businesses reveals in its latest survey, "Small Business Owners [Are] Skeptical of Economic Recovery":

The National Federation of Independent Business Index of Small Business Optimism gained 0.3 points in October, rising to 89.1 (1986=100), 8.1 points higher than the survey’s second lowest reading reached in March (the lowest reading was 80.1 in the second quarter of 1980). In the 1980-82 recession period, the Index was below 90 in only one quarter. In this recession, the Index has been below 90 for six quarters, indicative of the severity of this downturn.

Based on how slowly financial reform is going, how few people and firms have been punished for indiscretions that helped bring about the worst financial crisis this century, and, most of all, how much public money has been thrown its way, it's clear that the financial industry has done a phenomenal job as far as influence peddling is concerned.

That said, if it was just one industry throwing a bit of grease around, it might not be so bad. But the truth is that many of those who have been chosen to serve our interests have completely lost sight of why they were elected, and have instead become enamored with (and beholden to) myriad special interests with big wads of cash competing to win their affections (and their votes).

It's not quite Kübler-Ross' five stages of grief -- in fact, it's more like two -- but it seems that at least some mainstream media types have stopped drinking the Keynesian Kool-Aid. They are beginning to accept that an exponential increase in our nation's debt load could bring us to the point where our nation is forced make the kinds of "choices" -- I use that term loosely -- that used to be reserved for banana republics and failed states (as it happens, that shouldn't be too much of a surprise to those who read one of my earlier posts on the subject). As Newsweek economics columnist Robert J. Samuelson notes in "Up Against a Wall of Debt, Part II," when you owe too much to others, your options suddenly become limited.

Are the United States, Japan, Great Britain, and other first-world nations in danger of defaulting on their debt?

Just over a week ago, Bloomberg revealed in "Geithner Says Commercial Real Estate Woes Won’t Spark Crisis," that the U.S. Treasury Secretary did not appear to be overly concerned about the threat posed by brewing problems in the commercial property sector:

U.S. Treasury Secretary Timothy Geithner said commercial real estate woes won’t set off a new banking crisis, in remarks to the Economic Club of Chicago.

Below is a blog post recap by Yves Smith of Naked Capitalism of a meeting that took place Monday between a group of bloggers (including yours truly) and various Treasury officials, entitled "Curious Meeting at Treasury Department":

It was also striking to see that the Treasury officials lacked a vision for a banking system for the 21st century that was materially different that the one we have now. The flip side is if they did, articulating that publicly might get them accused of doing Communist central planning, but I didn’t hear second level arguments that said they had considered the issue in a serious way, save not winding the clock back to much more on balance sheet intermediation, aka traditional banking, as opposed to “market based credit”. Nevertheless, at a McKinsey alumni meeting months ago, a partner who has been advising the Treasury and Fed told the group that the Administration wants to make being systemically important very costly to force firms to do what is necessary to get out of that category. That of course is structural reform, but we got no acknowledgment of that as an aim. And aside from raising capital requirements more for big firms than smaller ones, it is not clear how far Treasury could go down that path on its own (and strictly regulatory measures can be rolled back by a new Administration).

In a story last month, "The Incredible Shrinking 401(k)," The Motley Fool noted that the retirement backstop many Americans are counting on to ease them through their golden years had not weathered the storm of the past two years very well:

A recent joint report from the Employee Benefit Research Institute and the Investment Company Institute revealed that the average long-term 401(k) account balance fell 24% last year -- and that even includes the money that employees and employers put into their accounts! The study looked at accounts held consistently since 2003 to get an idea of how longer-term investors were faring. The news is even worse when newer accounts are added into the mix -- newer accounts bring the average 401(k) loss in 2008 up to 30.5%.

Just as there is more than one way to skin a cat (apologies to the animal lovers out there), there are myriad ways to illustrate the extent of the economic and financial mess we are in.

As a fan of simple graphs that tell a powerful story, I couldn't resist the urge to highlight two charts featured in a recent post by the Sudden Debt blog, entitled "A More 'Personal' Look At Debt":

In my earlier post, "Bad C's," I highlighted a few reports that lent further weight to the notion that the financial sector has not been a paragon of virtue, to put it mildly. Yet while many banks and brokers have engaged in some pretty bad behavior -- which, among other things, helped bring about the worst financial crisis this century --they are apparently not the exceptions to the rule, as a jr. deputy accountant reveals in "Accounting 'Irregularities' on the Rise in the Recession":

Reuters is reporting accounting fudging and fraud are on the rise in the US as a result of "pressures" for companies to perform despite the hostile economic environment.

Before the era of Frankenstein Finance and the fanatical focus on fee-based income, lenders tried to hold themselves out as models of probity (for the skeptics out there, I did say "try."). Those responsible for making credit-granting decisions and looking after the interests of shareholders also demanded that borrowers meet certain standards before they would see even a dime of their employers' money. These criteria are known as the "5 Cs of Credit," which are the key elements a borrower should have to obtain credit: character (integrity), capacity (sufficient cash flow to service the obligation), capital (net worth), collateral (assets to secure the debt), and conditions (of the borrower and the overall economy).

In an interesting twist of fate, the firms that have traditionally decided who should get credit have been put in the position of needing extraordinary amounts of other people's money just to stay alive. Unfortunately, based on what we've seen so far, including reports like those that follow, it's doubtful whether most, if not all, of today's troubled financial institutions would even qualify for a loan based on traditional measures of suitability -- like "character," for example -- if their friends in high places weren't so intimately involved in the process.

Tuesday morning, the Conference Board reported that confidence among U.S. consumers "unexpectedly" fell for a second month in October, according to Bloomberg. For those who live in the real world (e.g., Financial Armageddon readers), the number shouldn't have been much of a surprise.

Regardless, what I found interesting is the continuing wide disparity between consumers' upbeat views on the future and their bleak assessment of current conditions. I wonder how long will it be before that gap contracts -- most likely as a result of lofty hopes being dashed -- and a more broad-based panic sets in?

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing."
--Former Citigroup (C) CEO Charles Prince (from an exclusive July 2007 Financial Times interview)

After trillions of dollars of losses, the near seizing up of the global financial system, a degree of taxpayer support for and government intervention in the banking sector and other parts of the economy that is unprecedented, and a growing public backlash against Wall Street and the wealthy, you would have thought that those who created the mess we are in would have changed their tune, or at the very least, acknowledged that it was time to reconsider old, bad habits. On the contrary, if the following Reuters report, "Noyer Warns Banks on Excessive Risk," is anything to go by, it appears that the merchants of financial mayhem are up out of their seats, dancing again:

In my earlier post, "Declining Empire, Banana Republic, or Failed State?" the commentators I quoted cited America's profligate ways and growing dependence on borrowed money, especially from lenders based overseas, as one reason for pessimism about our current and future standing. In "Our Drunken Uncle" Investor's Business Daily adds to concerns about the destructive path our nation is on:

Not long ago, it would have been seen as something of a joke or the product of a warped mind to ponder whether the United States is a declining empire, a banana republic, a failed state -- or all three.

But these days, there are plenty of serious and intelligent commentators, including historians, ex-public servants, and journalists, who are not raving lunatics, but who are nonetheless disturbed by what they see taking place in this country.

As a long-time student of the markets, I've learned that traditional "fundamentals" don't always tell the full story. For me, at least, it's also important -- essential, actually -- to take technical, sentiment, and macro factors into account when trying to figure out which way prices are headed.

That doesn't mean I always get it right. In fact, I've had more than my fair share of bad calls, especially when it comes to the shorter-term outlook. Regardless, I've found that my odds tend to improve when the aforementioned elements are all pointing in the same direction.

Many people are cheering the fact that the Dow Jones Industrials Average has reached an apparently signficant milestone -- 10,000 -- and are suggesting that it means good news for Main Street.

Yet even during more "normal" times, the relationship between the stock market and the economy has been rather tenuous, at least in the short run. Think back to the feeding frenzy that was occurring just over two years ago, when clueless traders pushed equity prices to all-time highs as the financial world and the real economy were undoubtedly falling apart.