When Bank of America (BAC) decided to Buy Countrywide last year, I went on record. In my opinion, that was one of the worst mistakes in the history of our Financial Markets. Now, that opinion is starting to prove itself. Review the article here.

Given recent developments, I am going on record again. In my opinion, the decisions of our new administration will lead the US into a Greater Depression. This may be the worst mistake in the history of the United States. The Trillions of dollars spent to buy our way out of this mess will be wasted, and the by-product will stifle the economy for many years to come.

California is facing a financial disaster and I have a solution.

My plan will help California generate approximately $2 Billion of additional income, and that will recur annually. It will also help every other state and our federal government as well. My plan is focused on California, but the implications are broad.

The following recommendation (which I formally submitted on December 7) is intended to save the automotive industry in the United States, to protect the US taxpayer from potential losses, and to shelter the US economy from additional indebtedness and a Greater Depression.

A preliminary read should be made made by anyone who has not yet reviewed the Investment Rate. This is a proprietary long term Demand - Side analysis which has been able to accurately predict long term economic cycles in advance. It suggests that the economy is on the brink of a Greater Depression. If that's true, the US government cannot spend its way out of the current adverse conditions. I have already used the Investment Rate to identify the turn in the economy in October 2002.

For the past few months, I have been making the obvious clear. The FOMC is not cutting rates to spur economic activity.  Instead, the FOMC is cutting rates to alleviate the strain on the banking system as it relates to mortgage defaults.  Lowering interest rates dampens the impact of adjustable rate mortgages and lessens the pressure on the banking system.  The lower rates are, the less strain on the system.

The recent financial meltdown required drastic action.  However, that action may soon be reversed out of the market.  These same absurdly low interest rates have caused serious problems in the past, and private equity interest is beginning to resurface again.

Arguments are being made which suggest that 'fighting this market is like fighting all central banks in the world.'  That clearly seems to be true because they are doing their best to halt the declines in Global markets.  However, those same central banks are also fighting a void in demand that is immediately irreversible.

In addition, fighting the Fed isn't as bad as it is cracked up to be.  In fact, in the past 10 years going with the flow of Interest Rates has been much more prosperous than going against them.  IE, when rates are increasing buy the market, and when rates are declining short the market.  It has worked.  From here people are already talking about more rate cuts.

The Bailout passed by Congress will bankrupt the United States, officially. I have made my position on this subject quite clear. I also offered this proposal a week ago. This proposal is very simple and effective, it limits risk, and does not increase debt burdens on the country. In addition, it quantifies the impact on the market and Wall Street will embrace this defined approach.

Formal Proposal:

1. Develop a Guarantee Trust Organization to protect banks who lend to one another.  This would act as insurance between the banks.  The US Government would guarantee the monies and the risk of default between the banks operating in our banking system would be completely removed from the equation.  This is the primary goal of any and all proposals made thus far, but none tackle the issue directly.  This is a direct influence to encourage activity within the system.
2. Require banks to separate themselves into 'Good Banks' and 'Bad Banks.'  The disposition would be exactly like the purchases of the good assets of Washington Mutual (WM) by JP Morgan (JPM), and the attempted purchase of Wachovia (WB) by Citigroup (C). 
3. The GTO would guarantee lending based on the assets of the Good Bank and not the bad assets.  This would reduce the volume of lending activity overall, but it would also allow the system to operate.  A contraction in the system is required and it will happen regardless of the eventual accepted proposal.  My plan would quantify that contraction.
4. In the event of bank failure the GTO would absorb the assets of the 'Good Bank' to preserve the integrity of the accounts, protect FDIC, and spin those assets off to a willing buyer in the open market.  The 'Bad Bank' and the proceeds from the 'Good Bank' would be left to reconcile in bankruptcy court. Only in the event of bankruptcy would the Good Assets be spun off.
5. The GTO would recoup the guaranteed funds immediately following the sale of the Good Bank in the open Market.  Therefore, the proceeds of the Good Bank would be the net purchase price agreement less the guaranteed funds.  Shareholders of the defunct bank would be left to resolve the remaining assets in bankruptcy court.

This plan is simple, and simple works. The Banking System will be preserved, although it will have contracted. The measure will be quantifiable, and this will please Wall Street and prevent widespread panic. Lending will resume, and the integrity of the Economy will be preserved. Global Economies will also be direct beneficiaries.

Capitulation begets opportunity, and Well Fargo (WFC) is taking advantage of that.

In fact, the Wachovia (WB) deal is an extremely compelling one.  This deal drew a line in the sand, and it separated fire sales from equity deals.  The days of getting something for virtually nothing are probably behind us.  These type of deals may be a thing of the past. 

Fear and Greed are regularly embraced and exploited by professional traders.  At no time has this been more evident than in early September 2008.  Professional traders, hedge fund managers, and specifically short sellers exploited the fear in the Market, and combined with seasonally low volume they were able to compound the result in their favor.

Critically, the economic distress that existed at that time was unusually escalated and the fear in the public eye became the greed of Wall Street.  Right, wrong, or indifferent, this was all perfectly legal.  Unless collusion to deceive can be proven, naked short selling and 'runs' on the banks were not against the law at the time.

The purpose of this proposal is to offer an alternative to Congress.  The current $700 billion proposal burdens taxpayers with excessive risk at the expense of abusive institutions.  The simplicity of this proposal allows its efficiency to take immediate effect with little risk to taxpayers.  The goal is to stabilize the banking system and to re-stabilize the global economy.

To begin with, there were three primary perpetrators in this corruption, and they all should be held accountable.  First, the lack of oversight by the US government was a primary cause, and the government should be held accountable.  Next, the lending institutions who abused the system should not be allowed to profit from its demise; they need to pay for their mistakes.  And the mortgage buyers who speculated on higher housing prices at the expense of moderating risk are also to blame; they should not be given a pass for their mistakes either.

The economic landscape has changed after the 'short selling debacle' causing runs on some of our nation's largest institutions.  The problems stemming from the failure of the CDO - CDS markets are becoming more and more clear.  For those that don't understand the significance, this Market was approximately $46 Trillion in 2006-2007, according to some estimates.  The Treasury is about $5 Trillion, just to offer a comparative analysis.  Translated, banks hold a significant amount of synthetic debt.

I expect the market to increase from current levels.  I think financials might have a tough going, especially the ones that are going to need to sell some assets at pennies on the dollar.  However, companies outside of the financial realm are likely to do fine.  In fact, technology was devastated along with all the rest of this, but I don't know if that devastation was warranted.  In fact, I think it was severely overdone.

No more short selling?  Cox is an idiot.

Before I make general comments, the market reversed above our longer term reversal trigger, it confirmed a longer-term downtrend and establish support, the Market has started to move hgigher from support, and additional upside now looks probable until such time as longer-term resistance levels are tested again.  Thursday was very bullish.  Use 2425 as a general upside target for the NASDAQ.

Small Investors never learn.  This time the result could be much worse than anyone has imagined. 

During the past 26 years, the market and economy were in a longer term up-cycle as illustrated in the chart of the Investment Rate below.  Buying the dips, and buy and hold strategies work extremely well for passive investors over time during the up-cycles demonstrated in the chart.  Market declines are short-lived during longer term up-cycles too, and this eases many concerns; maybe too much.

The debate is escalating.  Wall Street wants to know if the government is going to bail out Fannie Mae (FNM) and Freddie Mac (FRE).  The following article should be considered an opinion.  Given the current financial  condition of these companies and the integral part that they play in our currently struggling economy, the government's hand is being forced. 

The government must step in to protect the solvency of these companies.

The market continues to react to declines in oil prices, and it will almost surely continue to do that until such time as OIL seems to be a non-issue again.  This will only happen when oil dips below a level perceived by the market as 'economically neutral.'  That level, in my opinion, is $100.

My downside target for oil has been and continues to be slightly below $100.

My profession is market timing and analysis, so I consider the task of selecting a strategy that will work perfectly between the first and last day of August quite daunting. Reasonably, a strategy could reach inflection during these respective bookends and fail to show its ultimate potential.

Notwithstanding that challenge, the strategy that I have selected is based on current market trends. In my opinion, the market established a near-term bottom in mid-July and it is now poised to oscillate higher within my defined channel.

A simple predatory accounting policy provides windfall profits for banks at the direct expense of struggling homeowners.  Never before has this deceptive practice been more destructive than in the face of escalating home foreclosures and on the eve of the 3rd major down period in US history.  Recent reports suggest that foreclosures increased by 121% over the past year, and there's no end in sight. This banking practice increases the rate of home foreclosure and creates an avoidable strain on our economy.

The US economy and consumers specifically lose approximately $30 billion every year due to this ongoing predatory practice.  The persons most affected by this practice are the same persons who are already struggling to pay mortgages that were designed to put them in homes they normally could not afford. 

I just finished listening to David Tice, the manager of the Prudent Bear Fund, on CNBC. Immediately following that commentary I had a comment from a member which compared The Prudent Bear fund to The Investment Rate. Please do NOT confuse the logic here.

Earlier this week I made aggressive buy recommendations to all of our subscribers, and those recommendations need further updates.  The recommendations were to buy Fannie Mae (FNM) and Lehman Brothers (LEH) at specific levels (for aggressive accounts only) with the goal of near-term capital appreciation in mind.  Quickly, after those recommendations were made, these stocks appreciated measurably and updates to those recommendations are now necessary.

The following updates reveal my current upside targets for Fannie Mae and Lehman Brothers.  In addition, although we did not recommend Freddie Mac (FRE) directly, we have offered our upside target for Freddie Mac as well because that stock is lumped into this overall strategy and could easily have been chosen along with Fannie Mae and Lehman Brothers.

Almost everyone has been paying close attention to the extreme pessimism surrounding shares of Fannie Mae (FNM) and Freddie Mac (FRE).  The wild swings in these stocks on Friday proved just how intense the short interest is in these companies.  The news during market hours was one thing, but the news coming after the market was another.  Fannie Mae stated that the company has never been better capitalized in its history. 

Obviously they have reached this point because they understand the future risks that potentially could hurt their balance sheet, and probably will.  The proactive managers running Fannie Mae have made conscious decisions to build cash in advance of these potential pitfalls.  That's a very positive sign and a security blanket of sorts as far as I'm concerned.