I am glad to be doing business in the U.S. and I think that the U.S. is going to emerge from the current crisis stronger and more dominant than ever before. David Leonhardt wrote today in the New York Times that the U.S. is “a power that may not stay so super”. I disagree.

A person would have to be living under a rock not to know that that the U.S. is going through a very rough economic patch. Unfortunately, it is almost certain to get a lot worse before it gets better. But I firmly believe that the U.S. is the most dynamic nation ever and will not only survive this crisis but actually be stronger and better as a result. Maybe my optimism is just wishful thinking, but below are ten reasons that I believe the U.S. will strengthen its economic position as the crisis resolves. While many countries have some of the qualities of the U.S., no country has all of our advantages. It is the unique combination of these qualities that makes the U.S. a special place to do business. So, here goes, my list of why the best is still in front of us.

Advanced Micro Devices Inc. (AMD) will spin off its computer chip plants and receive a cash infusion of as much as $8.4 billion from an Abu Dhabi sovereign wealth fund as the scrappy semiconductor firm struggles to compete with Intel Corp. (INTC), its larger rival.

The Sunnyvale, Calif.-based AMD last week unveiled an “asset lite” strategy that calls for it to sell off its semiconductor-production operations, a move analysts say relieves the smaller chip company of the burden of trying to maintain manufacturing parity with Intel, its much-larger arch rival and neighbor in Silicon Valley.

The Baltic Dry Index has been falling for the past three months, and has been in free fall for the last month. I had originally interpreted that as slackening world demand, particularly by China,  indicating a worldwide economic slowdown.

Now a report from Naked Capitalism suggests that shipping volumes have seized up because of the financial crisis:

Fortune magazine’s Alex Taylor argues that the $25 billion federal loan to the auto industry (approved a couple weeks ago as part of Congress’ continuing resolution to keep the federal government funded for the next few months) shouldn’t be viewed as a “bailout” or “handout”–but rather as “payback” for past, misguided policy strategies that the federal government took toward the auto industry.  I like where Alex goes with that “bad parenting” sort of argument (my emphasis added):

The loans have been denounced by certain apostles of free markets, who believe the industry - given its history of ineptitude - should fend for itself without government aid.

I want to rerun an old post, then add something to it:

Markets Are Not Magic, by Mark Thoma: To listen to some commentators is to believe that markets are the solution to all of our problems. Health care not working? Bring in the private sector. Need to rebuild a war-torn country? Send in the private contractors. Emergency relief after earthquakes, hurricanes, and tornadoes? Wal-Mart (WMT) with a contract is the answer.

After watching its shares plunge more than 20% over the past month, International Business Machines Corp. (IBM) decided to embrace a different strategy with regards to its looming third-quarter profit report: It opted to get out in front of the flood of corporate earnings reports that are headed this way by providing Wall Street with a preview of its third-quarter results.

IBM, otherwise known as “Big Blue,” on Wednesday told Wall Street that it expects to post a better-than-expected adjusted profit of $2.05 a share for the third quarter. That compares with pro forma earnings of $1.68 in the year-ago period and is above the Wall Street consensus forecast of $2.01 a share. Sales for the quarter – which ended last month – were $25.3 billion, up from the $24.1 billion level last year, but below top-line expectations of $26.5 billion.

[Excerpted from Bill Cara's Week-in-Review]

We know that fear sells – even more so than greed. What is happening then is that the people’s emotions are being played by those who are in control of the capital markets. The extreme volatility is telling us that at times the market interventionists are in control and at times we traders are in control. To the average person, it looks like chaos.

Why did Ben Bernanke, widely respected among economists as both a scholar and gentleman, support a rescue plan that very few of his colleagues considered "first-best" or even "second-best"? While there was no firm consensus among economists about precisely what ought to have been done, a plan based on no-strings-attached purchases of difficult-to-value assets by taxpayers was particularly surprising. Here's Greg Mankiw being politely puzzled. Paul Davidson quotes correspondence with Chris Carroll, in which the Hopkins economist admits he wants to:

spur Bernanke to try to provide his own views... My suspicion ...is that he [Bernanke] thinks buying the toxic assets is a bad idea .... I think Bernanke believed all along that a recapitalization was the only effective thing that could be done, but he could not persuade Paulson of that.

Insurance companies have seen their share prices plummet along with those of their investment banking brethren. Fear, however, may have caused some investors to underestimate the value of some insurance companies’ balance sheets. While insurance giants have suffered the blow from subprime exposure, some analysts have begun to emphasize the value in the plain-vanilla investments at the heart of many insurance companies’ investments.

With cleaner balance sheets and more transparent structures, many insurance companies have been surprisingly resilient in the face of financial crisis. This trend has been mirrored in our Sector Momentum Rankings and the performance of the PowerShares Dynamic Insurance Portfolio (PIC). From September 3 to October 1, PIC moved from the No. 24 position in our rankings to the No. 7 position. Year to date, PIC is down less than 15%—a nearly 12% improvement over that of the S&P 500.

As governments race to preserve “liquidity” for small, medium and large business at their local banks, what is an information technology, clean tech or alternative energy company to do if they need to raise capital? And what’s become of the subordinated debt market if the senior debt market has shut tight?

The evidence south of the border is that some specialty finance firms are pulling in their horns (see prior post “Barron’s says the credit crunch is now hitting venture debt” Aug 19-08 and Friday’s WSJ article “Silicon Valley Finds It Isn’t Immune From Credit Crisis“). In many cases, this is due to actions at the very same lenders that are allegedly turning off the taps in the credit markets. Not that this all wasn’t foreseeable, as it truly was (see prior post “Next stop: Corporate Subprime?” March 25-07), but it is still a shame for it to actually happen.

Note: You can click through on any of the graphs to see a larger image.

Once upon a time, in a land far, far away, there lived an old wizard named Greenspan. Great and mysterious power had he; love and fear he inspired in equal measure. His name was known throughout the land.

This great Greenspan had strange habits. He would slumber in his bathtub for hours at a stretch, dreaming of scrap metal and interest rates and other alchemical subjects. He hid behind enormous, uncomely glasses, so that his visage might be obscured. His speech was magical too. His words were like flying insects—right there before you, plain as day—but if you tried to truly grasp them with your mind, their substance disappeared and you found yourself with only questions. These charmed words seldom organized themselves into rational sentences. They were more like riddles, or nonsense, or spells. His deceptiveness should have been a clue and a warning, but it went unheeded.

The folks at Stratfor offer consistently interesting commentaries on many areas of interest -- except when the firm over-reaches their original remit (geo-politics), and stretches into matters beyond their core expertise, such as finance.

“This notion that great misadventures are the work of great and devious adventurers, and the latter can and must be found if we are to be saved, is a popular one of our time. Since the search for the architect of the Wall Street debacle, we have had a hue and cry for the man who let the Russians into Western Europe, the man who lost China, and the man who thwarted MacArthur in Korea. While this may be a harmless avocation, it does not suggest an especially good view of historical processes. No one was responsible for the great Wall Street Crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decisions of thousands of individuals. The latter were not led to the slaughter. They were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich. There were many Wall Streeters who helped foster this insanity, and some of them will appear among the heroes of these pages. There was none who caused it.”

            -    From ‘The Great Crash: 1929’ by John Kenneth Galbraith

Think of the moment in the original Star Wars when the bad guys destroy Princess Leia's home planet of Alderaan with a single blast from the Death Star. Just then, back on Tatooine, Obi-Wan Kenobi shudders and says "I felt a great disturbance in the Force, as if millions of voices suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened."

We've had a similar sensation here over the last few days as the latest data on mutual fund outflows reveal a time-honored pattern: When individual investors (and, yes, their panicky advisors) simply can't take the pain any longer, they dump stocks very late in the game.* Now, we want to be very clear here. These data alone don't imply a bottom any more than any other single indicator can. Especially when forced selling seems dominant and the credit markets remain broken.

In Elliott Wave terms the S&P 500 is in wave 3 of 3 down. I will attempt to explain this in terms those not familiar with Elliott Wave can understand. Here goes:

Wave 3's are long and strong and unrelenting. They can be in either direction. When wave 3 is headed up, everyone is waiting for a pullback to get in. That pullback never occurs.