Dim and distant, but a glimmer nonetheless!

My views on the economy, the stock market, the problems with the banks, the Geithner plan and whether there's light at the end of the tunnel.

The rate of economic contraction will slow from the -6% of the first quarter to a figure closer to -2%. And next year the economic recovery will be so weak--growth below 1% and the unemployment rate peaking at 10%--that it will still feel like a recession even if we may be technically out of it. So, compared with the bullish consensus that sees positive growth at 2% by the third and fourth quarters of this year and a return to potential growth by 2010, my views are consistently more bearish.

Still, compared with the sharp contraction in U.S. and global growth in the first quarter of this year, the rate of economic contraction will slow down for the U.S. and other advanced economies by year-end. That is only a mild improvement in what is still a severe U-shaped recession, with a very weak and tentative recovery by 2010.

The stock market has predicted six out of the last zero economic recoveries. For the last 18 months, we've had six bear market rallies, and at the beginning of each one of these suckers' rallies the delusional perma-bulls repeated that this was the beginning of a bull market rally. And for six times these perma-bulls were totally wrong as the rally fizzled and new lows were reached. And for six times I correctly pointed out that these were bear market rallies.

But such perma-bulls have no shame in showing up over and over again on CNBC and talking up their books and being proved wrong over and over again. As I have never been a "perma-bear," in spite of the "Dr. Doom" nickname, I will be the first one to call the bottom of this severe recession and the bottom of the bear market when I see sustained evidence of robust and consistent economic recovery.

I see the latest rally as another bear market rally, as over the next few months, the news--macro news, earnings news, financial news, corporate default news, financial firms insolvency news and so on--will be worse than expected by the consensus. Look how wobbly the stock market was on Monday when the expected news that the Big Three are in Big Trouble led to a 3% to 4% market fall. Do you listen to Tim Geithner, who says that some banks need "large amounts of assistance," and who is now pushing--like Bernanke--for fast-track Congressional approval of a law that will allow the takeover of systemically important financial institutions and bank holding companies? This market recovery has still very shaky legs, and it will continue to lurch until the U.S. and global economic recovery does occur and is more robust and sustained.

The global economic contraction is still very severe: In the Eurozone and Japan there is no evidence of "green shoots" or positive second derivatives; and in the U.S. and China such evidence is still very, very weak. So investors and markets are way ahead of actual improvements in economic data. And the idea that stock prices are forward-looking and bottom out six to nine months before the end of a recession is incorrect.

First, we've already had six bear market rallies and, despite the "prediction" of stock prices, not a single economic recovery. Second, in 2001 a short and shallow eight-month recession was over by November, but stock prices kept falling for another 16 months until March 2003. This time around, the recession will be of at least 24 months duration--three times as long and five times as deep, in terms of GDP contraction, as the one in 2001. This time the deflationary forces are global, not just in the U.S. and Japan. This time we have the worst financial and banking crisis since the Great Depression, while in 2001 there was no banking crisis. This time we've got the worst housing recession since the Great Depression, with home prices still bound to fall another 15% to 20% for a cumulative fall of 40% to 45%. This time corporate default rates on junk bonds are predicted by Moody's to peak at 20%, not the 13% of the previous recession.

Thus, the idea that a weak U.S. and global recovery with massive deflationary pressures and a severe financial crisis and massive corporate defaults will lead to a robust recovery of earnings and a sharp persistent bull-market rally in equities is totally far-fetched.

As I have argued before, the risk of an L-shaped near-depression will be significantly reduced if aggressive policy actions were undertaken. That risk of near-depression is now lower than it was three months ago--but not gone altogether--as policy makers in the U.S. and globally have finally gotten religion and taken out all their policy bazookas, missiles, rockets and artillery and started to use them.

These more aggressive and front-loaded policies include massive monetary easing and zero policy rates; quantitative easing; unconventional monetary and credit actions to reduce the spread between market rates and government bond yields; significant--if in some cases still insufficient--fiscal policy stimulus; policies to restore credit growth and reduce the credit crunch; policies to clean up toxic assets of banks; policies to recapitalize banks and take over the insolvent ones; policies to reduce the tsunami of foreclosures and reduce the debt servicing and debt burden of distressed households; policies to support emerging market economies under stress; and policies of appropriate regulatory forbearance to restore credit and liquidity in financial market.

These policies will not restore positive growth in advanced economies until next year, but will reduce the rate of economic contraction to a more moderate pace by the end of 2009. Thus, as I noted earlier, the rate of the advanced economies' economic contraction will slow down from the peak contraction of this year's first quarter (-6%) to a more modest contraction in the fourth quarter (-2%) and a very weak positive growth (0% to 1% in U.S., Europe and Japan) in 2010 with still sharply rising unemployment rates peaking at 10% in these advanced economies. This will be an improvement compared with the fourth quarter of 2008 and first quarter of the 2009 collapse of global economic activity, but still a much more bearish scenario than the bullish case of positive and high (2%) growth by the third and fourth quarters and return to potential growth by 2010.

So the road ahead is still very, very bumpy. The worst for the degree of economic contraction may be behind us by the second or third quarter of this year, but there will not be any robust and sustained recovery as the damage of the financial and real excesses of the last few years will have lasting effects on actual and potential growth for the U.S. and global economies. And the burden of trillions of dollars of additional fiscal deficits and debts in advanced and emerging economies will be a drag on actual and potential growth for years to come.

But if aggressive policy actions are accelerated after the G-20 meeting in London, one can expect a slow and painful process of mending the U.S. and global economy that will still take a long time. That will, however, allow us to see the light at the end of the tunnel some time next year, first for the real economies, next for financial markets and finally for the financial system and its wounded institutions

Slowdown in Economic Growth in GDP Growth in 2009

In Q4 2008, economy expanded 5.3%, slowest pace since Q4 2003, (Q3 2008: 7.6%, Q2 2008: 7.9%) due to contracting manufacturing (-0.2%), agriculture (-2.2%) and exports

Growth forecasts revised down: 2008: 7.8% (IMF), 7.4% (ADB), RBI: 7.5%; Govt: 7.1%, i-banks: 5.6-8%, RGE Monitor: 6%. Forecast for 2009: 7.1% (govt); 5.1% (IMF); 7% (ADB); I-banks: 4.3-6.3%, RGE Monitor: 5%

Since December 2008 Govt and central bank have been giving fiscal stimulus package aimed at non-bank financial corporations, infrastructure, housing, SMEs, exporters; reducing taxes, easing credit access. Since September 2008: Central bank continues inject liquidity, ease capital inflows and cut policy rates. Further rate cuts and credit easing, and fiscal stimulus expected in 2009 though close to 10% of GDP of fiscal deficit will limit the latter

Growth, capital expenditure and consumer spending in 2007/08 was fueled by global growth and liquidity boom, capital inflows and asset bubbles. But global credit crunch, risk aversion and Foreign Institutional Investor (FII) sell-off have severely affected domestic liquidity for banks, stock market and real estate correction, bank lending to finance consumer spending and investment. Domestic slowdown will aggravate asset market correction during 2009 and put bank performance at risk

Consumers hit by high inflation, tight lending standards, job losses, slower income growth, negative wealth effect from correction in stock and home prices

Recent boom in capital expenditure (37% of GDP) is being hit as manufacturing and industrial production are declining since December 2008; several investment projects are being canceled/postponed due to capital crunch; corporate earnings have also taken a hit since Q4 2008 on slowing domestic demand, tighter credit, volatile stock market and drying Initial Public Offerings (IPOs), global liquidity crunch that is limiting access to external finance (major source of capital); corporate savings will run down domestic savings while government runs a deficit

External Sector: Exports have been contracting since late-2008 since major export markets (US and EU) are in recession and high growth markets (Asia, Middle-East) are slowing. Financial sector woes in the West are affecting IT service exports. Vulnerability to trade and current account deficits (expected to exceed 10% and 3% of GDP respectively) on high oil import bill of 2008, contracting exports, slowing remittances from the West and Gulf. These factors pose risk to the current account while slowdown in capital inflows (FII outflow, easing FDI on risk aversion, global liquidity crunch) poses risk of financing external deficit. These factors have pushed rupee to a 5-yr low

Food and oil subsidies, pre-election and fiscal stimulus spending are expected to push fiscal deficit to 10% of GDP in FY ending Mar 2009 and over 9% in FY ending Mar 2010; S&P and Fitch have cut ratings to 'negative'. This may raise govt debt issues to over US$70 billion in 2009 raise interest rate and depress bond prices,putting risk of financing twin deficits at a time when capital inflows are already drying up

What others are saying

JP Morgan: Targeted 7.1% GDP growth in 2009 by government would not achievable, since fiscal packages in December 2008 and January 2009 and monetary easing in late-December 2008 need 6 or 9 months to show up in the growth rate

IMF: Significant downside risks to GDP growth in 2008 (6.3%) and 2009 (5.3%) but government measures could be an upside though constrained by the fiscal deficit and large public debt, thereby increasing dependence on monetary policy

Citi: While trend in auto, cement, steel and retail sales in February 2008 expected to be positive, real estate, freight and port traffic as well as march data are still worrisome; hard to achieve 7.1% growth in 2009 

EIU: 7.1% growth in 2009 targeted by government is overly optimistic; Global deleveraging and risk aversion will limit the availability of financing for investment and consumption, which will increase the pain on industrial and services sectors; Despite of struggling by govt. to create enough jobs for labor force, number of unemployed workers would increase (500,000 jobs were lost in Oct-Dec-08); It will play the important role for election in April-09  

Deloitte: India economy has been impacted by four different ways; weak manufacturing, falling exports, revenues of software companies and closing credit tap in banking sector

Morgan Stanley: Recent growth trend above sustainable levels was driven by capital inflows. Stimulus measures won't prevent a deeper slowdown in domestic demand, cost of capital, industrial production and exports

Kotak: India in a two-year cyclical slowdown with slowing saving and investment, but this phase may be short and shallow unless the global economy deteriorates more than expected. But new capacities in mining coming on-stream, large consumption stimulus, high domestic saving base will help sustain reasonable growth. The sharp deterioration in activity Q4 2008 may have got arrested in Jan 2009; fiscal package too small to sustain the current investment and growth cycle and is constrained by fiscal deficit; monetary stimulus will help reduce interest rates but pace of rate cuts will ease

Goldman Sachs :growth will reach a trough in Apr-Jun-09  before recovering by end-FY10; Stimulus would support specific sectors amid the downturn but not enough to reduce impact of slowdown on aggregate demand

WEF: Dependence on capital flows to finance current a/c deficit is a risk; global crisis could cause sharp capital outflows, fall in share and asset prices, reduction in availability of finance

 

Please do leave your comments. Would like to hear from your perspective also.

India's Stock Market in a Bear Market Rally?

 

On March 26 2009 Sensex rose to a 2 month high crossing the 10,000 mark on easing inflation and U.S. market rally.

In spite of some stabilization from 2008 trends, Sensex had fallen 12.65% in 2009 as of mid-March as risk aversion and FII outflows continue. Top10 firms lost over $4 bn from their market capitalization in Feb 2009. Stock market fell over 56% in 2008 from the Jan-08 peak making it one of the worst performing markets among Asia, BRICs and EMs

Stock market will face further risks in 2009 as investor sentiment will continue to trend down amid significant slowdown in GDP growth, domestic demand, lower corporate earnings, political uncertainty, increasing terrorist activities, sharp depreciation of Indian rupee and expected future weakness against USD, and lower dividends forecast for 2009 (on global liquidity crunch, contracting industrial activity though easing commodity prices related cost of production is a plus). Slowing IPOs, capital raising activity by firms is affecting their expansion plans. This will weigh down on investment in 2009 and further flight out of foreign capital from Indian markets

FIIs have sold over $1.8 bn in 2009 as of mid-March and $13 bn in 2008 (after buying $17 bn investment in 2007) and their share in BSE-500 Companies (which a/c for a large share in market cap) has also declined; this is causing rupee depreciation, depletion of forex reserves

Valuations have shown significant correction as P/E ratios are down from a high of 28 in early 2008 to ~9 in early Feb 2009, and are also cheap in terms of  bond/equity yield gap, market cap/GDP relative. But given that corporate earnings will ease further and risks to the corporate sector are to the downside in 2009 on demand slowdown and credit crunch, valuations might fall further making an attractive buying opportunity by end-2009 or early-2010

Q4 2008: Profits for top line of 595 companies grew 17% from 35% in Q3 2008. The bottom line saw net profit fall 21.1% on lower realization for commodities, marked-to-market losses on derivatives exposures and high finance charge

Energy stocks (losses of oil companies), real estate (slowing capital inflows, housing correction), auto (slowing demand), banking (defaults), tech (slowing IT exports), cement, metals, finance along with retail investors have taken a hit

Again, what others are saying have also been quoted. They are as follows:

Stock market regulator: FIIs are lending and borrowing overseas by using offshore derivatives (P-notes) to short sell in the market

UBS : India's benchmark stock index would rise though FY2009/10 due to relative cheap price in March 2009 compare to other markets; Index will increases  as extending a bull market in anticipation of of a recovery in earnings

HSBC :Cheaper valuation, government stimulus plans as well as government pumps about US$ 100billion would rebound stock market; rupee's depreciation again U.S. dollar in 2008 would make overseas investors to attract India's stock market in 2009

Kotak (via bloomberg): Market was already expected the rate cut, the fear now is that govt are running out of measures that they can use to stimulate economy

Fundsupermart: still cautious on India as earnings might slow down further and market is still expensive compared to other Asian markets

Goldman Sachs : Further fall in markets, FII holdings expected as less favorable macro outlook and corporate earnings don't support the high equity valuations

Indian Economy in a Deflationary Mode. Will the Central Bank Continue to Cut rates?

The world is running in circles with this financial crisis that has got all tangled into it without leaving anyone. I know for many this is still a recession stage, but many of the facts point to us that all are in early stage of depression or last stage of recession. But as far as any economy is concerned, all are pointing towards downward growth and India is no exception. Indian economy is in a deflationary mode, but the question is whether central bank will continue to cut rates?

• Easing Inflation: Wholesale Price Index (WPI) slowed to 0.27% (lowest in 33 years) in the week ending March 14 2009 from 0.44% in the week ending March 7 2009 (lowest level in two decades). 2008's base effects, slowing food and fuel prices (fuel price cut in December 2008), commodities, power due to global recession and domestic demand slowdown led the fall in the WPI. But Consumer Price Index (CPI) hasn't eased much compared to WPI (8-11% in mid-March 2009).
• Inflation outlook: While WPI might turn negative by March-end/April on easing supply-side factors, CPI might remain high until late-2009 and might slow only as demand eases. This might constrain rate cuts by RBI. Further cut in fuel prices expected which along with recent cuts in excise and service taxes will drive down inflation further. Credit growth has slowed to 19.6% y/y by mid-Jan 2009. Good agriculture harvest also a positive. Deflationary pressures might continue until the end of 2009
• Mar 4: RBI cut interest rate to 5% from 5.5% (5th time since Oct 2008); reduced reverse repurchase rate to 3.5% from 4% as growth slowed to 5.3% in Q4 2008 along with contracting exports, slowing investment and bank lending. Rate cuts are aimed to provide domestic and FX liquidity, improve credit growth
• Jan 2009: Cash Reserve Ratio(CRR) (5%) unchanged after cutting rates aggressively since late-2008. But RBI extended the special refinance facility and short-term repo facility for banks to meet the funding requirements of MFs, NBFCs and HFCs up to Sep 2009
• Central Bank: "While financial markets continue to function in an orderly manner, India’s growth trajectory has been impacted both by global financial crisis and downturn much deeper and wider than anticipated with declining WPI. Banks should monitor loan portfolio to prevent asset impairment, price risk appropriately but continue to lend to creditworthy enterprises"
• Room to cut rates further since growth forecasts will be revised down amid contracting exports and industrial production (real estate, construction, auto, consumer durables) and slowing capital expenditure and consumer spending, cooling labor market and wage pressures. Aggressive monetary stimulus needs to complement the fiscal stimulus (whose size is constrained by fiscal deficit). Inflation is also trending down sharply giving room for more rate cuts to prevent negative real rates. In spite of liquidity injections, global credit crunch, capital outflows and central bank's foreign exchange interventions are keeping liquidity tight. This is affecting private sector's access to credit as bank lending rates haven't eased much and lending standards to firms and consumers have become stringent. Household and firms' bank Non Performing Assets (NPAs) are rising
• Risks of easing rates: Will exacerbate capital outflows and rupee decline. interbank rates have eased since Q4-08; Will not be sufficient to offset the pull back in private domestic demand in 2009. Banks are also reluctant to cut rates too low, and lend to risky sectors like auto, real estate and are instead preferring to park funds in govt bonds. Aggressive rate cuts, liquidity injection and currency depreciation poses inflation risk during recovery in an economy with structurally strong domestic demand
• Since Oct 2008's liquidity squeeze, spike in overnight call and inter-bank rates and slowing domestic demand, RBI has aggressively cut rates (first time in over 4 years), reducing the amount banks are required to invest in govt bonds to 24% from 25%, easing credit cost and conditions for restructuring loans directed towards small and medium enterprises (SMEs), corporate sector and housing sector, injecting liquidity into banking system, buying back govt bonds, improving credit access to banks, investors, Mutual Funds, easing capital inflows, FX intervention by RBI to contain rupee slide

What others say

• Citi: further interest rate cut or reductions in CRR in April 2009 is expected due to given high fiscal deficits, limited fiscal space, weak macro data, and lowering inflation rate 
• EIU: deflationary impact of global recession and easing commodity prices will persist till 2009-end; central bank is expected to cut interest rate further in Q1 2009
• Kotak: Near-zero WPI may not lead RBI to cut rates since CPI is still high. But quantitative easing by the Fed may lead RBI to step up its open market purchases against large fiscal borrowings but it will still resist private placement of government debt on its balance sheet
• Goldman Sachs: WPI to enter a period of deflation from April until end-2009 due continuing demand destruction and large base effects from 2008. Central bank could cut cash reserve ratio for banks by mid-2009 to provide liquidity but might not cut interest rate further until end of general election in
• Nomura (not Online): Central Bank would cut interest rates in April and June due to soft transmission of stimulus to economy
• DBS: Deterioration in growth is main reason of rate cut; further rate cut expected by April 2009 
• Morgan Stanley: RBI's easing will reduce systemic risks in banking system but won't renew business and consumer sentiment in near-term

CNBC you have to report TRUTH… FIX CNBC!!

If the Jon Stewart vs. Jim Cramer fiasco wasn’t enough to convince you that some content changes are due at CNBC, I’m not sure what will.

As I’ve said a few times here at SF and around the blogosphere, the CNBC we have today isn’t the CNBC that I knew 10 years ago as people say it to me.  There is a larger focus on sensationalism and talking heads debating themselves rather than reporting business news.

I’m not a believer that over the top debates and guest speakers arguing with seasoned reporters is proper etiquette for a business network.

I have been telling people that over the past 2-3 years, that what is being reported in the television are not the truth and its just a window dressing to fool or exploit all of us as we think they know everything and we don’t know anything. Well, I think now atleast people will start giving a year to my thoughts with JON STEWART bringing out the truth through humor and his comedy to the public.

If you feel the same way, or just want to put a warning shot across their bow, please consider signing the FixCNBC.com petition.

If getting called out for their lack of ethics by a channel who’s most notable show contains 4 foul-mouthed 4th graders (aka - Southpark), then maybe a petition of a few hundred thousand disgrunted viewers can shake things up a bit.

Treasury Officials Who Missed $8 Trillion Housing Bubble Still Haven't Noticed It

If the NYT description of the Treasury Department's bank rescue plan is accurate, then this should have been the headline to the article. The article reports that the Treasury Department is confident that it will not lose money by buying mortgage backed securities at far above their market price because: "the government can hold those mortgages as long as it wants, officials are betting the government will be repaid and that taxpayers may even earn a profit if the market value of the loans climbs in the years to come."

House prices are currently falling at more than a 20 percent annual rate. If they fall another 20 percent in real terms, they will be back at their trend level. A further 20 percent decline will hugely increase the percentage of mortgages that are underwater, reducing the value of mortgage backed securities from their current level. There is no obvious reason that house prices should then again rise above their trend level.

The failure of people like Ben Bernanke and Timothy Geithner to recognize the $8 trillion housing bubble led to this crisis. It appears as though they somehow still don't understand it. This fact should have been the headline of the news article since their continued failure to undersatnd the housing market could cost taxpayers trillions of dollars and further damage the economy.

NYTimes ignores protectionism for banks

If the U.S. government were to hand checks for tens of billions of dollars to the domestic auto industry or the steel industry to help them survive, presumably it would be viewed as a form of protectionism. However, when the checks to the banking industry, for some reason the question of protectionism never arises.

The NYT had a front page story warning of the rise of protectionism. Remarkably, it makes no mention of the hundreds of billions of dollars that the U.S. government is paying to keep the financial industry afloat. All the claims about the inefficiencies of protectionism apply as much to banking as they do to the auto and steel sector (we can use the same graph for all three), however protectionism for the banks never seems to raise any concerns in the media.

Is the U.S. Government Insolvent?

 

Given the economic situation at hand, the word "insolvent" might be nominated as Word of the Year (2008, 2007). However, given all the attention to that word -- which basically means one is unable to cover financial obligations -- I'm not sure why more people aren't a little more concerned about the idea that our government itself may be, in effect, insolvent, and becoming more so every day.

Consider the trillions committed for economic stimulus and bailout purposes. We already owe trillions (including $1 trillion to China). Recall that private enterprise, real estate, and consumer spending all bring in the tax revenues that the government requires to fund its initiatives if it had a balanced budget. Needless to say, tax income is dwindling as the economy stumbles and teeters on the brink of even more serious damage.

And yet the government is committed to spending even more, which means borrowing more and/or firing up the printing presses, making some decisions that could cripple many businesses and drive some overseas -- not to mention hurt already beleaguered consumers. Anybody who realizes money doesn't grow on trees or get delivered by storks (in the case of trillions, flocks of storks I guess, or maybe Monsanto's (NYSE: MON) working on genetically modified super storks) should be very concerned.

Same economic story, different administration

For what it's worth, expanding government, spending taxpayer money, and digging us into a huge debt hole for defense spending is most certainly not "better" than expanding government, spending taxpayer money, and digging us into a huge debt hole for social programs that likely won't result in real, long-term economic growth. I find war spending far more odious, but neither should come to pass, especially with the kind of fiscal black hole U.S government has been digging with a Keynesian shovel -- although admittedly, even John Maynard Keynes didn't condone governments indulging in deficit spending in supposedly good times like the Bush administration did.

Last year's documentary I.O.U.S.A., which featured well-known people in government and business like Alan Greenspan, Paul Volcker, Ron Paul, and Berkshire Hathaway's  Warren Buffett, pointed to an overburdened and unsustainable situation even before all the bailout madness really picked up steam. The National Debt Clockran out of numbers, folks. That was meant to be a wakeup call: We were already over our heads!

Of course, people can argue all they want about "this guy versus that guy," and why "we shouldn't question this new guy's economic policies because he's so much better than the last guy," or "this political party's my political party so they're OK no matter what," and "gee, do we ever hate those other guys!" Maybe some people find all that team mentality as comforting as six-packs and Monday Night Football, but I think it's all a silly distraction that distracts people from thinking about the real issues. And as far as I can tell, what the real issue is: Where's the money, and where's more of it going to come from?

Beyond the banks
Many people are already well aware of the fears that huge banks like Citigroup Bank of America, and Wells Fargo up to their eyeballs in risky loans that are rapidly defaulting are basically insolvent. Meanwhile, the consumer climate makes dying dinosaurs like General Motors even sicker, and of course its own debt load's nothing to sneeze at.

But all that's child's play when you ponder our government's cash burn and burgeoning obligations.

The $3.6 trillion budget President Obama recently spearheaded includes a near-term deficit of a mind-blowing $1.75 trillion. While he vows that the deficit will be halved later, that seems built upon some rather rosy economic recovery projections coming to pass, and if industries become increasingly beleaguered (and businesses provide jobs and tax revenues, folks), then I think you can see why this might present a problem down the road.

Meanwhile, the National Debt is currently just under $11 trillion and growing. You can't just keep adding debt while GDP declines, and raising taxes will strangle already beleaguered businesses and citizens. The Federal Reserve is firing up the printing presses, but that brings to mind the very real risk of hyperinflation.

Last but not least, I hope nobody missed the fact that last week China expressed concerns about the U.S. being good for its debt to that country. If that doesn't scare you -- and support the thesis that there is major reason for concern -- I don't know what will. Meanwhile, France and Germany balked at spending for their own stimulus plans. Um, hello?

Fasten your seatbelts
Unfortunately, the government's overheated spending, relying on future revenues and of course, that of future generations, reminds me a little too much of the Ponzi scheme mentality. And if entrepreneurship and business suffers, then our economy will be awfully close to a Ponzi scheme, where money is simply handed around without any real productive enterprise going on. Only this time it's going to include ugly side effects like worthless greenbacks resulting from out-of-control inflation. (And the Fed's $1 trillion move yesterday certainly stirs up still more concerns about runaway inflation even if the stock market did rise on the news.)

And of course, things could most certainly get far worse from there.

I know this sounds harsh, but I'm a proponent of trying to recognize the truth instead of fighting to stay in a state of overly optimistic delusion. I'm not stuffing cash in my mattress or giving up on the idea of investing; I try to remind myself that panic is destructive, not constructive, and won't help our current situation.

Yet I do believe there are grave issues at hand that we should contemplate, which could most certainly change the way we invest, not to mention the way we live.

And one of them is, is the U.S. Government insolvent? Feel free to comment in the comment boxes below, but I fear the road to real economic recovery is looking awfully rocky -- fasten your seatbelts, it's going to be a bumpy ride.