For years, U.S. investors have been told to “go global” in search of stronger growth and higher returns. Americans obliged and poured billions of dollars into international stocks, mutual funds and exchange-traded funds (ETFs), which have outperformed during the past seven years.

But, as the saying goes, “Trees do not grow to the sky.” The seeds of underperformance were sewn by the over-performance of Chinese, Indian and European stocks. Nothing lasts forever, my friends.

The time of shorting U.S. stocks and going long stocks in emerging markets is over.

The global markets topped out in late 2007, while the United States — the source of the subprime nightmare — has dramatically outperformed some of last year’s hotshots.

The U.S. stock averages have lost much less than their major European and Asian counterparts in this global bear market. The six-year run in which the foreign bourses routinely thrashed the S&P 500 (SPX) and the Dow Jones Industrial Average (DJI) has come to an end.

Once everyone has piled into a trend, it no longer works. As for going global, when everyone including my grandmother has 70% or more of the money in their 401(k) plan in developing countries’ markets, you can bet the trend is dead. And when those people open their 401(k) statement for the first quarter, it’s going to hurt — not as much as it did after the Nasdaq meltdown in 2000, but it’ll still be painful.

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We should all be grateful for the bear market rallies that followed, because they gave us another opportunity to lighten up on stocks and build cash in preparation for the real end of the bear market.

I hate to be the bearer of bad news, but the worst of the sub prime mortgage mess hasn’t even begun. We have more pain to go through before we can call the bottom.

Now, the post-rate-cut question is:

A) Do the worst offenders in the sub prime market have a liquidity problem?

Or…

B) Do the financial institutions heavy with sub prime debt — Washington Mutual (WM), National City Corporation (NCC), etc. — have a solvency problem?

The correct question to ask is B, and we should expect to see lower housing prices and more liquidation, a la Bear Stearns (BSC), before the “all clear” signal is sounded.

Before this is over, we’ll see more of these investment banks carried out in body bags to reconcile the enormous level of bad judgment and runaway greed that is behind this whole fiasco.

Now let’s not get too bearish here — we’re making progress. Personally, I can’t wait to take advantage of some of the great opportunities that lie ahead.

As a matter of fact, we’re already taking advantage of some opportunities that are just too good to pass up — particularly in the Freddie Mac and Fannie Mae guaranteed mortgage paper owned by mortgage real estate investment trusts (REITs). That paper is discounted 50% below its actual value.

Come Back to Reality

As with all problems in life, we have to leave the denial zone and enter reality.

Remember, in August, the turmoil in the financial markets was characterized as a “temporary liquidity problem.” The B&P Paribas and Bear Stearns hedge funds blowups were seen as isolated incidences.

Now, seven months after this “temporary” problem, and $200 billion (probably headed to $500 billion) in bad loans write-offs later, the politicians are still in denial.

We need to step back and recognize that the current situation is not a liquidity issue, and hasn’t been one for a long time.

The problem is the genuine uncertainty about the underlying value of the assets, and that’s a solvency problem, which is exacerbated by the fact that many of the entities that own these bad assets are financial companies with 20- to 30-to-1 leverage.

There are still dozens of these special purpose entities out there sitting on a pyramid of paper that’s supported by leverage — and no one has any idea what they’re actually worth.

If this were a simple liquidity problem, then the action that’s been taken by the Federal Reserve and other Central Banks ($1.5 trillion worth) would have solved things — but it hasn’t. Instead, the Fed’s actions have resulted in bear market rallies, followed by pullbacks.

If you still think we’re dealing with a liquidity problem, consider the following:

1) Credit spreads — the cost of buying credit is higher today than it was seven months ago.

2) Mortgage rates — these are also higher today than they were seven months ago, even with all of the liquidity that has been pumped in by the Fed.

3) Corporate debt spreads for banks — corporate bank debt is now paying a higher rate than what they can hope to get lending the money out, which is unheard of.

We are now experiencing the classic example of what George Akerlof described in “The Market for ‘Lemons.’”

He basically said that, absent better information, it is perfectly rational for the buyer of an asset to assume that the assets offered for sale are lemons, i.e., the bad stuff.

This is why we’re currently seeing the flight to quality in the way of Treasuries and other things that people can value, while the rest of the stuff is floating out in la-la land.

Well, we are turning lemons into lemonade, so to speak, by taking advantage of some of these situations.

But until the financial institutions and politicians come out of denial and we get to the hard business of triaging the dead loans from the live ones — and, unfortunately, moving about 1 million unqualified homeowners back into the apartments they can really afford — we have more pain to go.

However, we don’t need all of the pain out of the markets to get the “all clear” signal for stocks — we just need to get about halfway there.

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The answers to the world’s problems are not coming from countries like China or India. They’re coming from the Americas.

Brazil has the first energy-independent economy of the 21st century.

Canada has the resources to replace Saudi Arabia as the No. 1 energy exporter.

The United States has the technology, educational and capital systems, and entrepreneurial spirit to solve the 21st century’s biggest problems. The mortgage meltdown has made people forget that the majority of the solutions needed to keep China and India growing are coming from the good old U.S. of A.

The “America trade” is what you want to be invested in as we come out of this bear market. There’s big money to be made in North and South American stocks that sell their products and services throughout the world

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· 67% of industry respondents say water spending will increase for next 12 months – a 14-pt decline since June 2007

U.S. Water Spending Trends

· Slower spending growth is seen for the private sector, and for federal and local governments

· By better than a 2-to-1 margin, respondents believe a U.S. recession will lead to decreased water project spending – with local governments the hardest hit

Water Sectors Attracting the Most Spending…

· Wastewater Treatment (Net Diff. Score = +39; up 17-pts)

· Water Infrastructure Repair & Replacement (+68; up 10-pts)

…And The Least Spending

· Water Filtration (+2; down 8-pts)

· Desalination (-24; up 2-pts)

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·  42% of U.S. respondents say they’ll spend Less over the next 90 days than they did a year ago – 3-pts worse than in Feb 2008 survey

·  25% say they’ll spend More – unchanged from previously

·  3rd consecutive survey during 2008 showing a recession in consumer spending

Where Has Spending Slowed the Most?

·  Consumer Electronics (-8 pts) – weakest 90-day outlook for electronics ever recorded in a ChangeWave survey

·  Durable Goods (-3 pts)

·  Restaurants (-2 pts)

Inflation Worries Spiral

Top Reasons For Spending Less

·  46% say Inflation is the most important reason why they’re spending less – up 6-pts

·  43% say Higher Energy Costs – up 11-pts

Energy Costs Cutting into Discretionary Spending

·  65% report their discretionary spending will be lower due to increased energy costs – 6-pts higher than just two months ago (Feb 2008)

The Transformation in Retail Shopping

Large-Scale Movement to Discount Retailers and Wholesale Clubs

·  Sharply lower spending and higher inflation – coupled with deteriorating housing values – have produced an increasingly beleaguered and worried shopper

Next 90 Days

– Retail Store Winners

·  Costco (COST; +8)

·  Wal-Mart (WMT; +1)

– Retail Store Losers

·  Sears (SHLD; -10)

·  Bed Bath & Beyond (BBBY; -10)

·  Linens N Things (-8)

·  Macy’s (M; -8)

·  JC Penney

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Returns - which are the second part of the accumulation process are directly linked to the larger picture of a comprehsensive investment system as well as strategy.  Forex can both be a means and a means to and end - in terms of diversities and flexibillity as well as overall capital growth options.

It may be easily said that in volatile time periods - such as we are now experiencing that it is easiest to sit on the sidelines or only concentrate on short term trends as opposed to the longer range viewpoints and strategies.   The barn burns and they try to close the door.  The value of the American dollar declines - and all that is seen  and noticed is the cost of gas - priced in US dollars , not Euros or another financial currencies yardstick

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From a purely financial perspective  will mean that the average investor will have a greater need for retirement assets - both to draw and life of , plus their actual demands on that same pool , will generally be greater per year than estimated in previous determinations and planning.

From an investment point of view - planning an managing the investment pool requires an initial starting point.  This starting point has changed.   The basic inherent question is  saving multiplied by return will yield the basic investment point of origin.  What will be either in the equation.  Obviously if either is increased the final pool of funds will be greater and enhanced.

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While we may now be consuming about 1% less crude oil per day, emerging economies are more than compensating for this as oil consumption rises throughout the rest of the world. (Keep in mind that Saudi Arabia, the world’s largest oil producer, only has about 2 million spare barrels of oil available per day.)
: There are only 10 cars per 1,000 people in China and 12 cars per 1,000 people in India versus 765 cars per 1,000 people in the United States. Do the math!

The weighted average of vehicles per 1,000 people in the world is 164. This means that the number of automobiles in China and India is around 10 times lower than the world average.  The trend line is on the major upswing.

Note that as well we in the “Wet”  or specifically the United States  -have not discovered a conventional oil field with a capacity of more than 1 million barrels per day in the past 30 years.

Forty percent of the world’s oil supply comes from fields that are more than 30 years old, and these older fields are declining fast.

* The output of Mexico’s Cantarell oil field, which peaked at 2 million barrels per day, is declining by about 24% each year.

* Production at Saudi Arabia’s Ghawar oil field is flat to declining. No wonder they didn’t step up production when President Bush asked them to. (What a great idea it was to beg for oil when he knew the answer would be “No!”)

* Kuwait’s Burgan field and China’s Daqing field are also in terminal decline.

And much of the new oil discoveries are simply replacing the declining production of older fields

Its getting a lot worse before it even can get better

And this is with time lines of logistics and practical time delays not in the mix

The insurance companies also considers the sort of car you drive, including its sticker price, the cost to repair the vehicle, replacement value, safety features, and how well it will withstand an accident. The lower the cost of claims for a vehicle, the lower the rates, and therefore the easier it is to get insured.

Here is a list of the top ten least expensive vehicles to insure, that have a sticker price of less than $50k, according to the Highway Loss Data Institute (HLDI):
1. Oldsmobile Silhouette
2. Pontiac Montana
3. Saturn L Series Wagon
4. Chrysler PT Cruiser
5. Saturn L Series Sedan
6. Chevrolet Venture
7. Chevrolet Astro
8. Saturn Vue
9. Jeep Wrangler
10. Oldsmobile Bravada