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Derailing the derailment . . . apparently is the (semi-emergency) objective of what is being reported late Friday as a Fed effort (pending announcement) to backstop both Fannie and Fredie, in an attempt to stabilize, rather than amalgamate or nationalize, either entity. While this 'may' afford certain flexibilities; what is doesn't remove is clear and rising (among the generalized citizenry and apparently analysts who stayed what was an absurdly-optimistic course for the past year-and-a-half) uncertainty. Actually, for us the declining market holds potential to create a different perspective as it dives.

However, we don't base our analysis on restoring what preceded this environment as regards valuations. Just as one candidate (boldly and bravely) acknowledges his own party's failure (along with the other side of the aisle) to intervene promptly enough for a long time in lots of areas (or conversely get out of the way, since they often harmed more than they resolved) to reform Federal institutions or procedures for 21^st Century needs; we see the arguments suggesting the S&P is 'cheap' at 14 times earnings that trail, as being absurdly expensive, if we're going to have a new paradigm of matrixes.

Some of that can relate to the slower offshore growth (ie: the myth of decoupling that we argued all year, and others only now are acknowledging as a correct assessment) that mitigates the higher 'range' of high/low valuations that prevailed during years of a more-or-less unfettered globalist variation of free trading. (Candidate McCain's views are often distorted by those who equate fair negotiated deals, like with Columbia, vs. a slew of deals that are unfair; and to do so is a sign of unchanged old-style views of trading; no matter how they spin it.) At the same time both candidates are similarly on more-or-less the same page when it comes to stopping the export of 700 billion / year to OPEC; though formally only one candidates has embraced wide-scale drilling (lots of folks don't know that Senator Obama unenthusiastically is willing to accept drilling).

Believe it or not, we're not taking sides; just pointing out a few details that possibly I'd rather not delve into at all, but some of the uncertainty many have won't be answered until the Elections. Ironically, the 'tax aspect' is comparatively similar, though history's replete with noteworthy candidates that didn't exactly do well promoting higher taxes.

Here's the point: in this nearly two-year-old bear market (for the broad market) you'll get interventions intended to rip the bears (and you may early in the new week if Fed and Treasury proposals are well-received spike the market up inducing the pundits at least temporarily to again maintain that all problems are over and that the lows held); but that doesn't change the reality that none of these initiatives immediately solve the housing dilemma, reduce the prospect of greater oversight of Financials over time (it should be noted irrespective of which party's in-charge of either end of Penn. Avenue by the way) and has little if anything to do with the dismal profits outlook still ahead.

We will observe (of course) that markets discount recovery before a recession's low; the catch is that we have to 'officially' be in that before one can envision such a turn. A major rally (especially Financials) coming in the wake of the Treasury announcing a new initiative will be potentially fraught with peril with respect to any who extrapolate too much from what is part of the building blocks towards eventual stabilization and of course recovery in time. If you get a major rally and then tank, that's almost classic of course; and we'll just have to see if this 'Chinese Water Torture' ordeal forecast from just before its initiation, transitions and conforms to that classic type of pattern. In the meantime it's pretty obvious that we've warned about shorting weakness late in game play, unless one does it during the intervening euphoric respites, and then if one fully is conversant with, and comfortable too, with the degree of risk that suggests.

For normal investors this remains complex market dealing with the most challenging circumstances since the Great Depression. For those of us who anticipated 'a Great Unwinding' or historic deleveraging, it's simply ongoing. We remain on-hold for new, or better put, newly initiated commitments, with no rush, and that's even in the face of 'the new order', which probably will take most key valuations for the transnational big-caps to lower levels than those who primarily think in terms of recent experience see.

Daily action . . . has been outlined as clearly reasonable, given fluid circumstances, at this point, and without specifics on what Treasury will actually do (as the point is it is more pertinent to bond managers that must get-involved than those who haven't a need to become overcommitted when they don't have to) with the latest 'back-stop'. I thought Pimco's statement of 'being done' was essentially a prod to the Government on Thursday, and obviously there has been a response (if that's it) as said pending.

I will outline the technicals via a weekly-basis video; and summarize key points of the last couple days, but not underlying analysis from earlier in the week (in archives for review if desired). As to Hurricane Ike: the proximity remains our view yesterday: real prospect of becoming a 'Gulf storm', even though it's too early to delineate it more.

It all depends on the 'Bermuda High' positioning (steering influence). As of late Fri., a South Florida Water District internal tracking map (which I've seen) suggests the Southern probability for the track. As to 'personal positioning', I'm in South Florida at the moment, and planning to stay put (this could change depending on Ike's track) as of now anyway. In any location, I'll endeavor to provide market commentary if power and internet connectivity allow. If the storm happens to cover all of Florida that could become a challenge, as we'd have to adjust and cope accordingly, as best able. No, I'm not flying to the West Coast again; especially with a number of storms lining-up. (If mandatory coastal evacuation occurs; I'll minimize disruptions if at all possible.)

Summary of key points (as cannot include the unknown Treasury Fannie package):

Fear feeding-upon-fear . . . remains a naïve simplification of the markets, as those calling July 15^th the inviolable low-point are oblivious to the evolving 'facts'. One often observant member in Texas states that we 'deserve champagne toasts as everything forecast has come to pass'. Well that's appreciated, though we're sad for investors of a bent to be 'hopeful' having to go through all this; trying for over a year to help them face the music before the music faced them. That was my 2007 Paul Revere mantra. (Plus we don't get excited or enthused about downside a year plus after it started; if we get an event or series of oscillations that results in events, that will be assessed).

What compassion genuinely exists for investors is slightly shifted to incredulity about most pundits and analysts (permabulls and/or the permabears aren't relevant, since their assessment never changes for decades really if you think about it), because the former really don't grasp the background of this forecast financial tsunami building for much more than a year, while they listen to rationalizations from those who should or possibly do, know better. (We'll delete the greater specificity of the prior report here.) Hence it's a process, sometimes passing for analysis but which isn't, that's upsetting.

Then there is the 'revelation' of risk of a 'financial tsunami'. Well, the venerable Pimco manager Bill Gross has generally concurred with my views; though not persistently at all times. (Thursday) we concurred with his statement amounting to a 'stop absorbing supply' decision, curious if it was a bluff to get Gov'mint to find more available funds in size. We agree with Mr. Gross. How can we not, having been the first to ever utter the 'financial tsunami' phrase in the Spring .. of 2007 .. not merely now. Difference?

Of course one might say most stocks have already been hammered and thus there is no reason for an analyst to no longer be candid about prospects, though he or others from time-to-time have been fairly frank. The big difference is they mostly believed (of course not trying to put words in anyone's mouth, but this is my general interpretation of assessments) or at least perceived that Government efforts would be sufficient. In that realm we did not. We felt -at best- that they were building blocks for the future.

So we allowed for various rallies ('Chinese Water Torture') as would provide periodic relief before the next grind, while throughout the year stating -in clear terms-that the second half of 2008 would not be stronger than the first- rather overtly contradictory to all those bottom-fishers making more optimistic forecasts. We simply felt (and said) they had no factual analytical basis for such broad bullish projections. It's still so. For sure, we'll get periodic decent rallies, but they should be evaluated on what they'll be able to earn in 'this' era, not an era as was a once-in-a-lifetime nonrecurring scenario.

What deleveraging is. Light at the end of a tunnel hasn't been an oncoming freight train; it's a series of hurricanes lined-up to strike one after another; repeatedly. That's even true with hedgers or housing, where Alt-A or Options-ARMS issues are pending of course. And when they report 'correct' remarks from bond mavens (poker playing not withstanding with Treasury for a new rescue essentially) they again look for 'plans to fix the lenders' or GSE's, or some source of funding. Of course there are suitors; but the tailors alterations for the most part stuck pins or needles both in shareholders, and depositors. That's not to forget borrowers, who are way low on the totem pole.

Inflation precedes Deflation . . . has been repeatedly mentioned in these missives. You know what that means; higher prices yield lower prices (as economies rollover), which traps simplistic interpretations of lower gasoline or commodities being a plus, just in time to discover (at lower prices for everything) that a slowdown is deflationary. That's why my comments the other day said 'be careful what you wish for', because it was fairly obvious that if the economy was strengthening as they argued, we wouldn't see commodity prices softening so much, aside the 'commodity fund' liquidations. Of course there is some of that, and by the way it's likely not over in sequence either.

A little pressure off the consumer is welcomed; but isn't salvation. Getting bearish as the market plummets (we've warned for days that was coming, as 'outside-down-day' Tuesday was to be followed by some jockeying around, and then resuming downside activity) is temporarily correct, but way-late for this ballgame. Several points to make:

-Liquidation / capitulation is incomplete because those crowds bought prematurely.

-The technical breakdown to new lows may be interrupted; but ought to be achieved.

-Contrary to arguments of defending lows; NY Composite and SOX are at new lows;

-Shifting international relationships (and risks) are an unspoken part of this paradigm.

-Key mention of 400 billion needed for Financials no flip remark; minimums actually.

-An inability to locate such additional borrowing (more debasing) is really unspoken.

-Synchronized worldwide recession looms; per foreign 'decoupling a myth' forecast.

-Singular focus on oil a bit naïve; oil might rally while stocks decline (a worst case?).

-Talk of 'misstated' (illegal) Gov'mint energy figures may prompt capital/price control.

-Foregoing plus French borrowing at 'ECB window', contribute to overall weakness.

-If anything this ECB borrowing may tip-the-hand of Treasury/Fed to take new action.

-Hedge fund capital aggregation has peaked and thus cannot buttress markets much.

-Systemic deleveraging is what we warned about for a year-and-a-half; not months.

-Anticipate systematic liquidation catastrophe of hedgers who bailed-out the bankers.

-Nationalization or super-underpinning of Fanny & Freddie to spark a transitory rally.

-Managed currency depreciation yet another aspect foreign lenders increasingly see.

-This 'guise' can be race to the bottom by comparably unsustainable fiat currencies.

-Above all, remains a secular bear market from the peak of 2000 (cyclical top 2007).

There are legitimate reasons to suspect any or all of these trends remain or will be in-play before a conclusion of this 'epic' deleveraging amidst what is a low-grade (so far) world war of a sort; while Russian opportunism takes the form of adventurism. Issues clearly are incredibly complex; but if I wasn't semiretired and still anchoring financial TV, I'd be broaching them all; part at least why analysts this past year shouldn't have gotten essentially a pass, from candid assessments of an 'epic' financial 'risk matrix'.

During the week past we definitely weren't trying to stir concern; just face facts before they might face us. Basically we realize that there is another strategic shift afoot; so that's news. So if you are a new member, peruse the recent comments for our ideas.

Strategic shift? Sure. The military is stretched to the max without reserves for Army deployment at least. Russia is growling (taking advantage) of the perceived American entanglement in the Middle East and Persian Gulf, and trying to reassert herself. That the media hasn't even recognized what some are calling the 'Medveyev Doctrine' that says Russia will exercise 'responsibility' to support all its citizens wherever they are in addition to buttressing their 'regional friends', are classic strategic adventurism signs. Maybe extrapolate this into 'why' factions are suddenly trying to destabilize Ukraine. I indicated over a week ago that the U.S.S. Mount Whitney was enroute to Georgia; it's not affirmed by the Navy Dept. to have arrived (a sophisticated command ship). Point is responses to major Russian policy determinations unanswered by the U.S. are just now in some sort of fluid formation. (This and oil comments in yesterday's full text.)

Above all; we have an ongoing credit debacle (not just crisis); a 'perfect storm' of epic proportions (as forecast uniquely back at the tail-end of 2006 and beginning of 2007, prior to projected higher-highs in the Averages masking a classic distribution under-cover of a strong Dow and S&P); churning commodity pictures; continued sensitivity to oil; and mixed energy prices in other areas. It is to say we saw deleveraging as a 'big deal' before others, and have provided plenty of 'food for thought' with respect to where this heads next. I've already expanded on such postulations; and continue to.

Bottom line: macro signs as interpreted; including (updated recently) the following bullet points:

MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks forecast substantive failures by banks or other areas; following breakdown action, as we've outlined. Remember; back in early 2007 we denied the 'liquidity' momentum as a canard; believing housing only the first of the asset bubbles to deflate. We outlined structured investment vehicle failures; banking issues, confluence of asset deflations, and more; continuing with interruptions what we projected long ago: 'a perfect storm'.

As the debt bubbles continue to deflate, there will be alternating moves to play from a trading perspective. In any event we retain a macro (forward-roll adjusted) Sept. S&P 1600 +/- short irrespective of interim oscillations. Technical analysis via video reserved for IngerLetter.com subscribers. Please visit IngerLetter.com for subscription details.

Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection. (Individual stock comments generally are provided in the video overviews only; once in awhile I'll have some thoughts here, where something's particularly emphasized or of technical nature necessitating some discussion. Increasingly most all is via video.)

Scheduled Economic News Releases:

In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us more while as we also focus on Middle East and World War III avoidance. To those who say it’s not a ‘war on terror’ but just law enforcement; actually it’s both. What they should hope for is that the ‘war on terror’ isn’t like a 1930’s prelude to war.

Our 2007 view: we were heading into a recession or potentially worse. As to whether it descends into something akin to post-railroad debacles way back in the 1880's; is likely what the Fed combats here in 2008; with actions that affirm they're desperately engaged to stabilize fluidity of functionality. Regression to the mean remains a goal for not only stocks, but real estate. I hasten to add, whether depressing or realistic (3 year forecast here for the housing break preceded 'junk debt' investment avoidance a solid six months before the mid-summer peak in 2007); and yes stocks eventually get interesting. Gilded Age globalists unflaggingly failed to see the era's transition, lack of transparency, or detect the mood of increased populism; reform calls; with low taxes.

McClellan Oscillator finds NYSE 'Mac' fluctuating via intervening bull-bear shuffles on the NYSE & NASDAQ; overall bias remains bearish for now. Reflex rallies allowed 'risk off-loading' tactics earlier this year; as 'Street' debt holdings aren't investment grade yet. Multi-year efforts evolving, in this regard. Suspect strategy fluctuates with markets; as money managers try to salvage optimism of many pricey stocks, whose expectations remain out-of-line optimistic for the actual world situation. As they did that, while revenue growth was deteriorating; we said that meant 'multiples' are less attractive; with market risk quotients actually higher, as persistently outlined here.

Issues continue including oil, terror; China; Pakistan; certainly all the Middle East, Europe; funny money NY economics. Noted for a year: international dependencies, as outcroppings of extremist globalism; neither pro-American nor conservative; even as true conservatives support fair trading; constrained spending; not squandering our US crown jewels. We must be 'Americans First'; or we can't consume from the world.

Twenty months ago I commenced projecting an 'accident waiting to happen' ahead; saying that was affirmed historically after long-duration periods of free money (Gilded Age mentality), witch doesn't create enduring liquidity; just gives that interim illusion. With all 'games' and bottom-fishers essentially 'out of bait' to attract investors, that's a scenario that can precede a washout and beginning of a bottoming phase. However I am not predisposed to envision that occurring yet; just noting that many who argued at length with me about the prospects a year ago have surrendered and now agree in regard to the absence of rationale to buy stocks. Sure; but they're closer to nothing in the ongoing 'race to zero' that we forecast well over a year ago now. Not ready to buy as noted; but in a race to zero most cannot yet-again emulate declines equivalently. I absolutely realize there are sectors (like retail) that have a lot of 'air' remaining within.

Since early 2007 we noted economic conditions more similar to post the Gilded Age ending in 1929, the panic of 1907 (hence our call for the start to be the 'panic of 2007' last year at the end of that Gilded Age, and it's NOT coming back; party over whether they like it or not, as they didn't or only thereafter 'conceded' there's needed rehab). It is not a structure entirely resolved by rate cuts, stimulus, 'miracles', arrogance of the few who think they can influence it. But it can be rescued by sound Fed policies that, finally, don't just succumb to hidden agendas of their bank constituents, or politicians; for the most part uneducated in arts of nuanced monetary policy or currency velocity.

Notably we have argued for decades (before Boone Pickens) against what became a bankrupting capital outflow that devastates our capital-base to enhance the leverage as well as prosperity, of some dubious commercial ties, as influence us. The Federal Reserve was neither blindsided, nor bamboozled, by vociferous pundits into action. We have proven they were engaged; but believed (and still do) that the issues are so gargantuan that even the power of the Federal Government has limited ammo to deal with the challenges. Hence the solution so far is bailouts or currency debasing that provides additional hardships (counterintuitive response) for average Americans.

What they advocate while proclaiming ‘free market capitalism’ actually is intertwining Government, military, corporate, and social (including tripartite agreements) accords, that diminish individual rights, business risk-taking, and a dangerous paradigm shift. Ironically, the loudest ‘saviors’ exist on both sides of the aisle (metaphorically) with a dearth of understanding the advantages of not being outsmarted by trade deals while maintaining free fair trade, and not undermining historically sound capitalistic spirits.

Not only is governance from the center appropriate; but essential to sweep a higher tide will enhance meaningful efforts to restore primacy to regain financial sovereignty.

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