It’s because of the insane level of derivatives being trading throughout the global financial markets - about $700 trillion.  There’s not much new here for me to comment other than I still view derivatives as THE biggest threat to owning dollar-based assets in long term positions.   

However, if this is a new topic for you, the below piece from 60 Minutes does a nice job of explaining what derivatives are and how they work, in common sense language:   

Even if the derivative house of cards does not collapse any more than it already has, I am no less long term bearish on the dollar and other currency-based investments.  Eventually the American greenback will return to its slide in buying power and investors that own hedge positions will be thankful.

My favorite method to hedge against a devaluing currency is with gold - both through direct ownership in gold bullion and by owning shares of a gold-mining mutual fund.  So if you have concerns over the Fed’s devaluation of our currency then this is where you should be. 

To put the Fed’s actions in perspective, consider this:  Eight years ago there were just over $5 trillion circulating through the system.  At last check this number had risen to nearly $9 trillion - almost a double in the quantity of paper money.  That action, historically, spells inflation. 

Recently I returned from Europe to see firsthand how our friends across the pond were being impacted by this economic environment.  Not surprisingly, things seem very similar to life in the States.  The shopping centers were busy, the restaurants were full, and the only negatives I witnessed were in regard to the financial industry and media’s drumbeat of doom and gloom. 

Purchasing power parity tells me that the dollar is currently undervalued compared to the euro and the fact the stock market is rising in the face of negative economic data tells me there is a very good chance that we saw the market bottom back in November. 

Of course there are no guarantees but what I do know is that the economic news will continue to worsen but the upside to ownership investments look a whole lot more promising than the downside.

As of now, it looks like by mid-2009 we will be facing a rapidly improving economy and that’s why the stock market has been rising in the face of all the current bad news. 

On this week’s program:

• Mortgage rates are falling.  Is it time for you to take advantage?
• The current economic crisis and the collapse of confidence.
• The latest tax law changes from the Emergency Economic Stabilization Act of 2008 that may impact your bottom line.
• New Product Alert:  Structured Notes - What are they and do they make sense for you?

Listen now by clicking here.

Many folks have called me this year worried about paying higher taxes in the future and have asked about “tax havens.” 

Below is an excellent report about that by Dan Mitchell at the CATO Institute on behalf of the Center for Freedom and Prosperity.

Here is a short article from Steve, one of my favorite economic commentators.

The National Retail Federation (NRF) says the number of shoppers either in stores or accessing on-line retailers, from Black Friday through [Sunday], was up 17% versus last year and that the average amount spent was up 7.2%.  According to the NRF, shoppers were busy buying up clothes and electronics.  Meanwhile, ShopperTrak, which monitors sales at shopping centers and malls around the country, says Black Friday sales were up 3% versus last year.

~ From First Trust’s Black Friday Shoppers Signal Consumer Hopefulness

                       (Source JPMorgan)

In the above chart you will see that there have been 19 times in recent history where we’ve had a single report show more than a 0.5% increase in the unemployment rate.  The subsequent 12 month returns in the stock market are amazing - ranging from 17.6% to 45%. 

Notice the similar trend with consumer sentiment. 

The first of the two charts above shows that the recent level of volatility in the stock market has been very uncommon.  The second chart shows the average daily move in the S&P 500 since 1993 has been 0.77%.  In the month of October, the average daily move was 3.71%. 

That means in intraday trading, the market is valuing companies at an incredible variance.  Historically, it doesn’t last very long, and it does point toward market bottoms. 

Are we close to a bottom?  Yes.

Can it go lower?  Always.

Unfortunately my crystal ball broke the first time I tried using it.  What I do know is that stocks are cheap now.  Don’t sell, and if possible, buy!  But I think I can say with confidence that five years from now today’s prices will have been a dream to buy. 

It’s amazing how much the media focused on oil as prices were going up this past summer and people were exchanging their SUVs for smaller vehicles.  The fall in oil is another stimulus to the economy as it keeps more money in your pocket but yet it hardly gets any attention. 

Check out this fascinating video of a new Ford plant in Brazil from DetNews.com. 

Now you will see why auto manufacturers want to get out of the U.S. and away from the UAW.  What are the chances union leaders would allow such a plant built here in the States?  Without a dramatic overhaul to their operations, my guess is zero.