Denial phase psychological capitulation . . . is focused on by analysts searching for 'reasons' to explain what they call a market 'on the brink' of confirming an actual 'bear market'. To us that's hilarious; since only the Senior Averages (Dow and S&P) maintained the relative illusion of strength, provided by a small 'universe' of relatively firm stocks, for months, as we forewarned. That allowed perpetual bulls (opposed to us realists, since I've been bullish about 70% of the time through my 38-years since pioneering daily financial television analysis) to entirely 'miss' properly diagnosing a 'secular' bear from its 'real' origins, as ingerletter.com members know), to pursue some sort of illogical 'bottom fishing' (even in financials, as predicted insane), well before fundamentals or technicals were primed for them to challenge 'bear raids'. It's not my place to call them 'fools' for worrying about definitions of a 'bear market' (told you long ago they would) or 'official recession'; as such stuff has no analytical worth.

In reality it was precisely the stealth-bear-distribution 'under-cover' of a strong Dow or S&P, that masked the heavy and persistent selling not only in the 2^nd half of 2007, as expected for those Averages; but (to the consternation of all who argued with me with respect to our stance) as was detectable based on market internals even well-prior to that time. Hence, our warning in the late 2006 ingerletter.com 'Outlook for 2007', that there would be a series of rallies but they would fail with 'epic implications'. That's the time we 'ramped up' our video analysis to cover the impending series of debacles, as we suspected a 'liquidity crisis' and 'credit crunch', which I anticipated going beyond of course the obvious housing bubble's expected deflation (and ensuing credit mess).

That, simply put, is why we called housing merely a 'microcosm of the debt morass'. Plus we felt the Nation's poor governance had squandered the opportunity to reflate our way out of trouble (we were on our way in America) by virtue of stimulating rather than contracting consumption (a wrong-headed mentality that is still perpetuated), as a war roared. The projected Dollar decline we thought was either policy or 'accidental' in terms of 'intent' (Government will not admit it was a policy; and they may not even deserve credit for being that smart); because it was all that remained to offset the lost engines of growth in this society, pending essentially an American Marshall Plan.

Sure; it's comical to hear some of the analysts bemoaning the need for the low Dollar (playing with fire we said; but essential); just like they don't understand why getting all the formerly emerging markets to submerge (per our China 'crash' forecast last year, before it broke literally in-half in case anyone didn't notice; which few acknowledge of course, because they put so many investors money recklessly into foreign overpriced stocks and chased after former bull markets even after the momentum had crested).

Daily action . . . could delve again into hedge funds; the auction-rate securities risks; a major manager cutting yet-another Fixed-Income fund; the killer of internet tax we'd warned of for online retailers; the projected commercial property declines; new issues of municipalities or even pension funds; or the impact of 'regulation' as quid-pro-quos for only-temporary bailouts (such as Bear Stearns that I described as sticking a finger in the dike, but not preventing more issues in the banking system over time) or a slew of lesser concerns. And of course there are nuances at Quarter's-end as may impact (redacted specifics of this strategy). Most of the players have been focused on 'what to buy'; we spent time on every failed rally focused on 'what to sell' or 'what to short'; which clearly was the appropriate strategy, in all humility; rather than chasing 'hope'.

Tonight, since I'm determined to rest a bit (even when you're right it's tiring); we'll just touch on the subjects of the last couple days; and suggest new members review very detailed discussions in the past few days or before, for background regarding our call (and why it turned out successful, yet again). Remember, credit availability is the key; and many players actually don't comprehend the extent of the forward implications. If need be; that does not change my attitude about having no reason to engage in new sales or shorts just now, with beleaguered frightened masses of money managers or traders; aside intraday/intraweek activity of course. That has nothing to do with biding our time on any buying (no reason either; until the market conveys such a message), while maintaining bearish stances on existing trades (mostly financials virtually from the highs; such as Merrill Lynch at 91; or Citigroup and Bank of America in the 50's). It's hilarious to see the Street downgrade these now; which doesn't make them a buy automatically; but what the heck did they finally discover? Insolvency or nearly so?

A few highlights; with the technical picture of the 'Chinese Water Torture' and slow or persisting 'crash' (the 'grind', as the manner we projected this would occur) via video.

'Fall of the Formerly rich' . . . or a demise of financial middle-class fundamentalism, continues to unwind while some sages pretend 'superrich' shall rise again anytime to (globalist inspired) prominence anytime soon. A new 'uberclass' will evolve. We don't just mean those of us either protected from demolition, or profiting from holding short positions (or both actually); for whom there's reality; not nonsense about there being 'always a bear or always a bull' market environment (when they have to look for one; that should be a sign something's wrong anyway). Capital preservation was the core of our thesis in 2007's first half; preceding overt (successful) efforts to capitalize well, on the downside. It's ludicrous to hear many either 'spinning' or debating adherence to selected sectors now; or rationalizing this as a Quarter-end nuanced decline, when in-reality we made it perfectly clear for months how it would evolve; and as continues.

Economic risks are rising; not contracting, as the Fed's own desperation spin more or less contended. An era of 'reform' and regulation is upon us; which historically will tend to squash excessive optimism and won't immediately restore enthusiasm (once in a while it helps systemic stabilization, but that's about it). The House passing a rule 'ordering' the CFTC to halt speculation (markets are speculation not always the same as manipulation; which we suspected is occurring from outside-of-the-U.S. sources in prior comments), will attempt to run-roughshod over the markets; but last night we did clue you a bit as to discussions about 'capping' oil with a noted ceiling, and particular price floor (refer to that report if you'd like the levels we think key players considered).

We used to quote my hero Andy Grove (retired Intel Chairman): 'Only the Paranoid Survive'; to denote how being 'comfortable' does not long-maintain a leading position. Fools keep looking for buys (all the way down); while not comprehending why they've consistently been wrong. I pursued analyzing economically; monetarily; technically; fundamentally; and psychologically. A housing bill won't change matters; oil restraint could engineer a rebound in equities; but doesn't change the underlying issues; and the housing situation will not stabilize until generalized credit availability arrives. We are not there yet; but those who have concurred are in excellent position to embark, when the time arrives, on a new accumulation strategy with greatly limited risk. We'd not embark on that venture yet; (outline of 'when' provided ingerletter.com members).

Last week's focus: why the worst is yet to come; irrespective of actions leading up to then, with an FOMC statement (balanced as forecast)); likely behavior over next few weeks… all key discussions in this past week's Daily Briefing's. Having lost U.S. control of our own fiscal destiny -this week's discussion of years of insane structured lending, borrowing or unfettered so-called 'free' trade- is something I railed about for over a year-and-a half; leaving our beloved America groping to regain any semblance of 'command' toward reestablishing primacy in financial issues; vital sovereignty for our territorial matters; plus independence relating to 'insourcing' crucial industries; as suspected developing (part of my forecast 'crash' of the Chinese market; achieved in little-reported drama last year; a belief that money here would slosh briefly from real estate or other property into stocks in 2006; then look out starting in 2007 or beyond).

Once again in the march of time through these challenges, which are the by-products of Administrations, Congressional complacency, and corporate survival if not greed in a bow to realizing many firms had no choice but to follow the leaders in outsourcing it seemed for 20 years; so now they'll follow the lead back home, not in-spite of higher energy prices, but slightly because of higher fuel prices (unintended consequences).

Last night's financial addendum, reflects on parts of an underlying schism we warned were contributing to the foolishness the aggregators of structured vehicles; the rating agencies; and certainly many bankers and brokers too, embarked upon with an utter reckless disregard for the already-demonstrated weakness of so-called 'quantitative analysis', employed in structured leveraged investments without considering what we had already seen in terms of 'unintended consequences', such as in the LTCM mess.

Charts shown last week simplify understanding why a Goldilocks crowd arguing that Commercial and Industrial Loans have expanded by over 200 billion is way off. It is simply that banks assumed credit financed in the CP (Commercial Paper) market last year (forced-to essentially); and now C&I contracts 'concurrently' with CP issuance; a result of the long-projected deleveraging and stagflation here; as (unfortunately) does not mean the banking system' in better shape to help most middle-Americans (more).

Our bearish perspective has been approached persistently, via a pro-active strategy, which commenced in early 2007; per the late 2006 'Outlook' as quoted independently too (in fact of the 16 Mansfield 'Blue Ribbon' panelists we had not only the lowest but the most accurate year-ahead call for the Dow Industrial Average 2007 move.. nailed within 100 points to my surprise.. and as for 2008; we expected a forecast Spring rise to yield to renewed risk and lower lows for the year too; the so called 'official' bear.. it is so funny, because the internal market has been in a bear as members know; for a very long time… ingerletter.com members know what a cyclical bull in a secular bear was, and what I meant in early 2007 warning for an 'epic' historical tragedy.. one day I actually came to tears near the all-time high; because of how few grasped not what was occurring; but how it was so dangerous and the last chance out, not in as media analysts typically contended, and curiously, too many professionals also embraced; I knew deeply in my heart and soul what was coming; so shared it with our members; and I actually cried for our Country; because the preceding reflation could have done so much more to prevent the debacle that we knew was in-store due to profligacy).

A final 'hook' could be presented in-event Oil breaks hard for any reason (so many do look for that; the market may fool them yet again); triggering a dramatic equity rally in the short-run, before the 'discovery' that the housing microcosm of major debt issues, predates the run-up in Oil, whether inflation-adjusted or not. (The rest of this was in a prior report if you wish to review it.) We contended a point for years: that massaging data, in ways that have little to do with what people actually spend, is aimed entirely at a mirage mostly to limit CPI-correlated increases, such as especially 'entitlements'.

Our primary reason to start insourcing (which is not isolationist) is repatriating capital, creating jobs, and turning this vicious cycle we forecast a couple years ago to a new virtuous one. We believe that can and will happen in the years of the decade ahead.

Remember, as to debt debacles or housing; we're by no means through the carnage; and that is irrespective of what happens to oil prices. Hence if oil drops dramatically over time for any reason; there would be a sharp rally in the Averages (stay tuned). But it would be a ruse, as the debt morass predates energy issues so would not at all be corrected simply because fuel/inflation pressures came off average families a bit. Of course it would help daily life; but has nothing to do with underlying debt issues.

Bottom line: macro signs as interpreted; including (updated slightly) 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 continued to deflate, there will be alternating moves to play from a trading perspective. In any event we retain our macro (forward-roll adjusted) Sept. S&P 1600 +/- short; irrespective of interim oscillations; including periodic intraweek or intraday day short & long calls (including expected homerun gains today again on the downside). Technical analysis via tonight's video perspective, (emphasis was the projected Fed-rally failure and bear market continuity forecast for this week's break):

Daily Briefing Technical-Corner MarketCast Video

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.)

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.

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.

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.

Nineteen months ago I called this an 'accident waiting to happen'; saying that was affirmed historically after long-duration periods of free money (Gilded Age mentality), as doesn't create enduring liquidity; giving that illusion while the opposite transpires.

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).