This Week's Conference Call Schedule Below

Although I have little time to write anymore, when I do have a few moments, I do like to share some of the things I read. Below you will find just a few pieces I thought you would find interesting. When I started compiling these, I had a stack of newspaper and magazine pages that stood more than a foot tall. After several hours and a pile that was still a foot tall, I realized I would not be able to share everything with you.

I read more than anyone I know. I read a variety of foreign and domestic magazines and newspapers. I also participate in dozens of conference calls each week. Each week things grow gloomier. In fact, the only positive comments I came across this week, were comments from sore losers or people that have totally ignored the issues we are facing. And I say things grow gloomier for two reasons.

First, we still have politicians around the globe that do not understand what is going on or how to keep thing from getting worse than need be.

Second, we have evil men like Hank Paulson that created the problems we are in, and now they are once again raping the system . . . while the above referenced politicians smile and fill their own pockets.

When I think about what Hank Paulson has done while running Goldman Sachs and what he is now doing to insure a global Depression, I can't help think about this one . . .

Food gained by fraud tastes sweet to a man, but he ends up with a mouth full of gravel. - Proverbs 20:17

MARKETS -Very briefly, I believe the Chinese markets will be hardest hit over the next 30-60 days as social unrest grows. This and other factors are also in our overall view that world markets are heading lower . . . again. Our investment approach is still 100% on the short side with the exception of a long position in Yahoo.

Mike's News Recaps and Comments . . .

Beijing Forecasts Grim Outlook Amid Factory Closures - The Financial Times
"We must be crystal clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development . . . and factors damaging social stability will grow." - Wen Jiabao, Chinese Premier
Mike Morgan - There is nothing more I can add to that, other than to say . . . if that's what they are revealing to the public, we are in for a firestorm in China that will rock the world.

QUOTE - "China's economy is losing momentum faster than expected: the central bank needs to act," said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong.

Reflating the Dragon - The Economist
Can the world's fastest growing economy avoid a sharp downturn?
Mike Morgan - I love the line in this article . . . "Only China can save capitalism." According to local newspapers, half of China's toymakers and one third of its shoe firms have disappeared this year.

Cruel Christmas: How Many Will Fall? - Business Week
With sales diving and nowhere to borrow, a brutal holiday season may mean extinction for some chains.
Mike Morgan - I'm not sure I have to expand on this. I am writing this early morning on Black Friday. Our research and mystery shopping notes, point to the worst Black Friday since TGD. That sounds better than The Great Depression, but it doesn't change anything. The media showed all the lines outside Best Buy and Macy's, but the media didn't expand on why people line up at 3AM in 20 degree weather, when the store doesn't open till 7AM. They line up for the half a dozen laptops that are being offered at $300 or the two plasma TV sets at half price. But they are NOT lining up for full price product. This year, the retailers will be selling a lot of product at less than their cost. This year, we will see retailers dumping product to monetize their inventory . . . at any cost. And for those that don't get it . . . they will monetize inventory in bankruptcy. By the way, all of these troubles have yet to filter through to China. More on China below.

Crisis in Paradise: Meltdown Leaves Ghost Resorts - Associated Press
Sol Kerzner's Atlantis resort in the Bahamas laid off 800 workers, citing low occupancy rates. Construction has all but stopped on the Ritz-Carlton Molasses Reef resort in West Caicos. Mike Morgan - I thought this piece was interesting, because I had just finished reading another article about the $20M party Kerzner threw in Dubai for the grand opening of his Atlantis resort in Dubai. What was he thinking? But that is not the heart of this story. The real issue from the article is just how bad things are at the high end. Resorts that commanded $2,000 per night with 100% occupancy, now can't sell the rooms for half that rate . . . and they are running at 20-40% occupancy rates. The global meltdown is devastating local communities in the islands where the economy is tied to tourism.

Paulson Plan: Truly Idiotic - The Wall Street Journal
"This whole thing has been complete nonsense. We did it in the 1930's to times better than this. This isn't complicated." - Charles Calomiris, the Henry Kaufman Professor of Financial Institutions at Columbia.
Mike Morgan - While Calomiris' statement is on the money, his interview with Dennis Berman misses the mark. Calomiris, like everyone else thinks we can give people do-overs on their houses and mortgages. What he, and others, fail to realize, is there is no equitable way to do that. In fact, buying up mortgages or refinancing mortgages simply penalizes millions of people that have done it right, felt the pain, and paid the consequences when they made mistakes. So unfortunately, I must label the Calomiris plan as Truly Idiotic. A return to the Bible, is all we need because God tells us over and over and over . . . we are forgiven, but there WILL be consequences for our actions.

Goldman First to Issue FDIC Debt - The Financial Times
"Once banks raise that money, what do they do with it? Will it spur new lending?" asked Jay Mueller, senior portfolio manager at Wells Capital Management.Mike Morgan - You had to know it would be Goldman to be the first to suck up $5B under the FDIC backed debt. The problem is trying to figure out what Goldman and others are going to do with the money. Jason Brady, portfolio manager at Thornburg Investment Management notes, "What the government didn't want was Goldman and the banks to benefit from cheap funding at the expense of the mortgage borrowers." So you see . . . this is just another example of Paulson forcing another branch of the government (FDIC) to push piles of money to his friends . . . at Goldman Sachs and all of the other banks his Goldman Sachs buds have now infiltrated.

Debt Struggles and Elderly Living - The New York Times
Mike Morgan - Very briefly . . . we never had retirement homes and pensions and assisted living in the 1930's. What is going to happen to the millions of elderly, when their assisted living and end of life care is gone? What happens when companies like Sunrise Assisted Living and Brookdale Senior Living go out of business? Do we shut down the buildings and tell the residents to leave? Go where? That's what they will ask. Who will take care of me. It's a double whammy, because they will lose their homes and their pensions and retirement plans are being systematically wiped out by guys like Paulson, Thain, Prince, Mozilla, Waggoner, Steel, Mulally, Dodd, Schumer, Frank et al.

State Bail-Out Looms for Italian Banks - The Financial Times
Mike Morgan - Just a few months ago, we heard that Italy was immune to the problems facing the rest of the world. No one is immune, and that is why the dollar will remain the world's currency.

Reykjavik Borrows $10B to Stave Off Economic Collapse - The Financial Times
Mike Morgan - At the opposite end of the spectrum from Italy is Iceland. Here we have a country that has failed. The world has yet to admit the failure, but we are dancing around the corpse as if it is going to rise. Iceland just borrowed $10B which represents their total GDP. Do you see anything wrong with this picture?

Mortgage Rates Fall as Government Expends Bailout - The Wall Street Journal
Mike Morgan - I'm so sick about hearing about mortgage rates falling, and how this is going to make it all better. The problem is not mortgage rates. In fact, they are at historical lows. The problem is: (1) housing prices that were artificially inflated in the bubble, and remain artificially inflated, and (2) unemployment and underemployment that directly effect what a buyer can afford. Those are two very simple principles, yet The Wall Street Journal, Forbes and The New York Times don't get it. As an owner of a residential real estate business, I see the problems every day. I keep pointing out that the politicians need to take a real estate tour with me. If they spent a week with me in the field, they'd be able to appreciate the magnitude of the problem and what needs to be done. My first mortgage was in 1983 at 14% . . . and I was happy to get it! It is not the mortgage rate but the value of the underlying asset that has created the crisis and that continues to fuel it. One thing we can do that will help get us back on track, is to shut down all home builders. We don't need more new homes, but we're still building. When we had too much wheat, we paid farmers not to plant. I'm not saying pay builders not to build. But I am saying we need to stop providing them with the fuel to keep building homes that continue to bring our markets down.

Dueling Headlines - The Financial Times
1 - Paulson Gives Revival Plan Hard Sell
2 - Pessimism is Still Order of the Day
Mike Morgan - These articles appeared one on top of the other. The first article discusses how Paulson continues to pump the liquefied manure out of the useless hole in the front of his head. The second article discusses consumers and their extreme pessimism. You see, no matter how much money Paulson pumps out to his buds on Wall Street, Main Street is not buying. They are not buying goods and services, and they are not buying Paulson's liquefied manure.

Default Fears See Bond Insurance Hit Peak - The Financial Times
Mike Morgan - Things are getting worse . . . not better, as Paulson and Bernanke would like you to believe. Corporate debt insurance is now higher than during the Lehman collapse. This is not good news. Stock markets are said to predict the future . . . and they are rising lately. However, the cost of insuring corporate debt is a more accurate predictor of what is yet to hit us. This is where the real money plays.

The Subprime Wolves Are Back - Business Week
Mike Morgan - Another excellent article with facts and truth. No one does it better than Business Week. This is a must read article . . . for regulators and politicians. The same guys that fed on the fat created during the subprime years, are back at it again. You see, none of these guys ever went to jail. In fact, only a handful were even threatened with prosecution. So they shut down their companies, walked away from their offices, and took a vacation. Now they are back. The same guys, in the same offices . . . but now they are operating with government backing. These guys are still making loans that should not be made, but this time the government is backing them up with FHA backed loans.

Quick Thought - You've got to wonder what Citi was going to use to buy WAMU. And even if they were successful, what were they going to do with WAMU? But above all, I wonder how the FDIC and Fed even considered the deal . . . when just a few weeks later they are bailing out the very bank they wanted to saddle WAMU with. Oh . . . one more. What in the world was Wells Fargo thinking, and what's in store for them when they find out Paulson and Buffet screwed them.

Banks Back CDS Clearing Proposal - The Financial Times
The initiative suggests that dealer banks are stepping up their campaign in Washington to head off proposals for a radical overhaul of the sector, including attempts to force the entire industry to move trading in contracts such as credit default swaps (CDS) on to an exchange.
Mike Morgan - Holy cow. Can you believe that. The banks actually want to regulate themselves. But regulation is not the proper word, is it. More like, "hide the evidence." So the banks want to set up a clearing house before Washington sets some hard rules and regulations. Two problems here. One, the banks can't agree on what they are, what they owe or what they do, so how are they going to agree on a clearing house. And two, it is very unlikely that Obama is going to set any hard to swallow regulations for the banks. After all, he needs them, their money and their clout. He doesn't have the gonads to rock the boat. Hillary does, but we elected Obama.

Toxic Assets: Still No Takers - Business Week
Meanwhile the government's hasty retreat has only made the assets more poisonous. Some top-rated securities backed by home equity loans are valued at 40 cents on the dollar, vs. 67 cents when the rescue plan was announced two months ago . . .
Mike Morgan - The article goes on to note that the value of some securities might be close to zero. Nothing new there, just that it is finally starting to make it to mainstream media. The big problem is Paulson. He hoodwinked Congress into giving him money to buy toxic assets, but when he realized just how toxic the assets were, he changed his mind. The bottom line for banks around the world, will be trillions of dollars in write downs. We have not even scratched the surface when it comes to marking these assets to market . . . and now what mark to market is dead, it will be interesting to see when we admit the inevitable.

Paulson's Hedge Fund Returns To Mortgage Securities - The Financial Times
Mike Morgan - John Paulson has announced - again - that he is buying mortgage backed securities. He announced this a few months back, but I guess he realized he was too early, and he decided to re-announce, maybe hoping no one would remember he started buying six months ago. I have too words for John - too soon. Then again, if he is buying them for pennies on the dollar, and not dimes on the dollar, he might be making a wise investment. With $36B under management, he can afford to make a lot of mistakes . . . and still go home with a huge paycheck.

Lands of Waste and Debt - Barron's
The states send signals that it will not be a happy spring.
Mike Morgan - Yes, "spring," because this piece was written in April by Thomas Donlan. I like to pull old articles and chuckle about how right or wrong they were. Donlan is one of the best when it comes to reality and telling it like it is. In this piece he points out just how dire things are for the states . . . and he did it eight months ago. Things are much worse now. Moreover, as Corzine, Patterson and Arrrrnolllld have pointed out, things are now out of control - in free fall - and the states are looking at the Fed for help.

Our Spendthrift States Don't Need a Bailout - The New York Times
Governors need to learn to use fat years to prepare for lean ones.
Mike Morgan - B-I-N-G-O and a great editorial from Steve Malanga, senior editor at the Manhattan Institute's City Journal. Malanga points out how politicians use the fat times to boost their own political careers by handing out jobs and increasing benefits and pension candy. Now that reality has set in, there is no way out other than a horrible Depression that wipes out much of the pension candy and friends-and-family benefits created over the past 20 years.

Bucking the Trend - Florida Trend
Government keeps hiring even as the private sector in Florida trimmed more than 100,000 jobs in a year.
Mike Morgan - This is in the current issue of Florida Trend. On the one hand the states want the Fed to bail them out, but on the other hand, the states are still spending like there's no tomorrow. Roll this down a notch to the county level, and you are witnessing cut backs of basic services like police, fire, emergency response and education! In the roaring 20's we danced around and spent money just like we have been for the last 20 years . . . the only difference is the music. But just like the 20's, the music will stop and there will be a lot of folks without chairs . . . or homes. By the way, the City of New York had about 240,000 full time employees in 2003. Now the number is north of 300,000. And the biggest jump . . . just last year. So much for the wisdom and fiscal management skills of Mike Bloomberg. Like Obama, Bloomberg speaks well and is great at marketing himself, but when it comes down to substance, there is a lot to be desired.

States Cut Services for Elderly, Disabled - The Wall Street Journal
As budget shortfalls force reductions in home care, low-income people may face nursing homes, advocates say.

Florida Finance Chief Calls for Special Session - Scripps Treasure Coast NewspapersCalling Florida's financial outlook "ugly," the chief steward of the state's dwindling finances said. Chief Financial Officer Alex Sink said legislators need to act quickly to figure out what programs to cut and whether to find a way to raise fees, taxes or find other sources of money.
Mike Morgan - Duhhhhhhhhhhh

Local Zeroes - The Economist
Michael Nutter, the mayor of Philadelphia, commandeered the airwaves to announce spending cuts and tell citizens to "prepare for the worst."

Lawmakers Debate Pitfalls of Loan Modification - The New York Times
Can securitized mortgages be revised?
Mike Morgan -Interesting article that could have been summed up in one paragraph . . . Some hedge funds, including Greenwich Financial Services and Braddock Financial, told banks in October that they might sue the banks if they changed mortgages that were within mortgage bonds that the hedge funds have purchased. This really says it all. If you still think there are going to be loan modifications of mortgages that are in pools, you still believe in the Easter Bunny. The only way out of the mortgage crisis, is the pain of foreclosures and a complete collapse of the financial system that owns this toxic ka ka.

Prices Post Rare Fall; A New Test for the Fed - The Wall Street Journal
Mike Morgan - As prices fall so will earnings and so will PE ratios. I only offer that tidbit because so many of the experts are pointing to historically low PE ratios. First, they are not historically low. In fact, they are not even very cheap . . . yet. PE ratios will drop lower before we get anywhere near a bottom. But I have one question. What do you call a PE when there are no earnings?

Chinese Regulators Ask Banks to Increase Capital Adequacy Rations - The Financial Times
Chinese regulators have asked the country's banks to increase the amount of capital they have on hand in anticipation of deteriorating growth and expectations that state-owned banks will be made to underwrite the bulk of Beijing's economic stimulus package.
Mike Morgan - What can I say? I keep hearing that China will lead us out of the slump. I have not bought that line of ka ka. In fact, when everyone was calling for a 9% GDP in China, I pegged it at 0-3%. Last week when that 9% was lowered to 7.5%, my numbers started looking better. But I'm pulling my 3% and looking for at best something close to flat for China in 2009. We are still underestimating the level this Depression will reach and . . . we are underestimating the social unrest that will tear China apart in 2009. A perfect example of the very beginning is a shot in The New York Times with the caption . . . Workers laid off by the Kader Group, a Chinese toymaker, surrounded a police vehicle on Tuesday in violent protests of the company's job cuts.

Chinese Airlines Seek Emergency Aid - The Financial Times

QUOTE - If you look at the subprime problem in the U.S., you would say we're in the eight inning, or maybe the top of the ninth. - Morgan Stanley CEO - John Mack
Mike Morgan - And this guy still has a job paying millions of dollars. By the way, the quote was made during the first week of April 20008, almost eight months ago. Maybe he meant we are in the ninth, but there are going to be 20 innings of extra innings.

One more dumb dumb from April - Texas Pacific Group (TPG) gives WAMU $7B. Do ya think they did any homework before they forked over $7B of their clients' money? Or were they more concerned with the commissions and fees they were going to earn.

Homeless in a Flash, Hundreds in Texas Now Wait for Relief - The New York Times
Mike Morgan - Although this article deals with the aftermath of Hurricane Ike, it struck me that we are seeing more and more homeless in the wake of the current financial crisis. Then again, wake is the wrong word. A wake is what boats leave behind. We are still entering a financial crisis that I put at inning 4 or 5, at best. On a recent research trip I noticed more street beggars and more homeless living under highway overpasses. I saw homeless in places that I have never seen them before. Just how bad it gets depends on how long the government keeps giving our money to Wall Street crooks like the one at the top handing out the money.

Enough Shock Treatment? - Business Week
"There is a very severe deleveraging which you can't stop," says Anders Aslund, senior fellow at the Peterson Institute for International Economics in Washington. . . . it's clear that we're deep in unchartered territory - or at least territory that hasn't been explored since the Great Depression. Economists and policy makers are floundering.
Mike Morgan - Another superb article by Peter Coy. He faces facts and reports the truth . . . unlike so much of the dribble in the Wall Street Journal, Forbes and the talking GE puppets on CNBC. As Peter's article points out, we are headed for more shock, because no one is considering treatment of the problem . . . instead they are focusing on self preservation and how to make friends they will party with when the masses are eating cardboard. Buffet Blunders - We've seen and heard a lot about Buffet's deals with GE and GS, but there's not a lot of color about his naked PUTs on $37B of equity indexes. We know he pocketed $4.8B in premiums, but we're not sure what his real exposure is. Most of what we hear, is that there will be no loss until 2019 at the earliest . . . and this stretches out for another eight years. Warren may not be around then, so maybe that's why the big bet. But if we enter an era of decline similar to Japan, Buffet will have come full circle on his life as an investor.

Record $40B is Redeemed from Poorly Performing Hedge Funds - The Financial Times
Mike Morgan - For those media yappers that are insisting the worst is behind us when it comes to redemptions . . . one word - WRONG. Redemptions in October were the highest since the numbers were first compiled in 1990. The worst is yet to come. Many hedgies are going to go down in flames. They can't liquidate, so they are hoping for a miracle. For some, this week's rally in the builders, banks and other losers was an opportunity to sneak out of some positions. But that will not last long, and as more investors request redemptions, more hediges will be forced to sell. For those hedgies that have their clients' funds locked up, these hedgies will most likely be the guys we read about as their funds go belly up with a big stink.

Perot Fund Liquidates as Debt Bets Turn Sour - The Wall Street Journal
Mike Morgan - Ooops, another "value investor," "buy-out king," "turnaround expert," takes it on the chin. But it doesn't end there. The article featured in the top right hand corner of the Money & Investing section, goes on to point out a few other funds coming apart . . . Petra Capital Management, Guggenheim Partners and Centerline Holdings. By the way, Centerline is run by Stephen Ross and Petra by Andy Stone . . . two more experts that totally missed the collapse. Why? How? Easy. Huge management fees and huge bonuses with no downside risk. None. In fact, much of the money these funds were "investing" was silent money from pension funds, endowments, municipalities and others that wouldn't think twice about questioning such names as Perot, Guggenheim, Ross (Wilbur or Stephen), Buffet and Icahn, just like no one questioned Hank Paulson and the schemes created on his watch at Goldman Sachs that were rolled out to the world with a deadly viral effect.

A British Lesson Auto Bailouts - The New York Times
"I'm not telling the U.S. what to do, but the lessons of the British experience is don't throw good money after bad." - Leon Britain, a top official in the government of Margaret Thatcher.
Mike Morgan - A lesson to be learned from the British "failed" bailout of British Leyland. The

Mother of Bear Market Rallies is on the Horizon - The Financial Times
Mike Morgan - That headline was a statement from Barton Biggs. Sadly, Barton has tarnished his reputation and in recent interviews, he appears openly bitter that the markets are not doing what HE wants the markets to do. Biggs, just like Wilbur Ross, Warren Buffet, Kirk Kerkorian and so many other wizards of finance are starting to look foolish, while their arrogance and egos keep them from admitting and acknowledging what is happening and where we are going. Biggs, as others, believe that we are down so far, that we can't go any lower. That type of arrogance has destroyed more than a few financial powerhouses.

TRIAL SUBSCRIPTION - ONE MONTH
Our Model Portfolio is now up more than 200% since June 27th using short positions and options to take advantage of falling markets. Our biggest winners have been builders, financials and REITs.

I am offering a one month trial for $150 that will include all conference calls and Model Portfolios. Want to see what you're missing and start making money in this market? Here's the $150 PayPal link for a one month trial . . . including all five calls this week. https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=703443

THIS WEEK'S CONFERENCE CALLS We will be holding the following conference calls this coming week. There will be two All-Client calls and three Trader-Only calls. If you are not a client you may purchase access to all five calls for $120 through our PayPal link at https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=1500490

Here is this week's line up:
Monday - 8:00AM - All Clients
Monday - 9:20AM - Trading Clients Only
Wednesday - 9:20AM - Trading Clients Only
Wednesday - 6:30PM - All Clients
Friday - 9:20AM - Trading Clients Only

$150 One Month Trial - I am offering a one month trial for $150 that will include all conference calls and Model Portfolios. Want to see what you're missing and start making money in this market? Here's the $150 PayPal link for a one month trial . . . including all five calls this week. https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=703443