Oil is at $51 a barrel today, down 65% from its July highs (and even further away from the summer hysterics of T. Boone Pickens). Commodity prices are collapsing everywhere in the world, validating the long-held predictions of bears like Gary Shilling and Nouriel Roubini.

The specter of deflation has spread from their prophecies to the public square. This morning at 4 a.m. I drove from my home to the Fox studio in San Francisco, and news radio was full of deflation talk. Roubini  himself calls the 2008 downturn a "stag deflation" and Shilling says 30-year Treasurys are the only safe value store in a deflationary storm.

The only question seems to be, to which deflationary period in history can we compare our present crisis? Will we suffer a long deflationary period, as America did in the 1930s? Or as Japan has suffered since the 1990s?

Hmmm. Maybe, just maybe, this deflation talk is oversold.

Let's ask ourselves: What is gold telling us right now? At $785 an ounce, gold has held up relatively well during late 2008's great asset deflation. What does this mean?

For one thing, gold is telling us that oil is cheap. The relationship of gold and oil prices for the last several decades is well-established. It typically takes 10 to 15 barrels of oil to buy an ounce of gold. When the oil-gold price ratio is outside that box, something is askew. For example, gold briefly broke through the $1,000 barrier last spring while oil was similarly smashing the $100 barrier. Then oil kept going, all the way up to $147 in July. The historical oil-gold price ratio band was broken. Oil was in a bubble of its own, well beyond the general commodity bubble.

Now oil is again outside the oil-gold price ratio band, slightly, and this time to the other side. This tells me oil is cheap. It is not likely to get a whole lot cheaper.

Gold's price durability also hints that deflation will not last as long as Roubini and Shilling say it will. Gold might be telling us that an economic recovery, whether it occurs in late 2009 or 2010, will come at a price--inflation.

That's what happened during the 1975-76 recovery from the 1973-74 bear market and recession. By mid-1976, stocks had recovered almost all of the losses. But inflation quickly rained on the recovery's parade. Annual inflation was an already troublesome 5.5% at the beginning of the 1970s. Following the 1973-74 downturn, inflation reappeared with a vengeance and ended the decade at 11%. Since capital gains were not indexed for inflation, stocks began sliding again.

Seems to me that $785 gold is signaling more of a 1970s scenario than it is the American 1930s or Japan in the 1990s and early 2000s.

If that's the case, then stocks are a good place to be right now and for the next 12-18 months. But after that, hard assets such as houses and oil might be more profitable.

What do you think? Will deflation drag on for years? Or is 1970s-style inflation lurking around the corner? Post your thoughts below.

No one expects President-Elect Barack Obama to govern as a supply-sider. He didn’t campaign that way. His voting record in the Illinois legislature and U.S. Senate was on the other side of the moon.

Having prepared for the worst, we business enthusiasts should feel some relief with Obama’s cabinet and adviser picks. Hillary Clinton is a solid selection for secretary of state and shows Obama’s confidence. We're glad Robert Gates stays at Defense. The U.S. economy could do worse than having the Rubinesque Tim Geithner head Treasury and Larry Summers head the National Economic Council. Two of Obama’s really good picks are Christina Romer to lead the Council of Economic Advisers and New Mexico Governor Bill Richardson to head Commerce. Romer is something of a supply-sider on fiscal policy. Richardson is a tax- cutter who supports global trade.

Not a bad lineup, I would say.

The big worry will not be Obama, but Nancy Pelosi’s left-wing Congress. Henry Waxman’s takeover of the House Energy and Commerce Committee could be a disaster. Waxman is backed by Hollywood’s extreme greens, and he loves hectoring business. Look for oil companies and Big Pharma to be dragged to Washington for Waxman's show trials.

Here is where I hope Rahm Emanuel will step up. Business will need Obama’s chief of staff and legendary tough guy, Rahm Emanuel, to enforce some centrist sanity. Let us hope Emanuel tells the Pelosi-Waxman House Brigade to not bring legislation so leftist and destructive that it will further damage the economy. This would, of course, alienate the independent voters who elected Obama--and Emanuel knows it.

What do you think? Has Obama signaled a leftist or centrist presidency with his early appointments? Assuming it is the former, will the Obama administration and its field general Rahm Emanuel stand up to the likes of Pelosi and Waxman?

Post your thoughts below.

In addition to its other mistakes, Detroit's addiction to fleet sales, particularly of rental cars, was a killer. This strategy helped destroy the brand value of its sedans. Follow my logic:

Detroit was once an innovation hotbed in the world. During the first half of 20th century Detroit mattered to the U.S. and global economies in the way that Silicon Valley matters now. This obviously is no longer the case. Does anyone wait breathlessly for the introduction of next year's Big Three car models? We have stopped caring. Investors have stopped caring, too: GM's market value of $2 billion is a blip in the scheme of things.

It is never easy to face one's decline and loss of status. France, for example, could never imagine that French would cease to be the international language of diplomacy and business. Facing decline, France enacted silly laws to prop up the mother tongue, such as requiring the use of French in the public square, in advertising, etc.

Detroit, central to the good guys' efforts to win World War II, never imagined that it would cede its leadership to World War II's bad guys and losers. When evidence of its decline began pouring in, Detroit employed tricks to prop up its sales. Such as fleet sales.

Back in the 1980s and 1990s, buyers began to prefer the Honda Accord and Toyota Camry over the Ford Taurus. More a matter of pride than sound business thinking, Ford propped up the Taurus with massive discounts to fleet buyers. Ford simply would not let the Camry and Accord outsell the Taurus. Ford mistakenly thought people cared about sales rankings. But only Detroit insiders cared. Customers and investors didn't give a fig whether the Taurus was No. 1.

In my opinion, Detroit's fleet sales strategy was a marketing disaster.  For many people who had switched their personal allegiance to German or Japanese brands in the 1980s and 1990s, renting an American car was the one chance to see what Detroit was up to. Stop and think about this. When was the last time you were impressed with a rental car? A rental car, usually an American nameplate, almost always a no-frills model, often reeking of cigarette smoke, makes the worst kind of branding statement.

I am in Colorado today, where I rented a Ford Escape, a crossover (SUV body on a car platform), to drive from Durango, Colo., to southeastern Utah. The Escape is similar to my own Lexus 350RX crossover, so here is a chance to compare Detroit's offering to my own wheels. OK this is not a perfect comparison, because the Escape costs quite a bit less than my Lexus. Not perfect apples-to-apples, but close enough.

The Escape is a nice enough vehicle. It is solidly built, handles well, and sports a tight fit and finish. But because it is a rental car, it comes with an underpowered engine and no cruise control. A puny engine and no cruise control is no fun in the high plains and mountains of southern Colorado and Utah. Lots of lurching--the automatic transmission never quite knows what to do.

What is my verdict on the Ford Escape so far? It is, hmmm, OK, no better. I suppose the Ford Escape with a stronger engine and cruise control would offer a pleasant driving experience. But I never had the chance to find out, did I?

This is a huge branding mistake, one also made by General Motors. You don't see Toyota stripping out most options for fleet sales. I recently rented a Toyota Highlander. Though it lacked adjustable seat options of a top-frills model, the engine was powerful and it had cruise control. I will seriously consider the Toyota Highlander as my next vehicle.

Post your comments below. Have no-frills rental cars damaged the brands of the Big Three? Do the Big Three deserve a bridge loan? Fire away.

The U.S. economy is in the gutter. In a few weeks we may learn that the fourth quarter of 2008 was the worst single economic quarter since the third quarter of 1982. I expect a 4% contraction.

Stocks are down 45% this year and are crawling along the bottom like a drunk after a bender. Since markets look out six to nine months, stocks are telling us that the first half of 2009 will have no meaningful recovery. Unemployment could hit 8% or 9% by spring.

What will it take to get the U.S. economy booming again? Here's an idea. Let's embark on a 12-step recovery program like those that have helped other dysfunctional entities.

Step One
Admit our mistakes. Mark-to-market accounting rules have been a disaster. Let's suspend them or recalibrate them. Let's also eliminate naked short-selling and reinstate the uptick rule. The damage from these three policy boners has mostly been done, but it would be good to admit our errors and fix them anyway.

You know, if our goal was to destroy the banking system as we know it, there was no surer way than to (a) insist on mark-to-market accounting of thinly traded distressed assets during a panic, (b) allow any hedge fund to short bank stocks without borrowing the stock first and (c) let short-selling careen downhill without brakes. That's how a market gets violent short raids. Yet this is exactly what the U.S. government--the FASB, the SEC and the Treasury--allowed to happen throughout 2008. The victims--Bear Stearns, AIG and Lehman Brothers--were cash-flow-positive right up until the point they declared bankruptcy. Did you know that?

Step Two
Let distressed homeowners renegotiate their loans to 6% fixed rates. If the homeowners fall behind in their payments, let them extend the loan length up to 50 years. This kind of adjustable-length mortgage is how dynamic Hong Kong handles housing-price volatility and keeps people in their homes.

Step Three
Pressure banks to make loans to credit-worthy customers. Punish banks that don't. Banks are getting cash infusions from the federal government! And they're sitting on the cash. This is outrageous.

Step Four
Eliminate capital gains taxes for stocks bought this year and held through the end of 2010.

Step Five
Reduce corporate taxes to 20%. The U.S. rate of 35% is the second highest in the developed world behind Japan. Is stagnant Japan the model we want to follow? The incoming Obama administration pledges to create more jobs in the U.S. Well, Mr. Obama, cutting corporate tax rates would be the best way to make good on that pledge.

Step Six
Flatten income tax rates. President-elect Barack Obama's pledge to cut income taxes for 95% of Americans--notice Obama doesn't say taxpayers--is really a pledge to take more Americans off the tax rolls entirely. Do we want a dependency culture in which 50% of eligible voters don't pay taxes? That's where we're headed. You can stop this train to Eurosocialism, Mr. Obama.

Step Seven
Lock in low taxes for savings and investment. Americans are panicked about having enough money for their retirement. Shouldn't we cut capital gains and dividend taxes? Shouldn't we expand 401(k) and IRA contribution levels?

Step Eight
Clear the way for offshore drilling and more nuclear plant certification. I've always found it amusing that American environmentalists look to Europe for inspiration. They should look harder: Britain and Norway permit offshore drilling, and France gets 78% of its electricity from nuclear power.

Step Nine
Defuse the twin entitlement bombs, Social Security and Medicare, which are growing by the minute. Doing nothing will require, by 2030, taxing the snot out of tomorrow's middle-income Americans--in the 70% range, say some. This would change America forever--and for the worse. What should be done? Once you rule out taxing citizens like serfs, there is no answer to the Social Security and Medicare mess that doesn't involve private choice in retirement and health savings accounts. It's either that or raise the eligibility age to 80. Get back to the counter, grandma!

Step 10
Reduce farm aid. Ag subsidies not only cost taxpayers $15 billion to $20 billion a year but also undercut America's argument for expanded global trade. No country can credibly lead a Doha Round when it dumps subsidized sugar onto the world market.

Step 11
Crack down on illegal immigration. Raise quotas for skills-based immigration. The U.S. has one heck of a weird immigration policy: We wink and nod at the illegal entry of non-English-speaking, uneducated workers, while turning our backs on scientists, doctors, geneticists, engineers--the next generation of Andy Groves and Jerry Yangs. It wasn't always like this. From the closing days of World War II through 2000, the U.S. was the destination nation for the world's best and brightest. It was our national policy to be so; we didn't want to lose the next Manhattan Project. Somehow, this is no longer our goal. How stupid. The global economy is more knowledge- and innovation-driven than ever. Yet we've walked away from our greatest advantage--talent recruitment.

Step 12
Pay teachers more, based on merit. The politically incorrect truth is that smart American women subsidized K-12 education from the 19th century through the 1960s. Since the 1970s, smart women have had more career choices than teaching the three R's. The talent pool in American K-12 teaching is fished out. By SAT scores and grade-point averages, would-be teachers are asked to clear a far lower bar than other professionals. Education schools are a disgrace, and are wholly unnecessary. If the U.S. wants better teachers, we must pay teachers more. To do that, we’ll have to break the teachers' unions.

Do you agree or disagree with these steps? What would you add or subtract? Post your comments below.

Watching today’s late rally makes me wonder if stocks are stuck in a roughly 800 to 1,000 S&P 500 range. Would that mean the market is feeling for a bottom? Or are these range-bound rallies just a feint before a final bloodletting and collapse to 600? Gary Shilling has been saying 600. Gary has been right of late ... spectacularly right.

A contrarian looks for majority sentiment and bets the opposite. Bull markets and real recoveries can’t begin, it is said, until the majority of people have given up hope, planned for the worst and sold every last stock they own, vowing to never buy equities again. Have we reached that point? I don’t think so. Too many people, including yours truly, Warren Buffett and Jeremy Grantham, think we are at the bottom now, or at least close enough. But if the majority of opinion says we’re at the bottom, we can’t be at the bottom. Who would take our trades?

But another contrarian indicator is bullish. That would be the number of stories appearing lately about the Great Depression. MarketWatch’s Paul Farrell argues for a Great Depression II starting in 2011. Stanford history professor David Kennedy penned a piece for Time magazine here. Time’s timing makes me happy in a strange way. In 2005 Time ran a cover story on house flippers. Anytime Time spots a trend, you know the trend has peaked. House prices peaked at the very moment Time was celebrating house speculators! In December 1999 Time celebrated the dot-com boom by making Amazon’s Jeff Bezos its Person of the Year. Again, Time called the top of the market perfectly, unwittingly of course.

The fact that one contrary indicator is bearish and one is bullish probably means we’re still operating in the fog. Maybe that’s why stocks are in a range now.

What do you think? Are stocks range-bound? What do you think of all those recent stories on the Great Depression? Is this good or bad? Post your comments below.

I began writing this blog three years ago, with the encouragement of Dan Bigman, a Forbes.com editor. Dan noticed that I traveled 200,000 miles a year, giving speeches, attending conferences, schmoozing with advertisers and visiting entrepreneurs and tycoons. Dan suggested a "travel blog."

That seemed cool, and I gave it a whirl. I quickly came to see flaws in the travel blog. There was a sameness to my travel--i.e., Rich lands in a city, gets in a car, goes to a hotel, grabs what sleep he can, gives a speech the next day and goes on to the next city. Charles Kuralt it wasn’t.

Bloggers like traffic, and I began to see that blogs about politics and stocks pulled in the most readers and lit up the most comments. In 2008, of course, politics and stocks have been the stories, dwarfing all others. Everyone has an opinion on politics and stocks, and why not? In democratic politics and democratic capitalism, anyone can play.

Next week I will launch a new blog on innovation, business mavericks, entrepreneurs and success. America and the world are in economic trouble--more trouble than I ever imagined possible--and I have little faith that politicians will make things better. The only people who can lift us out of this deep ditch are innovators, mavericks and entrepreneurs. I am reminded of something Steve Jobs said during Apple’s grim days following his return to the helm in 1997: "We will have to innovate our way out of this."

For those of you who have enjoyed my blog on politics, the economy and stocks, don’t worry--I will keep it going. There will be a prominent link to it on the new blog. But I will insist on one thing: If you want to post comments on politics, the economy and stocks, please do so on that blog. If you want to post comments on innovation, mavericks, entrepreneurs, best practices, success secrets and so forth, do so on the new one.

I deeply appreciate those who have followed my blog over the last three years. The quality of the comments are among the best and liveliest I’ve seen anywhere. You've made this a fun--and often humbling!--experience.

Let's keep it going--on both blogs!

As always, post your thoughts and comments.

Today’s blog distills the current wisdom of Vahan Janjigian, Ron Muhlenkamp, the astonishingly prescient (and still bearish) Gary Shilling and Joe Battipaglia. All four presented in the final days of the recently completed Forbes investor cruise.

Vahan Janjigian
Forbes Chief Investment Strategist
Editor, Forbes Growth Investor and Special Situation Survey Author of Even Buffett Isn’t Perfect

Janjigian takes a bottom-up view of stocks, a strategy that has outperformed the S&P for several years running. In 2008, his portfolio was up 14% prior to the September and October crash. He likes these stocks:

--Goodrich (GR)
--Valero Energy (VLO)
--Terex (TEX)
--Supervalu (SVU)

Ron Muhlenkamp
Founder of Muhlenkamp & Co.

Muhlenkamp mixes top-down and bottom-up analysis. He particularly looks at the relationship of inflation and interest rates to stock values. “I like to buy Pontiacs and Buicks at Chevy prices,” he says. With today’s low valuations and low interest rates, Muhlenkamp is bullish, as he spots plenty of Cadillacs selling at Chevy prices. More quotes:

“As an investor, I no longer care that we’re going into a recession. Consumer confidence was down for three years after the 1990 recession, and I expect it to be the same this time.”

“Stocks are cheap, but I can’t tell you that stocks won’t get cheaper.”

“If you get a P/E below an ROE, you might have a good deal. Just to be safe, take 30% off the projected earnings.”

Muhlenkamp likes banks such as:

-- BankAmerica (BAC)
-- Wells Fargo (WFC)
-- JP Morgan Chase (JPM)

Gary Shilling
A. Gary Shilling & Co.

The extremely bearish Shilling said he is up 20% in 2008. He has followed his own advice shared at the beginning of the year:

1. Sell or sell short homebuilder stocks and bonds. Aren’t these stocks cheap? No, because there is too much excess inventory. Shilling thinks houses have another 23% drop to go.

2. If you have plans to sell your home or second home, or investment properties, do so yesterday. It’s really the price of land that is going up and down.

3. Sell short subprime mortgages. Two years ago, Gary put some money with hedge fund superstar John Paulson who shorted the ABX BBB Index. This money is up 800% in two years. Now in late 2008, Shilling believes this well is tapped out.

4. Sell housing related stocks.

5. Sell or sell short consumer discretionary companies. Private labels are beating brands right now. It’s cool to save money right now. What is the degree businesses and consumers are dependent on debt just to get by.

6. Sell low grade fixed income securities; i.e., junk bonds.

7. Sell or avoid most commercial real estate

8. Short commodities. Shilling saw the commodity crash coming because too many had embraced the idea that commodities were an asset class. At the peak, "everyone who can be sucked in, can be sucked in." Shilling particularly likes copper on the downside. "There is almost nothing manufactured that does not contain copper. No cartels on the supply side. It is predominantly produced in developing countries. What do the copper producers do when prices go down? Against their own interests, they produce more! Copper could go to $1 a pound."

9. Sell or sell short emerging market equities. Shilling doesn’t believe in decoupling. Is China far enough along in its industrialization to sustain its growth with mostly domestic growth? Do they have enough of a middle class? Shilling has concluded that China's middle class is smaller than most experts think, perhaps 8% of the population.  China would suffer “major recession” if U.S. consumers went into the tank. He quickly added that a "major recession" in China means that China’s growth will slow to 5% to 6%.

10. Buy the U.S. dollar.

11. Sell U.S. stocks in general. "We haven’t got to the capitulation point yet. Just entering phases three and four of recession--the consumer meltdown and the global meltdown. We will be looking at much weaker earnings." Shilling predicts $40 in S&P earnings for 2009. The S&P would have to go down 17% to hit the 777 low. If you must be stocks, he says, buy electric utilities and consumer staples.

12. Buy 30-Year Treasury Bond Prices. Why would you want to own something that yields only 4.2%? Because bonds produce outsized returns in a climate of declining interest rates.

Joe Battipaglia
Stifel Nicolaus

The frequent Kudlow & Co. guest is 75% cash but is slowly poking his way back into stocks. He says Obama’s energy policy will have the biggest impact on stocks. Quotes:

“Katrina, a Category 5 hurricane, hit the oil fields directly and we had no oil spills. Why isn’t the U.S. doing more offshore drilling?

“Cap and trade is a recipe for further disaster.”

“After the Obama middle class tax cut, which are really tax credits, the number of non-income tax payers who are of legal age to vote will rise to 107 million. This will create a culture of dependency.”

“The recession will go well into 2009.”

“It’s too late to sell stocks.”

“Stock market will rally ahead of declining employment and confidence. Get ready for the rally. Then be skeptical. When you start getting into longer-term investment, you have to take into account government policy.”

“The first place you want to go is companies that are well capitalized and have cash flow. Buy companies that are trading at 6x to 9x cash flow.”

“You must have access to good credit analysis.”

Battapiglia’s picks:

-- Look at IBM and Verizon debt.

-- IYR (Dow Jones real estate index).

-- Get ready to buy small-cap stocks. They flourish at the beginning of a bull market.

Which investor would you give your last dollar to--Janjigian, Muhlenkamp, Shilling or Battipaglia? Or would you rather just stay in cash now? Post your comments below.

The captain of the Crystal Symphony got on the blower this morning and announced he was canceling our leg to Grand Cayman, which lies to the southwest of Cuba. We'll sneak around Cuba's east side--the Gitmo side--instead. Good grief ... hurricanes at sea, storms in the stock market. Are there no safe harbors anymore?

Today, I will share some tips from three investors: Robert Stovall, Barbara Marcin and Ken Fisher. 

***

Robert H. Stovall
Managing Director and Strategist
Wood Asset Management

Stovall's Observations:

Why are stocks so volatile now? Prior to 2008, major index daily declines of 2% occurred, on average, only four times a year. During the last 12 months, this has happened 29 times.

Volatility has increased because of structural changes:
--Elimination of short uptick rule.
--All trades of 10,000 shares or less are processed electronically. Institutions that have larger blocks break them up.
--High volume of direct trading between institutions.
--Broker-dealers are being paid much less on transactions. Order flow is not handled as smoothly as it used to be.

Pessimism is at a high. John Templeton said buy when pessimism is extreme. We are nowhere near a Great Depression. We likely have touched bottom. Worst case is S&P could sink to 700.

Stovall's Tips:

--Always put in a stop loss, at 5% to 10% below your purchase price. You'll pay better attention to your stocks. Range is a matter of taste.
--You never go broke taking a profit.
--Sell when the P/E reaches 1.5 times of when you bought it. Never sell a stock, long or short, simply because it appears overpriced.
--Don't go short in a bull market.
--Don't sell on price dullness. It could be a takeover candidate.
--Cut your losses; let your profits keep moving.
--The bears have Thanksgiving; the bulls have Christmas.

Fundamental red flags:

--Slowing top line growth
--Earnings shortfall
--Falling profit margins
--Rising Sales expenses
--Product obsolescence
--Dividend reductions and eliminations
--Reduction in research and development spending
--Increased inventories
--Increases in collection periods on receivables
--Extreme management platinum perks

Reasons to sell:

--Deteriorating fundamentals
--Better opportunity for your money
--Loss of confidence in management

Think about how you're going to sell when you buy. Selling is the most difficult portfolio tactic. Expect lots of tax selling between now and the end of year.

Stovall’s Stock Picks:

--Apache
--Bank of America
--Coach
--Walmart
--CSX
--State Street
--Northern Trust
--Disney

***

Barbara Marcin
Portfolio Manager
Gabelli Asset Management

Marcin's Observations:

We’ve just had a worldwide margin call.

Capitalism is based on confidence, and the government's ad-hoc actions hurt confidence.

We’ve seen the worst of the bear market. Bounces off the bottom can be dramatic.
1973-75:  Stocks up 80% within a year.
1982: Stocks up 65% within two years.
1990: Stocks up 60% in next three years; up 200% by 1998.
2002: Dow up in 2003.

Only twice have stocks not moved over a decade: In 1966-1975 and in the 1930s.

Marcin's Picks:
(P/Es listed first, dividend yields second)

--ConocoPhilips (5, 3.8%)
--Chevron Texaco (7, 4%)
--Verizon (11, 6%)
--AT&T (9, 6%)
--Bank of America (15, 5.6%)
--JPMorgan Chase (15, 4%)
--Pfizer (7, 7.5%)
--Duke Energy (12, 5.8%)
--FPL Group (11, 4%)
--Archer Daniels Midland (8, 2.8%)
--PepsiCo (15, 3%)
--International Paper (8, 5.9%)
--Honeywell (8, 3.9%)
--General Electric (10, 6.4%)

***

Ken Fisher
Founder and CEO
Fisher Investments

Fisher's Observations:

Surprise is what moves the market. When we elect Democrats, we think they're going to be terrible. Then they turn out to be not so terrible.

U.S. tax rates don’t have as big as impact as you think they have. That’s because the stock market is global, and the U.S. is only 25% of global GDP.

The nature of bear market bottoms tends to be V-shaped. Two exceptions: 1939 and the end of 1942.

MSCI World Index is back to where it was in January 2003. Adjusted for tax rates and interest rates, stocks are cheaper than they’ve been at any time during your adult lifetime.

We are not having another Great Depression. During the Great Depression, money supply shrank by one-third. Since September, the Fed has flooded money into the system. This money will ripple into stocks before it goes into inflation.

Fisher's Stock Tips:

Stocks that fall the most late in a bear market are the stocks that bounce back fastest. The hardest thing to do is buy categories that went down the most. Here are sectors that have fallen the hardest since July.

--Materials, -57%
--Industrials, -44%
--Financials, -44%
--Energy, -43%
--Info Tech, -38%
--Consumer Discretionary, -37%
--Utilities, -33%
--Telecom, -32%
--Health Care, -24%
--Consumer Staples, -22%

Where do you want to be? A good strategy is to buy the top players in the sectors that fell the most during the last six months. If you have a greater risk tolerance, buy the second- and third-tier stocks in these sectors.

***

Next week, I'll share the advice and picks from Vahan Janjigian, Ron Muhlenkamp, Joe Battapaglia and Gary Shilling.

What do you think of the advice and picks? Are you buying, selling or staying put? Are today's wretched employment numbers already priced into the market? Post your comments below.

A quick election wrap-up first:

Sen. Obama deserved his win. He organized the best campaign and ran his playbook to perfection. As The New York Times reports today, it was a near flawless run.   

As for the Senate, it looks as if the Democrats will have a 57-seat majority, the same as Bill Clinton enjoyed during the first two years of his first term. The number 57 assumes that Norm Coleman will hold on to his 577-vote lead after a Minnesota recount, that Saxby Chambliss either won enough votes (50%) to avoid a Georgia runoff or will win the runoff, and that Alaskans will vote for another Republican if and when Ted Stevens is carted off to jail. Would Sarah Palin resign her governorship to run for the Senate?

It will be no small victory for Republicans to deny Democrats a filibuster-proof 60-seat supermajority or even a working one of 58 seats if you add Arlen Specter and Susan Collins to the Dem caucus. It means debates over union card checks and the Fairness Doctrine will at least get a public airing. I don't think Democrats want a public airing on those and other issues.

Now, let's leap forward ... to the great tax revolt of 2012:

Here is what will happen. Inflation is sure to reignite at some point. When? Well, that depends on when you think the economy gets back to 3% or better growth. It won't happen tomorrow. The fourth quarter will be as ugly a quarter as we’ve seen since 1982, and I guarantee you that no one will be talking inflation for several months.

What of 2009 and 2010? Your guess is as good as mine. I think the economic recovery will happen sooner, but y’all know I’m an optimist on these matters. The bearish Gary Shilling just told Forbes investor cruisers Wednesday that he expects house prices to drop another 1% per month for two years. Too many houses on the market. Excess inventory is the enemy of price. If Shilling is right, half of mortgage payers will be underwater in two years. That would have devastating consequences on consumer spending and push the recovery out to late 2010 or 2011.

But sooner or later the economy will recover. When it does, figure inflation to kick in–the Federal Reserve has poured $1 trillion or so into the financial system just since September, according to Shilling. Also expect taxes to go up, just as President-Elect Obama has promised.

Inflation and progressive taxes are a toxic brew. We haven’t heard the phrase "bracket creep" since Ronald Reagan ran against Jimmy Carter in 1980. Reagan knew that middle-income Americans were being inflated into higher tax brackets designed for the rich and were feeling mightily annoyed about this.

I predict the 1970s will play out again. Revolt against bracket creep will re-emerge as a top political issue soon after the economy recovers, the Fed’s easy money will spill out as high single-digit inflation and Obama will fulfill his election promise to hike taxes on the "rich." Upper-middle-class professional households earning $100,000 to $250,000 a year in 2008 dollars will find themselves inflated into higher incomes and then taxed like Swedes: Their income, payroll, state, sales, dividends and capital gains taxes will all go up--and keep going up, up, up because of inflation.

A tax revolt is coming. By 2012 it could dominate the election. Ironically, the great 2012 tax revolt will break out in the blue state suburbs, which tilted for Obama in 2008. A family income of $100,000 to $250,000 is not exactly living large in many blue state suburbs even now. That income will seem even less after inflation, higher taxes and bracket creep have done their nasty work.

Do you see a tax revolt coming? Post your thoughts below.

John McCain must draw an inside straight of four states--Florida, Virginia, Pennsylvania and Ohio--to win tonight's election. It could happen. The RealClearPolitics map shows all four states to be toss ups. But the odds are poor. Intrade bettors give Mac less than a one-in-ten chance of winning the election.

Figure 51%-45% of the popular vote and 300 to 310 electoral votes for Obama. That's pretty much the consensus. I don't see much evidence for making a contrarian prediction. But I'd love to hear your bold call, if you have one.

The main event will be the Senate elections. It is interesting that the pro-business, pro-entrepreneur, pro-investment Obama voters I know fear a 60+ seat Democratic majority just as much as I do. You can see why. A filibuster-proof Democratic majority could do serious damage to the dynamism of the American economy.

For you Obama supporters, blame President Bush all you want for the rough economy. There is some merit in your argument. It is your partisan duty to do so. But after you've exhausted yourself, please tell us what will get the American economy back to sustainable 3% growth. Be specific. I don't think trade wars, labor strikes and a dearth of investment capital will get us to where we want to go.

If top income taxes go to 40%, and taxes on capital gains and dividends go to 20%, America will be okay. These hikes are already priced into stocks. Clinton-era taxes were at that level, and the record says America did well in the Clinton years. A Clintonian tax scheme is what America will get if Obama becomes president with a 57-58 Democratic Senate majority.

If the Democrats win a larger majority, especially the 60+ seat filibuster-proof majority, look out. Taxes won't stop at Clinton levels. In addition to capital strikes, we'll have labor strikes, reduced supplies of energy and therefore higher energy costs (with new sources of coal, nuclear and offshore drilling likely off the table) and higher costs of imported products.

Taxes, tariffs, strikes and high fuel costs. That sounds like western Europe.

So watch the Senate tonight. Minnesota will be a bellwether. If Al Franken defeats Norm Coleman, America will be in for a long dark night.

What are your predictions? Post your thoughts below.

I’m typing today’s blog from lovely St. Maarten, a tiny island in the Lesser Antilles. This 37-square-mile dot in the water is a deeply conflicted place--sort of like investors and entrepreneurs who are voting for Obama tomorrow. The island, which is also called Saint Martin and Saint-Martin, has never really made up its mind about its name, its spelling, whether it lies in the Atlantic Ocean or Caribbean Sea, or whether its true soul is Dutch or French. All the naked sunbathers are on the French side, if that helps.

Here are some sound bites from Steve Forbes and Pete DuPont, two supply-siders and former presidential candidates, on the financial crisis, the economy, Tuesday’s election and the likely consequences for America’s future:

Steve Forbes

-- “Bear Stearns and Lehman Brothers were cash-flow positive right up until their bankruptcy. Losses were paper losses, due to mark-to-market accounting. If we had had mark-to-market accounting in the 1980s, virtually every major financial institution would have gone under. We would have had a Great Depression in the 1990s.”

-- “The SEC made a disastrous error in not enforcing its rule on naked shorting, a scheme for which you don’t have to actually borrow shares to short. So naked shorts started picking out banks with paper losses.”

-- “We came near to a financial catastrophe when $142 billion of money market withdrawals occurred in one day.”

-- “What happens next? The fourth quarter will be a disaster. But the economy could revive by springtime.”

-- “What should be done now? Stabilize the dollar. Use gold. Pick a range, say $500 to $550. Announce the range in advance. Everyone will know the currency is going to be stable. I guarantee you, you’d see a huge sigh of relief around the world.

-- “Lower taxes. They are a price and a burden. They don’t just raise revenue. They are the price you pay for working, for saving, for risk taking. Raise the price on anything, you get less of it.”

-- “Forget rebates. They don’t change incentives.

-- “Break up Fan and Fred into eight to 10 companies and recapitalize them. Let them compete. If one goes broke, let it go. You won’t have systemic risk.”

-- “Suspend mark-to-market accounting rules.”

-- “Eliminate naked short-selling and bring back the short uptick rule.”

-- “Social Security--privatize it with guidelines governing asset allocation.”

-- “Health savings accounts--give people control over their health dollars and let them buy insurance across state lines. Why does Lasik surgery cost half of what it cost 10 years ago? Answer: Consumers pay out of their own pockets.”

-- “Bottom line: Financial crisis is serious, but the fever is broken. ”

What kind of stocks does Steve like now? Better-quality financial stocks, high tech and emerging markets. He recommends Vanguard mutual funds covering these sectors.

Pete DuPont

“One dishonest man is a disgrace, two is a law firm, three is a congressional delegation. Democrats will gain 25 seats in the House.”

-- “Watch the Senate races. America may turn out to be very different after Tuesday. Colorado, New Jersey, New Mexico, Alaska and possibly North Carolina, Oregon, New Hampshire and even Minnesota will add to the Democrats' majority. Expect the Democrats to have a 58-seat majority. Add the votes of liberal Republicans like Arlen Specter and Susan Collins and the Democrats may reach a filibuster-proof majority.”

-- “What will this mean? I think it will be the Europeanization of America. We will become France. Much bigger government. Higher taxes. Much more regulation

-- “Obama’s proposal is that government spending will increase $300 billion, or 10%, each year. By contrast, George Bush raised spending about 6.8% per year, and Clinton about 3.5%. Spending continues to accelerate.”

-- “Obama has said that taxes will go up only for those making $250,000 a year. But Joe Biden and Bill Richardson have said taxes will go up for people making $100,000.”

-- “We’ll see more protectionism. Free trade will be substantially reduced. Exports contribute to 5 million jobs, so many of these jobs will be eliminated.”

-- “Another change coming is the withdrawal from Iraq. Barney Frank says defense spending will be reduced by 25%.”

-- “We will see national health care in one form or another. We will see global warming bills. We will see no end to current subsidies, such as $15 billion to $20 billion in farm subsidies per year, and $3 billion in ethanol.

-- “One of the first things passed by Congress will be the end of the secret ballot for union membership. I think that is one of the first things that will pass in the House and Senate.”

-- “Fairness Doctrine will be back.”

-- “If Obama is smart, his first appointment to the Supreme Court should be Hillary Clinton. That way, he can get her out of politics.”

Not happy developments if you call yourself a libertarian, a conservative, a businessperson or an investor.

Tuesday and Wednesday I will blog about the election. On Thursday and Friday I’ll share the investment advice and stock tips that were dispensed by Vahan Janjigian, Robert Stovall, Barbara Marcin, Gary Shilling and Ken Fisher. The contrast between bear Shilling and bull Fisher could not be starker. Stay tuned.

Speaking of starker, those naked sunbathers on the French side of the island have sparked interest from my 12-year-old son. More on this later.

Post your comments below.

Let us toast a great stock market week. There are, of course, no guarantees that this Halloween boomlet will continue and no assurances that the worst is over. Still, we'll take a good week when we can get it. Enjoy this weekend.

So, what exactly happened prior to this week? The market was surely spooked by more than just Halloween ghosts. Were stocks discounting:

1. The worst recession in decades?

2. A massive de-leveraging of the financial system?

3. An Obama presidency along with large Democratic Senate and House majorities controlled by the odious Harry Reid and Nancy Pelosi?

4. All of the above?

5. Something else?

Don't kid yourself. No. 3 played a big part in the Great October Reset.

Look, I get the Obama appeal. Really, I do. Living in Silicon Valley, I am surrounded by friends and colleagues who love the risks and thrills of entrepreneurship yet are voting for the most left-wing man to seek presidency of the U.S. since Henry Wallace. When asked about this apparent contradiction, my Obama supporting friends say things like: "Well, Obama is a symbol of the future." Or: "Obama is good for America's brand in the world, which is good for American business."

Part of me believes this to be true.

Still, facts are stubborn things. How do the Obamapreneurs reconcile the comforting image of a cool-headed Obama with the fact of his own nasty words on trade (on which Silicon Valley depends) and economic redistribution (which is antithetical to meritocracy). Why do the Obamapreneurs in Silicon Valley and elsewhere think Obama will be good for entrepreneurship?

The answer is: hope! That is the only way one can conclude that Obama will be good for the very thing that Schumpeter said drives economic progress: entrepreneurship and investment.

If Obama wins on Tuesday, let us hope we get the Obama that my Silicon Valley friends think we’ll get. That would be an Obama who:

--Only raises top rates on income taxes from 35% to 40%.

--Only raises the 15.6% FICA tax ceiling from $90,000 to $150,000.

--Only raises capital gains and dividend taxes from 15% to 20%.

--Largely supports free trade, as Bill Clinton, Jimmy Carter and John F. Kennedy did and only yaps about trade now and then to appease the unions and tree-huggers in his own party.

--Vetoes attempts from Nancy Pelosi’s Congress to kill 401(k)s. There have been two such proposals in the last month, and there will be more.

--Vetoes attempts from Harry Reid’s Senate to kill 401(k)s. Don’t think this will happen? Barbara Boxer once proposed taxing the inside gains from 401(k)s, which is the same thing as killing them.

--Doesn’t throw out the secret ballot for union membership. On Oct. 28, the Dow climbed 889 points. One of the drivers of that happy news (for one day, at least) was the end of the machinist's strike against Boeing. Strikes are pretty rare these days. How good for a dynamic America will be it if labor strikes become everyday occurrences again?

This is a lot to hope for, don't you think? The September and October stock market has shared my skepticism.

What do you think? Post your comments below.

I was in a hotel room in San Diego Monday and watched John McCain’s press conference on the economy. McCain was flanked by Mitt Romney and Meg Whitman, whom McCain wrongly identified as eBay’s founder. (Pierre Omidyar and Jeff Skoll founded eBay. Whitman was the hired-gun CEO who led eBay through its explosive growth.)

That small mistake aside, McCain talked sense on the economy, really for the first time in this long 2008 campaign. He talked with conviction. At last. (Douglas Holtz-Eakin, why were you not advising McCain to do this earlier?)

Here, from an edited transcript, is the nub of McCain’s new economic talk:

It's been a long campaign and we've heard a lot of words, and great campaign trail eloquence. The amazing thing is that we've learned more about Senator Obama's real goals for our country over the last two weeks than we learned over the past two years. It is amazing that even at this late hour, we are still learning more about Senator Obama and his agenda. He told Joe the plumber right here in Ohio he wants to quote "spread the wealth around." It's always more interesting to hear what people have to say in these unscripted moments, and today we heard another moment like this from Senator Obama.

In a radio interview revealed today, he said that one of the quote--"tragedies" of the civil rights movement is that it didn't bring about a redistribution of wealth in our society. He said, and I quote, "One of the tragedies of the Civil Rights movement was because the Civil Rights movement became so court-focused I think that there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalitions of power through which you bring about redistributive change."

That is what change means for Barack the Redistributor: It means taking your money and giving it to someone else. He believes in redistributing wealth, not in policies that grow our economy and create jobs. He is more interested in controlling wealth than in creating it, in redistributing money instead of spreading opportunity. I am going to create wealth for all Americans, by creating opportunity for all Americans.

We've all heard his campaign trail promise: He says he only wants to tax the rich. But these unscripted moments and his record tell a different story. He supported the Democratic budget plan passed just this year that called for raising taxes on people making just $42,000 per year. And Senator Obama has voted 94 times for tax increases or against tax cuts.

Two questions. Both have to do with hiding.

1. Where has this John McCain been hiding? This is the exactly the right way to go after Obama. It is a hard hit, a clean hit, and it might even work. With a week to go, will it be enough? The odds are against it. But why not try? All McCain needs is a point a day.

2. Why has the mainstream press worked so hard to hide unsavory parts of Obama? Why did this 2001 radio interview in which Obama talks about redistribution (he uses the R word multiple times) take so long to come out? Obama also complains about the flawed U.S. Constitution. Flawed? Isn’t that a newsworthy opinion from a presidential candidate? After all, the president takes an oath to uphold the Constitution. Senator Obama: Will you be able to uphold what you call a flawed document? My friend Mike Malone writes that the pro-Obama press coverage is the worst he’s ever seen and will hasten the decline of the mainstream media.

Post your thoughts. Does McCain have a chance to pull this out? I think Mac's chances have improved, although he still faces long odds. Aren't you pro-business Obama supporters just a little bit worried when you hear an unscripted Obama talk about wealth redistribution? Most Obama supporters I know are betting on a centrist Obama presidency and pro-growth economic policies. Does this 2001 tape undermine your confidence?

Fire away.

Today I give you a short blog with a simple question: Are you buying?

MSN Money’s Jim Jubak has been presciently skeptical this year, and he’s still skeptical. Jubak thinks cheap is “an illusion.” But he does tout a small clutch of companies that fall into one of these three camps:

1. Companies with flexible production and low fixed costs.

2. Companies with free cash flow that covers debt payments and is large enough to finance the company's growth.

3. Companies whose customers have the cash or credit to keep buying.

Full story and Jubak’s picks here.

Vitality Katsenelson, a thinker I’ve come to admire (and too late, alas!), is also skeptical. Check out this Robert Huebscher interview with Katsenelson.

The Big Picture’s incomparable Barry Ritholtz called this crash perfectly. In fact, I think I debated Ritholtz on Larry Kudlow’s show a year ago, and I’m sure Ritholtz got the better of me in light of what has happened. But Ritholtz is slowly putting cash back into the market. Today Ritholtz reports he’s gone from 80% cash to 55% cash.

Jubak, Katsenelson and Ritholtz are smart guys who got it right on the way down. Jubak and Katsenelson are still bearish on stocks  in general, but see opportunity in a few selected picks. Ritholtz sees signs of a bottom.

What do you think? Are you a buyer–of stocks in general, or of  just a few selected stocks. Or, to hell with it all, are you completely in cash because you think the slide is now out of control?

Post your thoughts.

 

With the election in 12 days, the national polls are as far apart as I’ve seen them at this stage.

Here is Wednesday’s AP poll showing Obama up 44-43. Recent polls by Gallup, Zogby, Rasmussen and IBD/Tipp also show a tightening race. IBD/Tipp was the most accurate poll of the 2004 presidential election.

Tightening? Seriously? The Pew Research Center shows the opposite: a widening, Grand Canyon gap. Obama leads by a whopping 14 points, 52-38, in the latest Pew poll.

As always, the Real Clear Politics rolling poll average gets it about right. RCP shows a 7.4-point lead for Obama. (Disclosure: Forbes owns a majority share of Real Clear Politics.)

Among the many oddities of this election cycle are Andrew Sullivan’s strange attacks on RCP’s polling average. Sullivan, a blogger and self-styled Obamicon--a conservative or libertarian who supports Obama--accuses RCP of “massaging” the numbers to make the race look close. Based on no evidence whatsoever, Sullivan accuses RCP of malpractice. He wants us to believe that Pew’s 14-point Obama lead is closest to the truth.

Funny that Sullivan goes after RCP’s poll average and not Gallup, Zogby, Rasmussen and IBD/Tipp, credible polling firms, all of which showed a tightening earlier this week. What do you suppose is Sullivan’s real motive for bashing RCP, which is probably the sanest polling methodology out there?

Is Sullivan piqued because his blogs are not getting enough airtime on Real Clear Politics? Are we witnessing some kind of hissy fit?

Or something, perhaps, that is much darker? Is Sullivan road-testing a new form of censorship from the left?

As in: If you don’t like criticism, call it hate speech. If you don’t like talk radio, shut it down. And now, per Sullivan, if you don’t like the polls, attempt to discredit the pollster.

I offer to bet Andrew Sullivan $1,000 that the Nov. 4 election results will not be close to Pew’s 14-point gap, which Sullivan assumes is truth. The result will be very close, once again, to RCP’s rolling poll average.

Andrew, wanna bet?

Post your comments below.

The historical comparison that best fits our present-day crisis is 1974. Take a look at this graph of Dow Jones industrial average since 1900.

Let’s take a closer look at the years from 1960 to 1980. The Dow first touched 1000 during an intraday high in 1966. Then it sank to 744 and wouldn’t break 1000 again until December 1972 and January 1973, the high moments of the Nifty Fifty.

Then it got ugly. Very ugly. Inflation, oil embargoes, gas lines and political scandal culminating in the resignations of Spiro Agnew (October 1973) and Richard Nixon (August 1974) sent stocks straight south. At the low of 577 in January 1975, stocks had dropped 45% in two years.

This is not a perfect comparison to our present day. But barring further collapse, it looks like the closest one out there for stocks and the economy.

Ditto for politics.

Thanks to Nixon, the Republican brand was shot. In 1976 America voted for an obscure and untested outsider, Jimmy Carter, and overwhelmingly for Democrats in the House and Senate races. Democrats wound up with a whopping 292 seats (67.1%) in the House and a filibuster proof 61 seats in the U.S. Senate.

Sound familiar? In 15 days, the Democrats are poised to win presidency. They could also wind up with overwhelming majorities in the House and Senate, similar to those in 1976.

Now, what about the future?

By mid-1976, stocks had sharply rebounded and recovered nearly all of the 1973-75 bear market losses. The rest of the decade was not so pretty. Inflation, which began the decade at 5.5%, finished at 11.2%. Oil spiked in 1979, and when the Carter government foolishly capped gas prices, long lines at the pump resulted. Stocks began a rolling slide and finished the decade at 842. The Dow bottomed at 777 in 1982, another year of recession.

So, if you believe the 1970s have something to tell us, then expect a fairly robust short-term stock recovery. Followed by roaring inflation. Followed by further stock decline and commodity spikes.

As I will report in my next Forbes magazine column, the 1970s weren’t a total bust. Out of that decade we saw the launch of Southwest Airlines, Federal Express, Genentech, Microsoft, Apple, Oracle, SAS Institute and other fantastic companies. We saw the introduction of the microprocessor, personal computers, spreadsheets, word processing and West Coast style venture capital firms to fund them. But it would be the 1980s before the bold entrepreneurs and daring investors would harvest the fruits of their efforts.

What do you think? Do the 1970s have something to tell us about politics, stocks and start-ups?

Post your thoughts below.

1. If McCain can pull off the greatest comeback since Harry Truman, he will owe his win to Joe Wurzelbacher, "the man," writes Janet Daley in the Daily Telegraph:

"who wants to buy the small business in which he works and to expand it so that he can employ more staff (which is to say 'create more American jobs' in political speak)."

Exactly right. It supports my hunch that small business is the voter bloc that will determine the election.

2. I've asked several Silicon Valley friends who are voting for Obama:

--Is Obama is telling the truth when says taxes on income, capital gains and dividends will only go up to Bill Clinton levels?
--Will Obama's trade policies hurt Silicon Valley?

My Obama-supporting Silicon Valley friends believe that on economics, Obama will govern from the center. Asked why the most liberal U.S. senator is a closet centrist, they give explanations such as a "gut feeling." Others admit, "that's the big unknown." Yes it is.

3. If you had any doubt that the Clintons hate the Obamas, check out this e-mail from Clinton crony Terry McAullife.

From: Terry McAuliffe [mailto:info@bruce2008.com]
Sent: Wednesday, October 15, 2008 9:15 AM
To: ___________
Subject: My Biggest Endorsement Yet

Dear _________,

This has been one wild election year! I traveled the country as Hillary Clinton's Campaign Chairman and continue to campaign to make sure we take the White House. In that time, it goes without saying that I've met some of the most impressive candidates our party has to offer. And let me tell you: Bruce Lunsford is one of the best!

"My biggest endorsement yet" leaves you thinking that McAullife is about to endorse Obama for president, not Lunsford's attempt to dislodge Mitch McConnell in Kentucky. Obama is never mentioned in McAullife's e-mail. A big middle finger from the Clintons to the Obamas.

4. Wednesday, I hosted an event for EDS, the company Ross Perot founded in the 1960s that is now owned by Hewlett-Packard. San Francisco mayor Gavin Newsom kicked off the event, followed by Steve Forbes. Say what you will about Newsom, he's an enormous political talent. A good business thinker, too. He founded a wine shop and restaurant chain called PlumpJack in the early 1990s. Newsom is likely to run for California governor in 2010.

5. Last week, I asked why the market was so volatile during the final hour of trading. Here is a good explanation.  For you traders, does this story ring true?

Post your comments below. Will Joe the Plumber save McCain? Is the market's incredible last-hour volatility a bottom signal, or a sign of worse to come?

Next month will mark the third anniversary of this blog.

Next month I will shut it down.

Stocks and politics have accounted for most of my postings--and most of your comments--in recent months. Properly so. The 2008 election has been unusually gripping, starting with the Iowa caucuses last January. The election results could have huge consequences for America and the world.

One thing we know. The race will be over  Nov. 4.

Stocks, the other headline topic, stumbled harder and faster than most would have guessed, although some of you regular posters, such as Sir Padgett and Captious Nut, predicted this with perfect accuracy over the last several months. I missed it. My optimism, which has served me so well in my career and life, led me astray on this one.

Still, this crisis will end one day too. It will not end in a catastrophe like the Great Depression. I'm guessing it will end like 1973-75, another period of high energy prices, political fear and loathing, and 40%-plus drops in stock prices. If 1973-75 is the right historical comparison, we are close to capitulation now. We will look back and see that mid-October 2008 was the peak of investor fear and the bottom of stock prices.

So here is my plan, in two parts.

Part One: I will continue to blog on stocks and the election until Nov. 4, on which day, by coincidence, I will be at sea hosting a Forbes investor cruise. I will then blog about the cruise. I will report the predictions of Steve Forbes and other lecturers, including Ken Fisher and Gary Shilling, the yin and yang of investing. I am extremely keen to hear Fisher and Shilling. Will the bullish Fisher stick to his story that stocks are a good buy, or will he throw in the towel? What have the last 12 months--his worst streak in a 25-year career of getting it right--taught Fisher? As for Shilling, is he still bearish, or have stocks dropped to the point that even he has turned bullish?

I can’t wait to hear their interpretations!

The cruise blog will take me through Nov. 11. After that, I will shut this blog down for three weeks.

Then comes Part Two. On Dec. 1 this blog will be relaunched around a pair of topics close to my heart: innovation and entrepreneurship. Again, I look to the 1970s for insight. That was a bad decade for stocks. But some good things were happening beneath the surface, including the creation of FedEx, Genentech, Microsoft, Apple, Oracle and SAS Institute and the inventions of the microprocessor, spreadsheets and Silicon Valley-style venture capital.

If Barack Obama wins with a near filibuster-proof majority in the Senate, we know that taxes on income, savings and investment will go up. Which means some of the better career paths will be in entrepreneurship, where one can build wealth behind the curtain and harvest one’s gains in more favorable times. Entrepreneurship based on innovation is where the action will be. I want to be there.

Back to the present … what does everyone think of Paul Krugman winning the Nobel Prize in economics?

Post your comments below.

The big dip, so far, is reminiscent more of 1973 to 1975 than it is of 1929 to 1932. Who can say how it will end. Fear is off the charts. More people are anticipating the worst. 

I still say there is a disconnect between the facts and the fear. The facts are unpleasant enough, but they look to me more like the facts of 1973 to 1975 than the facts of 1929 to 1932. Before stocks began falling one year ago, they were not in a bubble, unlike in 1929. Before the recent panic, stocks were pretty fairly priced by the Fed's own model, which compares earnings yields to 10-year Treasury yields.

And unlike 1929 to 1932, the Fed will assuredly not raise interest rates.

Are baby boomers exacerbating the fear? The 77 million boomers are still the largest cultural force in America.

They dominate media and government. They are the first generation of mass investors. Leading-edge boomers are also nearing retirement, which means their substantial portfolio losses will be hard to make up. 

I don't recall this level of panic and fear in 1973 to 1975, 1981 to 1982, 1987 or 2001 to 2002. Here is a theory: 

Baby boomers had little at stake in 1973 to 1975. As a group, they were somewhere between junior high school and junior executives in the workforce. As a group, boomers in the '70s had virtually no capital in the market. Stock market losses did not directly affect them. 

They had more capital in the market, but still not much, in 1982 and 1987. 

Boomers had plentiful capital in stocks during the collapse of 2001 to 2002. But that collapse had different dynamics. Stocks were ridiculously overvalued in 2000. Everyone knew this to be fact. When reality did set in, most investors felt the pain of loss. But it wasn't so much the psychic pain of deep worry as it was the pain of a hangover and guilt. Then came 9-11, a blow to the economy and stocks, but a shared experience and easily understood. 

The 2008 collapse is eliciting more panic than previous panics for several reasons: 

1. Boomers nearing retirement wonder if they can retire. 

2. Prior to the collapse, stocks were not overvalued by most measures, including the Fed's own model. To many investors, the collapse seemed mysterious and foreboding. 

3. The panic is occurring during a presidential election in which both candidates are seen as deeply flawed. The election result is likely to give one party unprecedented executive and legislative control, with unknown consequences. 

4. The panic is occurring amidst a galloping rate of change in global business that seems to favor rising nations more than mature nations. 

5. A sense that U.S.influence in the world is waning. 

Postscript: With financial shorting now permitted, I was sure I'd be writing a $100 check today to SoCal ... the sole courageous poster who took my bet that BAC would not go lower than its mid-July low of $18.40. BAC has not made a new low ... yet. But it could, so SoCal, please contact me at rkarlgaard@forbes.com and tell me where you'd like the check to go. Just in case. 

Post your comments below.

1. Is this a replay of 1929? Cool-headed Robert Samuelson asks and answers the question here. It's more like 1973-1975 and 1981-82, he writes:

We need to remind ourselves that economic slumps--though wrenching and disillusioning for millions--rarely become national tragedies. Since the late 1940s, the United States has suffered 10 recessions. On average, they've lasted 10 months and involved peak monthly unemployment of 7.6 percent; the worst (those of 1973-75 and 1981-82) both lasted 16 months and had peak unemployment of 9.0 percent and 10.8 percent, respectively. We are almost certainly in a recession now; but joblessness, 6.1 percent in September, would have to rise spectacularly to match post-World War II highs.

The stock market tells a similar story. There have been 10 previous postwar bear markets, defined as declines of at least 20 percent in the Standard & Poor's 500 index. The average decline was 31.5 percent; those of 1973-74 and 2000-02 were nearly 50 percent. By contrast, the S&P's low point so far (Monday, Sept. 29) was 29 percent below the peak reached in October 2007.

2. Did Jim Cramer forget to take his meds … or is the crazy one actually right? What do you think? Are you holding or folding?

3. Here’s how Obama could wreck his presidency, writes Sebastian Mallaby.

4. Excellent story here on Kleiner Perkins and the firm’s big bets on green technology. This is the best peek into a venture capital firm I’ve read in some time. The story got me thinking: With the stock market in tatters and the economy sucked into recession--yes, I’m conceding!--it’s a good time to investigate career and investment opportunities in start-ups. The 1970s was a similarly terrible decade for the stock market and lousy one for the economy. And yet FedEx, Microsoft, Apple and Oracle were started in the 1970s.

5. What do you think of Sarah Palin tweaking Barack Obama on his past ties to Jeremiah Wright and Bill Ayers? Will this work at a time when the economy is top news?

Post your comments below.