by Patrick Wood, editor

Economy

The State of the Nation: I am afraid by John White­head, founder of the Ruther­ford Insti­tute, is a a very good sum­mary of where we are as Obama pre­pares to give his own State of the Nation.

Due to time con­straints, I am not doing my own “state of the nation” this year, and I wouldn’t add much to Whitehead’s rendition.

Marc Faber, author and pub­lisher of the Gloom, Boom and Doom Report and a fre­quent con­trib­utor to CNBC, is not my favorite ana­lyst by a big margin, but even he con­cludes: “When you look at the US… it’s a total dis­aster, we’re all doomed, we’re doomed.” He points out that if the U.S. were a cor­po­ra­tion with proper double-entry accounting, nobody would buy their bonds.

What­ever Obama says tonight will be full of mis­in­for­ma­tion, dis­in­for­ma­tion, lies and fab­ri­ca­tions. It will be more accu­rately under­stood by reversing every­thing he says by 180 degrees.

Nouriel Roubini is extremely bearish again as he spoke at the World Eco­nomic Forum in Davos, Switzer­land. He states that we are at “the begin­ning of an asset bubble that’s becoming global” and he cites sev­eral instances. Real estate ele­va­tion in China is “unprece­dented.” Greece’s finan­cial prob­lems threaten the entire Euro­zone. “I’d point out that in the US you have also fiscal prob­lems at state level, a state like Cal­i­fornia is vir­tu­ally bank­rupt,” he declared.

The head­lines at the left are from the CNNMoney.com site. After all the bad news (and it’s all really bad), they offer one link for “Mort­gage pay­ment help” that leads to an article with this head­line: “Get help — before you fall behind on your FHA mortgage.”

If you don’t have an FHA loan, I guess you are just toast.

These head­lines are reflecting what I have been saying for some time about real estate in the U.S. There is a moun­tain of ARM resets that will start to ascend in March 2010. The peak of the moun­tain is this fall and it will bring the U.S. into another finan­cial crisis.

If you wonder what could pos­sibly drive the DJIA down to 4,000 – 5,000 levels in the course of one year, just visu­alize the head­lines coming out of this mess 9 months from now.

Today, 30-day T-Bills turned neg­a­tive for the first time since last March. Risk aver­sion has returned with a vengeance and investors are willing to take zero per­cent on their money in return for safety. This reflects my oft-stated motto, “Cash is king in a defla­tionary economy.” One can argue the inflation/deflation sce­nario all day long, but the debate is set­tled by watching what people actu­ally do.

The gov­ern­ment itself is saying that our annual deficit will be at least $600 bil­lion per year for the next ten years. How­ever, this year will be at least $1.35 tril­lion. The gov­ern­ment is inca­pable of any­thing except expan­sion, as has been amply demon­strated for decades. In the end, we are headed for bank­ruptcy, but the system might still last for another few years.

A peek at our future can be seen through Greece. Greek bonds have fallen to the point that their yields are at an 11 year high. Fewer and fewer people think Greece will escape bank­ruptcy. The high interest rates do not reflect infla­tion; asset values within the country are plunging, not inflating. The even­tual result will be to implode into a vir­tual state of anarchy.

If you haven’t read my new report on Carbon Cur­rency yet, I sug­gest doing so. Tech­noc­racy may well be the next gov­ern­ment system foisted upon us when the capitalist/democratic system fail. The major part of my focus for the rest of this year will be in this area, so you will be learning more about it as time goes on.

Market

A counter-trend bounce is underway, after which the bear market should resume.

The 15 Minute DJIA shows that 5 waves down are in place as of this morning and that an upward cor­rec­tion is taking place. Prices should exceed 10,285.60, which is the top of wave iv. A 38.2 per­cent cor­rec­tion would carry to 10,337 and a 61.8 per­cent cor­rec­tion could see 10,486.

Although the indexes were gen­er­ally up today, there were 142 more stocks down that up on the NYSE. This hardly indi­cates any real desire to buy.

When this cor­rec­tion is over, it will be counted as wave 2 up and will be fol­lowed by wave three down, which will itself con­sist of five waves. Stocks, gold and the dollar could all be in third waves at the same time over the next month, making for some very dicey action.

How­ever, remember that bear market ral­lies have a his­tory of being very sharp at times. Having a 200 point rally one day might be fol­lowed by a 200 point drop the next. You should be ready for sur­prises like that so that a) you don’t get unnerved and dump all your bearish invest­ments and b) you have a preset plan to commit more reserves to your bearish positions.If that’s too scary or com­pli­cated for you, just stay in short-term Trea­suries and be happy with zero per­cent return — at least you will get back 100 per­cent of your cap­ital every 30 days!

The dollar reached a new recovery high today, sig­naling that the recent cor­rec­tion is over. By Elliot Wave reck­oning, this is wave 3 up and promises to be a wild and woolly ride. (Dollar bears are cer­tainly sweating right now.)

Gold took another hit today, keeping the inverse pace to the dol­lars rise. It fell $12.40 to 1,085.90. Silver dropped to $16.56. Both are still in wave 3 down. (Gold bulls are like­wise starting to sweat.)

Silver is now below its wave 1 low, meaning that it too is in wave 3 down.