If you have any economist friends, try to be extra cheerful around them this holiday season. The economic outlook from most forecasters is pretty depressing. The government recently revised third-quarter GDP growth lower to -0.5%. The consensus among Wall Street economists is that fourth-quarter GDP growth will come in at -4%. That's some of the slowest economic growth in decades.

The major problem is that consumers are cutting back on their spending. And since consumers account for 70% of overall economic activity, if consumers are in a bad mood, the economy is going to have a tough time.

Despite all the negative news, there is a silver lining: Gasoline prices have fallen dramatically. This is the equivalent of a $200 billion stimulus plan from Capitol Hill, except it got here without any of the political wrangling. Most importantly, it's free.

OPEC is clearly in a tough place. The cartel already cut production once, and today it announced that it will put off another decision to cut production for two weeks. Bloomberg writes:

OPEC postponed a decision until Dec. 17 while it gauges the impact of a 1.5-million barrel reduction agreed in October. The group will definitely trim output at its next meeting, its secretary general said today. Slowing global growth means demand will be "much lower" than expected a month ago, OPEC said in a statement after the meeting.

"OPEC is not finding buyers for its oil and the economic slowdown is both deeper and more widespread than any of us feared," said Robert Laughlin, senior broker at MF Global Ltd. in London. OPEC "may well observe in horror as prices fall significantly in coming days."

The lower gas prices are most likely a key factor that caused early holiday sales to be better-than-expected. We're also coming off some of the worst numbers in years for consumer confidence. This tells me that there's probably a lot of pent-up demand. The Wall Street Journal writes this morning:

The holiday shopping season got off to a better-than-expected start, as retailers reeled in cautious shoppers with massive discounts like "buy one get one free" sweaters at Gap Inc. stores, $200 iPod Touch music players from Amazon.com Inc., and 26-inch LCD TVs at Target Corp. sites for $299.

In a survey of 3,370 shoppers, the National Retail Federation estimated shoppers spent an average of $372.57 over the weekend, up 7.2% over last year's $347.55.

So consumers are buying, as long as they can get a good deal. That's good news from many stocks I recommend that cater to price-conscious shoppers like Wal-Mart (WMT) and McDonald's (MCD).

Here's part of my latest in MarketWatch where I argue--believe it or not--that there are some good retail stocks to buy. Of course, it heavily depends on which retailers we're talking about.

This may come as a shock, but I have good news for investors this holiday season: Despite the subprime sell-off, despite the mortgage meltdown, despite the housing slide and the chilling conditions increasing check-ins at the proverbial poorhouse, there are companies that are thriving in this market, even in the final weeks of one of the toughest years in history.

This month in particular, all eyes are on consumers as we count down the days of the year's much-anticipated holiday shopping season. With deep discounts advertised in nearly every aisle or storefront, the question heavy on everyone's minds is, "Will the sales numbers prove better than expected?"

Frankly, it looks like it's going to be a real nail-biter for most retailers -- but certainly not all. Recent headlines are proclaiming discount retailers will be the overwhelming beneficiaries this shopping season. I agree, expecting Wal-Mart (WMT) to be among the leaders of the pack.

But there's another segment of retailers that many investors are overlooking: those serving a niche audience. I have my eye on two companies in particular: Urban Outfitters (URBN) and Activision Blizzard (ATVI).

If you're shaking your head at me for the mere thought of buying retailers given today's gloomy conditions, you're not alone. I've gotten questionable looks from investors every time I mention buying in the retail sector of late. Take one look at the recent consumer-spending figures, and it's not hard to see why.

Read the whole thing.

From Doug Short, here's a look at how historical bear markets compare. Eight years after its peak, the Nasdaq is lower than both the Nikkei and Dow eight years after their peaks.

The nonpartisan National Bureau of Economic Research is the widely regarded "timer" of recessions and they've just concluded that a recession began in December 2007. The announcement is probably the main reason for the stock slump today.

For several months, the evidence has been clear that the economy is in a recession, but the only question left was exactly when it started. Also, some profit-taking is to be expected since we recently had our best four-day rally in 75 years.

This is the country's first official recession since 2001, which was a fairly mild contraction as far as business slumps go. The big economic news this week will be Friday's jobs report. The jobs market most likely deteriorated last month.

Ben Bernanke spoke on the economy and his words were not comforting:

Mr. Bernanke's outlook for the economy was grim. "The likely duration of the financial turmoil is difficult to judge," he said. "But even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time."

He said that "cumulating job losses, weak consumer confidence, and a lack of credit availability" would depress consumer spending, traditionally the engine of American economic growth, and noted that exports were "not likely to be as great a source of strength for U.S. economic activity in coming quarters as they had been earlier this year."

This perhaps means that the Fed will cut interest rates to 0% as Japan did during its long slump. This will also have an important side effect—it will force money to get off the sidelines and back into the market. The Fed is telling investors that if they pull out of stocks, they won't get any money for their efforts. There will be no difference between a bank account and stuffing your dollars under a mattress.

The November Institute for Supply Management's index of factory activity fell to 36.2 from 38.9 in October. That's the lowest reading in 26 years.

The perception is that October was a disaster and November could have been better. That's simply not the case. Prices are still falling so no one wants to keep inventory.

Think if you run a high-end business Are you going to restock your shelves while prices are falling? No, you're going to burn off all your inventory since consumers are willing to hold off their buying to find better prices.

That's the story of this holiday shopping season: Folks are out there buying...as long as they can find great deals. I was in Arizona and the cars lots are bursting. The port of Long Beach is full on new BMWs and Mercedes. Dealers don't want the cars because they can't sell what they already have. The German automakers all announced production cutbacks on Monday. This is the result of deflation.

For a long time now, I've advised investors to steer clear of almost all financial stocks. And for a long time now, I've been right. Through this credit crisis, the one stock that's held out against announcing massive losses has been Goldman Sachs (GS).

I should give them credit for being a very well-run firm. I even had GS on one of my Buy Lists not too long ago, although I've since recommended selling Goldman. However, Goldman's good fortunate may be coming to an end. The Wall Street Journal reports today:

Goldman Sachs Group Inc., known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.

The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

That's sad news to hear, but I can't say that I'm surprised. The last few weeks have been very tough for everyone in the financial space. I still recommend that investors avoid almost all financial stocks until the smoke clears.

At my investment seminars, I've telling investors the truth about what's happened on Wall Street since Lehman Brothers went bankrupt. What followed was a series of liquidity meltdowns. Let me explain.

The immediate effect of the Lehman bankruptcy was that it forced prime brokers to demand more collateral from hedge funds. As a result, these hedge funds were forced to liquidate their positions.

The problem was that in recent years, many of these hedge funds became highly leveraged in municipal bonds and other debt. So once the deleveraging started, bond traders immediately lowered their bids. That, in turn, sent yields for muni and junk bonds soaring--some high-yield rates hit 20%.

Hedge fund redemptions are still going on and the bond market has become dysfunctional. It's gotten so bad that some municipalities can't sell their bonds without driving yields through the roof. Even Donald Trump has fallen behind on his interest payments. In the high-yield market, bid/ask spreads are so wide that it can take days for experienced traders to open positions.

If the bond market can lose its liquidity, can you imagine how the stock market would perform during a crunch? Well, it turns out that hedge funds were also dumping a lot of stocks, especially commodity stocks that people thought were safe. Stock valuations have now gotten ridiculous

How long will the de-leveraging last? That's a good question. I'd say that most of the selling pressure has already happened. The hedge fund industry used to manage $2 billion but will probably end the year with barely $1 trillion.

This leaves many investments in the bargain bin. The key in the current stock market is to focus on stocks that are most likely to be the leaders. There's still plenty of bad news coming out. However, the fact that the stock market has been able to rally in the midst of all this bad news is very encouraging.

Today, it was reported that the job cuts announced in November have pushed the number of layoffs to the highest level in seven years. The total number of workers given pink slips last month was 181,671, up more than 60% from October's 112,884 cuts. Worse, the number is nearly 150% higher than November of 2007.

November's total is the second-highest layoff total on record, behind only the 248,475 job cuts announced in January 2002 in the aftermath of the Sept. 11, 2001, terrorist attacks. Not surprisingly, financial jobs accounted for about half of the cuts, with Citigroup's plans to eliminate 50,000 jobs the driving force behind 91,000 job cuts industrywide. Financial firms have trimmed more than 220,000 workers from their payrolls so far this year, representing 21% of all layoffs this year.

I'm currently finishing up the December issue of Emerging Growth. This will be a very important issue as I lay out our investment strategy for 2009. The issue will be ready for subscribers after tomorrow's close. If you're not a subscriber, you can join us at this link

Our Emerging Growth Buy List is very strong now, but also, very narrow. Over the past few months, I've trimmed the list down from over 70 stocks to less than 30 today. That's because the market is growing more selective so I am too.

The average stock on my Emerging Growth Buy List is growing its earnings by 267%. But amazingly, our average stock is still going for less than 12 times earnings. I'm still finishing up our research but it looks as if we're going to have four new buys this month, including a brand-new #1 stock. I hope you join us today.

One of the themes that I've stressing to investors is that as the economy gets weaker, fundamentally superior stocks get stronger. The reason is that in uncertain times investors naturally gravitate toward the most reliable names.

Today, one of my favorite retailers, Buckle (BKE), reported outstanding same-store sales for the month of November. For stores open at least one year, sales surged 15% over last year. That was about twice what Wall Street was expecting.

For the year-to-date period, Buckle's same-store sales jumped 22.6 percent. Year-to-date net sales surged 29.7 percent to $612.8 million, from $472.3 million a year ago.

Sterne Agee analyst Margaret Whitfield noted that Buckle's men's sales gained 15 percent in November to total 43 percent of sales. Women's sales grew 28 percent to total 57 percent of sales.

Buckle's performance last month is especially impressive when you consider the overall dismal state of consumer spending. We know that shoppers are out there, but they're being more selective--just like stock investors.

Shares of Buckle soared as much as 26% today. The stock continues to be an excellent buy.

Initial reports are a mixed bag, but so far it looks like Black Friday spending in general was up between 3% and 7% over last year. Target reported a 10% drop over last year, which was worse than expected even though Black Friday sales were stronger than the rest of the month. On the other hand, Wal-Mart (WMT) topped estimates on increased store traffic and purchase size. In my opinion, it looks like the gloomy predictions for the holiday shopping season may be a bit overblown.

Additionally, online shopping is so far forecast to be higher than last year. In fact, on "Cyber Monday," the Internet equivalent of Black Friday, sales were reported to be an impressive 15% above last year's total. Although some observers will fixate on brick-and-mortar sales, online sales help consumers avoid state sales taxes have become a more reliable indicator of consumer spending patterns in recent years. Stores like Urban Outfitters (URBN) that match strong same-store sales with a great online presence continue to do well (and in a recent report, Barron's agrees with me!)

In general, it looks like consumer spending may be on the mend. And discounters like Walmart will continue to lead the way, alongside well-run shops like URBN.

The unemployment is now at 6.7%, a 15-year high:

With the economy deteriorating rapidly, the nation's employers shed 533,000 jobs in November, the 11th consecutive monthly decline, the government reported Friday morning, and the unemployment rate rose to 6.7 percent.

The decline, the largest one-month loss since December 1974, was fresh evidence that the economic contraction accelerated in November, promising to make the current recession, already 12 months old, the longest since the Great Depression. The previous record was 16 months, in the severe recessions of the mid-1970s and early 1980s.

"We have recorded the largest decline in consumer confidence in our history," said Richard T. Curtin, director of the Reuters/University of Michigan Survey of Consumers, which started its polling in the 1950s. "It is being driven down by a host of factors: falling home and stock prices, fewer work hours, smaller bonuses, less overtime and disappearing jobs."

The job losses far exceeded the 350,000 figure that was the consensus expectation of economists.

Over all, the job losses since January now total more than 1.9 million, with most coming in the last three months as consumers and businesses cut back sharply in response to the worsening credit crisis.

The downward revision in the past two months is not good. I suspect this report may lead Congress to help the automakers, and maybe get the Federal Reserve to cut rates by 0.75%.

The price for crude oil dropped 25% last week for its biggest weekly loss since 1991. The price could go much lower. Merrill Lynch said that if the global recession spreads to China, it is possible oil could fall to $25 a barrel. Since 2005, the demand for oil has been falling in much of the world, but rising in China. Merrill expects oil prices to bottom out in the first half of next year and start a gradual recovery in June 2009.

What's especially interesting is that the demand for diesel and other distillates has caused the price of light, sweet crude oil to plummet. In Europe and other markets, it's much easier to make diesel from light sweet crude. In the U.S., distillate demand is down 2.2% in the past year, and jet fuel demand down by 16.7%. Since many emerging markets use distillates to generate electricity, the rising demand for electricity has been responsible for stronger distillate demand. Due to lower shipping volumes, however, the demand for diesel, jet fuel and other distillates has temporarily declined and is a crucial reason behind the declining price of light, sweet crude oil.

OPEC's meeting on December 17 will unquestionably result in another major production cut. What will be more interesting to watch is infighting within the cartel. OPEC member are notorious for cheating on their quotas. Since many OPEC members are strapped fro cash, especially Iran and Venezuela, the temptation to cheat is strong. Like most OPEC meetings, all eyes will be on Saudi Arabia, since they're one of the few members that can dramatically cut production without killing their economy.

In addition to another production cut, the other factor that could drive energy prices higher is Old Man Winter. This winter is expected to be colder than normal as many folks on the East Coast and in Midwest have already found out. Thanks to a La Nina weather pattern, this year is shaping up to be the coolest year since 2000.

Dow Jones Industrial Average rose 298.84 points to 8,934.26 on Monday. It was the ninth positive day in 11 days of trading—a pretty good record after some false starts in recent weeks that failed to offer sustained gains!

I've been telling you to stay fully invested to take advantage of the resurgence of stocks, so I hope you didn't bail out after the selloff in late November. If you did, you're out the 20% gains the market has seen in the three weeks since then! And for my subscribers holding my favorite large-cap stocks, those 20% gains are on the low side—my Blue Chip Growth subscribers have seen explosive profits since the retest. From the market's close on November 20 to the close of trading today, my readers have seen a whopping 54% gain in First Solar (FSLR), and a jaw-dropping 71% gain in Fluor (FLR)!

Out of 32 stocks in my Blue Chip Growth letter, 15 of them have beaten the market with a gain of more than 20%! I'm not going to call this the rebound... not yet! But I will say that this recent winning streak is proof-positive why you should be fully invested in the market right now.

With the U.S. stock market rallying for nine of the past 11 days, I think it's interesting to note that one of my top-performing stocks isn't based on these shores. In my Global Growth service, I currently recommend China Sky One Medical (CSKI). Not many people know about Sky One but I think that may soon change. Even though the stock carries a low price, shares of CSKI are up an amazing 62% in the last 11 trading sessions. That's not all. The stock made a new 52-week high yesterday.

For some background on the company: China Sky One Medical is an integrated pharmaceutical company that produces and distributes over-the-counter drugs and diagnostic products. A select group of healthcare companies have proven to be resilient amid the current global economic turmoil, and China Sky is one of the industry leaders.

The company distributes medicine and treatments through its wholly-owned subsidiaries, including Harbin Tian Di Ren Medical Science and Technology Co., and Harbin First Bio- Engineering Company Ltd. The company has been growing rapidly through acquisitions, increasing both its market share and economy of scale.

The results are clearly paying off. Just recently, Sky One announced record results for the third quarter. Total revenues increased 77.1% to $29.7 million, and gross profit increased 70.5% to $22.3 million. The company also developed 37 new drugs currently in clinical trials, including 12 administered by injection, which is incredible news for the future growth prospects of CSKI.

I'm also happy to see that the company has bold plans for the future. The big news recently is that its subsidiary, Heilongjiang Tianlong Pharmaceutical, obtained production approval from the State Food and Drug Administration in China for a new nasal drop for the treatment of allergic rhinitis and sinusitis. This could be a blockbuster. According to the press release:

Different from most of similar medicines with chemicals or hormone ingredients, the new nasal drop includes active ingredients found in traditional Chinese medicines with minimum side effects. The incidence of nasal disease, such as rhinitis and sinusitis, is high in China, especially in the Northwest and along the coast. There are currently five enterprises who have received this SFDA approval in China, and the other four manufacturers have not put it into production due to limited distribution channels. Not only has China Sky One obtained the necessary production approvals, but the Company has an extensive distribution network in place to meet the huge potential demand from this market. The Company expects to begin production in 2009.

"We are very excited about our new nasal spray and estimate that revenues from this product will reach USD 3 million within year 2009 once distribution starts in February," said Mr. Yan-Qing Liu, Chairman, CEO and President of China Sky One Medical. "We are confident that our advanced R&D capabilities and ability to identify drugs with strong potential and attractive margins will continue to help us expand market share and enhance profitability."

I have to warn you that investing in China carries enormous potential, but also some political risks. Rural provinces that supplied much of China's factory manpower are watching a new wave of reverse migration--coming back to the farms, or worse: Rioting in the streets. For example, laid-off factory workers in Dongguan overturned patrol cars and fought with the police last week. On Wednesday, workers fired from a factory in northern China took their protest to Beijing, at the parent company's headquarters. This wave of unrest caused China's yuan to fall by its single largest margin on record against the U.S. dollar.

In Global Growth, we've seen our stocks in China held back a bit lately because of this currency trend. I expect that to change soon as the dollar loses ground thanks to the Fed funds rate approaching zero and continued economic weakness at home. I expect a big turnaround in the coming weeks for our China stocks.

I've taken some heat for recommending retailers in this current environment. Make no mistake—I believe MOST retailers are in dire straits and will continue to post horrible numbers for the short-term. However, if you take a rational look at several retail companies, it's hard to lump them in the same category as their competitors.

I've talked up Wal-Mart (WMT) before, and since I posted a Stock of the Week entry in mid-October with this "King of Retail" as one of the best stock to buy, WMT has posted a gain of about 5%, which the market is down about as much. Not stellar returns, to be sure, but it's important to note this stock moved against the downward trend of Wall Street.

Lately, people have criticized my decision to recommend the retailer Buckle (BKE) in my Emerging Growth service. The retailer sells trendy clothes to teens, and has seen double-digit same-store sales growth even as the rest of their competitors in the mall are suffering deep declines. But some naysayers think I have my head in the sand, and won't believe the numbers-specifically that net sales for BKE in November surged a stunning 20%! Don't take my word for it, read about this top stock to buy for yourself!

Just today, CNNMoney.com put Buckle on its list of five retailers to buy now, saying this:

What's Buckle's (BKE) secret? Teens want to wear designer looks at affordable prices. Buckle sells mid-priced "designer-like" jackets, dresses and shoes for fashion-conscious teens. Its loyal shoppers also like Buckle's status as denim central. Jeans make up almost half of its product mix with high-style brands such as Lucky Jeans and Silver under one roof.

I don't know much about fashion, but I do know a great profit opportunity when I see it. Since the "retest" of the market's low on Nov. 20, Buckle is up more than 70%! Don't believe the naysayers who think ALL retail is off limits. Just look at the numbers and you'll see that standouts like Buckle are a great buy right now.

Who says earnings don't matter? Russia's former long-distance monopoly Rostelecom (ROS) saw its first-half earnings quadruple, and leaped up 11% today even as the S&P suffered a 2.5% decline.

The company said that profit was was up to 9.83 billion roubles ($349.9 million) from 2.55 billion roubles in the first half of last year. A big factor was the sale of Rostelecom's stake in fixed-line operator Golden Telecom at the beginning of 2008, but that doesn't tell the whole story. Sales of new services like Web access we up almost 50% and accounted for 4.16 billion roubles in revenue. Operating expenses also fell 5.7%, and operating income before depreciation and amortisation (OIBDA) rose 14% over last year. The company is currently a B-grade overall in PortfolioGrader and has an A quantitative grade.

As you can see, earnings help companies zig when the market zags, and proof of a growing and prospering business in hard times is an inspiring sign for investors. Companies like Rostelecom, which is one of my recent buys in Global Growth, continue to show strength in this challenging market because they have the earnings that attract institutional buying pressure.

The Federal Reserve meets again next week and will almost certainly cut interest rates. The Fed's current target for its Fed Funds rate is already at 1%, so next week's meeting will bring rates down to even lower levels, perhaps just 0.25%

Meanwhile, there's a huge mountain of cash that's currently not invested in the stock market. The cash sitting on the sidelines is currently worth more than half of the entire S&P 500. That's far higher than any point in the last three decades.

Here's the important fact for investors. Thanks to lower rates, that huge cash reserve is barely earnings anything for its owners. At some point, that capital will start looking for a better deal and it will find in the stock market.

Here's a chart from Tim Hope, one of my crack analysts.

The black line is the yield on the six-month Treasury bill and its follows the right scale. The green line is the amount of cash reserves as a percent of the S&P 500, and it follows the left scale.

As you can see, the amount of cash has shot up in the past few months while the amount that cash earns has plunged. This is exactly how supply and demand works. The more people want to save, the less it will pay. Now that rates are so low, it's a strong incentive for that cash to migrate its way back to stocks. That's why I think we're poised for an explosive rally. One stocks begin to turn, we have enough fuel to launch a huge rally.

... Professional sporting leagues have to lay off employees. That's right, the National Football League announced Wednesday that is is cutting loose 150 workers in a step that is "necessary in the current economic environment."

The Sports Business Journal reported that the NFL would fall $50 million short of revenue projections for 2008, hence the recent cuts. And these layoffs are actually not the first sporting-related job cutbacks. In October, the National Basketball Association trimmed 80 jobs and Major League Baseball has laid off about 20 workers in its online services division. Recently, Honda ducked out of Formula One auto racing altogether in an effort to cut costs.

I know, I know—the number of people filing for unemployment benefits hit a 26-year high in the latest numbers, with initial claims surging to 573,000. With companies laying off workers by the thousands, the NFL's comparatively minor cutbacks don't seem all that big of a deal. But it's an important indicator of the current economic environment. Think about it: With NFL tickets costing in the hundreds of dollars per seat (depending on your market), and then the cost of food, lodging, parking and everything else, who can afford to see the game live right now?

Cheaper forms of entertainment like video games and movies will continue to thrive. But big ticket items are not as attractive as they once were—be it a new car, or a trip to see the Redskins.

Ok, so old fogeys like me aren't exactly racing to the store to buy video games. But there's no denying that the very lucrative gaming industry holds a lot of clout. And leading titles like "World of Warcraft," produced by my Blue Chip Growth stock Activision Blizzard (ATVI), can weild that power with amazing consequences. Just look at a recent report from FCC Commissioner Deborah Taylor Tate:

You might find it alarming that one of the top reasons for college drop-outs in the U.S. is online gaming addiction-- such as World of Warcraft--which is played by 11 million individuals worldwide.

I have no idea where Ms. Tate is getting her info, or even if blaming ATVI's blockbuster game for dropout in a recent report is true. But there's no denying this commentary lets you know just how popular this video game really is!

Though some video game companies like Electronic Arts (ERTS) have lowered sales estimates for the holidays, ATVI is sure to keep going strong on its suite of wildly popular titles like "World of Warcraft."

I have a home in South Florida and know lots of folks who were invested with Bernie Madoff (or as he's now known, Bernie Made-Off). On Friday, I called a couple stockbrokers I know and started to count the local money that was lost with Bernie. Within minutes, we were up to $2 billion at Palm Beach Country Club and we feared that was at least another $1 billon or more at the Boca Rio golf club. Then there were all the Long Island golf clubs! It appears that at least $17 billion was lost in the biggest Ponzi scheme ever. Since some fund of funds leveraged their investment with Bernie, there were reports circling that the losses could reach $50 billion.

Bernie was a member at the Palm Beach Country Club, but his main contact was Robert Jaffe, who is the son-in-law of Carl Shapiro, the founder of apparel company Kay Windsor. As I talked to stockbrokers and other contacts, we speculated whether or not we would ever see Robert Jaffe again. However, Jaffe wasn't the only person who sold Bernie's investments. Existing clients, a real estate broker and other Palm Beach contracts also widely recommend Bernie because they all believed he was an investing legend.

The stockbrokers I talked to were all excited to attend the holiday party of one of the biggest real estate brokers in Palm Beach, since there would likely be more Bernie gossip and possibly some violent confrontations.

Let me set the stage. I met this real estate broker a few years ago as the KL Financial Group hedge fund scandal was unfolding. Why this real estate broker called me is that he had referred some very prominent people, including some famous professional golfers, to the KL Financial Group hedge fund, since they promised to waive their percent of profit management fees if he referred at least 20 new clients. Although this real estate broker's slightly more than $2 million investment with KL Financial Group was cashed out at $5 million, he was suspicious of the returns due to the fact that he had gotten back exactly $5 million and was suspicious of the "round number" plus brewing rumors.

When the KL Financial Group turned out to be a Ponzi scheme, I told the broker to return the $5 million he received to the FBI and to cooperate fully because he had just stolen from the clients that he referred to KL Financial Group in exchange for a fee waiver. The broker didn't take my advice and brazenly continued to socialize with folks in Palm Beach, even those that he defrauded through KL Financial Group.

Well guess what? This same prominent real estate broker was referring lots of people to Bernie Madoff. So he did it again! He's now two for two in referring folks to Ponzi schemes from the Palm Beach Country Club! I still remember strongly telling him that legitimate hedge funds have transparency on their investments and good auditors from big firms. Obviously, he ignored my advice.

Back to this broker's holiday party. Due to the potential for violent confrontations and the guarantee of strong words from newly poor Bernie investors, the stockbrokers I know wanted to show up at the party partially for entertainment reasons and naturally the opportunity to pick up new clients (that is, if these Bernie investors have any money left).
Ironically, if this real estate broker survives the Bernie Madoff scandal, his real estate business will likely pick up since there will be a lot of homes for sale in Palm Beach.

The Bernie Madoff scheme is very sad. It's just one of many hedge fund frauds that I've witnessed in South Florida, but this is by far the biggest. Both KL Group and Bernie Madoff scammed many members at the Palm Beach Country Club. I hope folks learn not to take hedge fund advice seriously from real estate brokers, golf clubs or social events. Even more important, investors must learn to demand transparency and have legitimate auditors from big accounting firms when they invest in hedge funds.

I should add that the fund of funds that invested with Bernie Madoff were all over the world, including prominent funds of funds in London, Milan and Zurich. What a mess! Since Bernie provided the illusion of being able to buck negative downdrafts in the stock market for decades, he sucked in money from sophisticated fund of fund investors. It appears that the recent massive wave of fund of fund redemptions in recent months is what exposed the fraud. Benie was getting hit with redemptions and simply ran out of money to perpetuate his Ponzi scheme.

There's one other thing that I must mention. Some of Bernie's investors were bragging to me that Bernie went to cash in mid-September. However, they also told me that Bernie made 2% in November, which is an impossible if you're 100% cash, since money markets don't pay 2% per month. These newly poor investors couldn't figure out this obvious discrepancy thanks the Bernie's lack of transparency.

Many of these same investors, plus that big real estate broker, loved to brag about how smart they were. The lesson here is that if an investment sounds too good to be true, it probably is. So please don't take investment advice from arrogant investors who like to boast that they're smarter than everyone else and lack detailed knowledge. The bond and stock markets can be a very humbling place and good investors don't boast of their investing prowess. Instead, great investors never stop learning and continuously adapt to changing market conditions.

The New York Times has a great graphic showing the geographic impact of the massive financial bailout.

Also, via Real Clear Markets, here's a look at the weekly economic commentary from Wachovia.

Here's the statement:

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.

Bloomberg reports:

The Organization of Petroleum Exporting Countries agreed to a larger-than-expected cut in oil production to revive prices as a global recession reduces demand for crude.

OPEC agreed to cut output by 4.2 million barrels a day from September's actual level of 29.045 million barrels a day, indicating a new quota target of 24.845 million barrels for 11 of its members. The reduction will take effect Jan. 1.

The reduction is bigger than expected, and takes the collective target 2.46 million barrels a day, or 9 percent below its current one.

This is a big cut but it may not be enough to halt the slide in oil prices. The culprit for lower oil prices is falling diesel demand, especially from China. That's a bit shocking since China burns a lot of coal, diesel and heating oil to generate electricity. Not too long ago, it was the growing demand for diesel and heating oil in emerging markets that many experts blamed for soaring oil prices. During the spring, the demand for diesel and other distillates traditionally rises. Much of that is due to rising demand for electricity to power air conditioners in emerging markets. So the next test for crude will come over the next few months.

The commodities team at Goldman Sachs said, "The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified now threatens to push oil prices below $40 a barrel in the near term." Goldman said that crude oil prices will recover to about $42 by June and to $65 by December, but the low prices of early 2009 will leave the annual average at $45. Earlier, Merrill Lynch forecast that oil will average $50 per barrel next year, but warned that it could fall to $25 a barrel if the recession spreads to China.

In my latest issue of Emerging Growth, I told subscribers that we could very well see better-than-expected holiday sales that push up many of our Buy List stocks. Black Friday sales numbers were above those of last year, and online shopping is up as much as 15% over the 2008 holiday season.

The latest sign that holiday spending could be stronger than economists have forecast is a report from the National Retail Foundation indicating many shoppers have purchases yet to make.

With just over a week to go until Christmas, only 47% say they have finished buying gifts for everyone on their list. That's down from 53% of shoppers done with their list at the same time last year. What's more, over 41 million people have not even begun their holiday shopping!

At Emerging Growth, I have recommended a few strong retailers that continue to experience double-digit growth in same-store sales despite this economic downturn. If consumer spending picks up, you can expect these companies to really soar!

What's more, 70% of American GDP is tied to consumer spending—so as soon as sales pick up for retailers and others, we will turn the corner on this recession and be on the road to recovery. So with that in mind, here's to seeing plenty of gifts under the tree this holiday season!

A CNNMoney.com article published today says 344 hedge funds failed and were liquidated in the third quarter—up 70% over last year and representing 7% of the entire industry. This selling 3Q selling pressure caused many commodity stocks to be unfairly oversold, but now it looks like the market it stabilizing.

Here's an excerpt from the article:

Hedge Fund Research, a Chicago-based information company, said the number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.

The data also showed that 693 hedge funds were closed in the first nine months of the year versus 409 in the same period last year. That's an increase of 70% and represents nearly 7% of all hedge funds, according to HFR.

In recent years, hedge funds had become extremely "leveraged" in an effort to increase their returns. In a nutshell, leverage involves borrowing or using other instruments to boost returns--at a much higher risk. Unfortunately, as the potential for gains got bigger, so did potential for downside losses.

As losses mounted amid the financial crisis a few months ago, jittery investors flooded hedge funds with redemption requests. These investors wanted to go to cash--but these super-leveraged hedge funds didn't have any way to pay them back. So in order to generate the necessary capital, hedge fund managers began unloading their large holdings in commodity stocks. See, hedge funds were thick in these companies because their low price-to-earnings ratios made them look like the safest investments on Wall Street. But ironically, as investors demanded their money back from hedge funds, the result was chronic overselling that undercut the very commodity stocks that were meant to be a safe haven&mdashwhich in turn, only led to more redemptions! Some of my Blue Chip Growth stocks were caught up in this mess and are now trading at absurd valuations as a result. Take Agrium (AGU) for example, which is trading at barely 3.5-times trailing and forecasted earnings!

Although many investors might dismiss the selloff in ag stocks as the result of a commodity "bubble," that is not the whole story. A simple look at the numbers shows valuations have gotten ridiculous amid the hedge fund de-leveraging that has been underway since the Lehman Brothers bankruptcy. Consider this: The almost $2 trillion hedge fund industry will end 2008 with barely $1 trillion after massive liquidation requests and substantial losses.

The hedge fund meltdown has caused a number of quality stocks to be unfairly oversold as these funds were forced to liquidate their holdings. However, I think the market is stabilizing and some of these stocks will bounce back significantly without the selling pressure. That means there are tremendous buying opportunities out there, with commodity stocks that can be snatched up at a bargain!

Despite the announcement that all of Chrysler's 30 factories will be shut down for at least a month, the White House announced last Friday its makeshift plans to extend $13.4 billion in loans to Detroit auto makers, with another $4 billion likely available in February, citing the need to avoid "disorderly liquidation" during this troubled economic period. Ford declined the aid, but Chrysler and GM were grateful for their early Christmas gift, saying they plan to show President-elect Obama that they can put together a survival plan by March.

In the interim, the United Auto Workers (UAW) will get 95% of contracted pay during Chrysler's factory shutdown, even though they are doing nothing. The UAW negotiated a cushy contract and they have refused to make any significant concessions until 2011, when their current contract expires. As sales volume drop, the Big 3's higher labor costs relative to Honda, Toyota and other foreign automakers with manufacturing facilities in the U.S. are now becoming even more of a problem. It will be interesting to see if their survival plans call for any UAW wage concessions. Since Obama was elected with the help of the UAW and organized labor, it will be interesting to see if he tries to protect the UAW, even though high labor costs are one of the Big 3's handicaps.

The entire automotive industry is in the midst of a crisis caused by a lack of financing for the vast majority of new car buyers. For example, the Port of Long Beach is full of BMWs and Mercedes that dealers do not want, since their lots are now full of unsold vehicles. German manufacturers have cut production, but their union employees are accepting shorter work hours. Virtually all vehicle manufacturers are being affected. For example, Ferrari only sold 92 cars worldwide in November, when 600-a-month are normal. Like Chrysler, Ferrari has shut its factories, but unlike the UAW, Ferrari will be negotiating with unions to lay off at least 10% of its workers. It appears that until vehicle financing is available to the vast majority of new car buyers that the worldwide auto industry will have no choice but to plan dramatically lower production levels in 2009.

The Commerce Department reported today that third-quarter GDP fell by 0.5% which matched its earlier forecast. Here are some of the details.

The biggest revision in the report was in nonresidential investment, which did not fall as much as first believed.

But consumers did not buy as much prepackaged software as earlier estimates. Spending on software was revised to a 7.5% drop from the previous estimate of a 5.7% decline.

Consumer spending fell 3.8% not 3.7%, with weaker spending on nondurable goods.

Business investments decreased 5.3%, not 5.6%.

Residential investments fell 16.0%, not 17.6%.

Inventories fell $29.6 billion.

Rounding out the GDP revisions, government spending rose by 5.8%, not 5.4%.

There aren't many bright spots in the economy right now. We're all cringing on unemployment reports, and I expect America will have lost 2.5 million jobs when the December numbers come out. Worse, I expect the fourth-quarter GDP report to indicate a contraction as high as 6%.

But keep in mind that the market has already taken the brunt of the economic downturn, and now businesses and the government are racing to find ways to spur the recovery. Many of those remedies have resolved past problems we've discussed like high LIBOR rates or the commercial paper market, and progress is being made on the lingering impacts of the credit crisis every day. The question now is no longer if the economy can turn around, but when.

The Washington Post reports:

Mortgage rates continued tumbling, as Freddie Mac reported today that interest on 30-year loans averaged 5.14 percent this week, the lowest point since it began tracking in 1971.

That was down from 5.19 percent last week, itself a new low point. A year ago, rates stood at 6.17 percent. Rates have fallen for the past eight weeks as evidence of the economy's problems has accumulated.

At 5.14 percent, the monthly principal and interest payment on a $200,000 loan is $1,091. That's $130 a month less than the same loan would have cost at last year's rates.

Now that the Federal Reserve is directly buying troubled mortgages, it cleans up the balance sheets of many banks and they're able to make new mortgage loans again. The low mortgage rates are very good news because the rush to refinance existing mortgages at lower rates will put more money in consumers' pockets.

The Wall Street Journal reports:

Price-slashing failed to rescue a bleak holiday season for beleaguered retailers, as sales plunged across most categories on shrinking consumer spending, according to new data released Thursday.

Despite a flurry of last-minute shoppers lured by the deep discounts, total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.'s SpendingPulse unit.

When gasoline sales are excluded, the fall in overall retail sales is more modest: a 2.5% drop in November and a 4% decline in December. A 40% drop in gasoline prices over the year-earlier period contributed to the sharp decline in total sales.