Greetings once again, to Bears and Bulls alike.

Stocks
An old axiom on Wall Street is "Bull markets climb a wall of worry." The less well-known corollary is "Bear markets slide down a slope of hope."  Well, talk about your market timing: In Friday's papers, one leading Wall Street anal-yst nailed it by stating "Earnings are really the only hope for this market."

Following this relatively brief rebound, which may last a few days or even a few weeks, another devastating decline should ensue to complete the wave 1 of C.  Consequently, we're maintaining our highest level of financial alert: FULL CRASH WARNING 

As our friends at the Daily Reckoning/Rude Awakening reported recently, the average holding period for an NYSE stock has plunged from eight years in 1960 to less than one year now. We haven't been able to find similar data for NASDAQ stocks, but one would expect the holding period for the more speculative stocks to be even shorter. For Pink Sheet stocks, it would have to be measured in days or weeks, not years.

"Long-term" has become persona non grata on Wall Street. Over the last 30 or so years, America has degenerated from a nation of investors to traders and now essentially to speculative gamblers.

Indeed, gambling in general and poker in particular are hotter than ever. World-class high-stakes poker is now broadcast on at least five cable TV networks. A poker junkie can watch the action nearly around the clock, just like the financial markets.

Internet-based poker, playing against sight-unseen opponents, is all the rage. Legal casinos are practically everywhere (except Utah). Las Vegas hotels are sold out months in advance. State-run lotteries are generating more and more revenue, despite offering significantly worse odds and payouts than casino keno.

It's all part of humanity, part of our innate self-defense mechanism. We're programmed to be competitive to insure our survival, and poker is just the ticket.

George Washington cautioned that "Gambling is the child of avarice, the brother of iniquity, and the father of mischief." Awh, c'mon George, it's fun! I just filled an inside straight. My cousin Louie's ex-girlfriend's sister-in-law's neighbor missed the Powerball jackpot by only one number. My bio-tech stock rose from $0.47 to $0.63 today. And besides, I can always get another cash advance off my credit card (more below).

The Economy
We're big believers in not reinventing the wheel. So when we see our thoughts and concerns expressed eloquently by someone much more knowledgeable about these affairs than are we, we're inclined to just sit back and enjoy the fruits of his labor.

We hope, we wish, we pray that the old Wall Street axiom: "As GM goes, so goes the nation" no longer holds true. If it still holds, America will soon be deep in the do-do, because GM is already in up to its hips, and it's still rising:

• GM's $300 billion mountain of debt was downgraded to junk status a few weeks ago.
   
• Next week GM is expected to post its largest quarterly loss in 13 years.
   
• GM earns practically nothing on each new vehicle it manufactures. The bulk of GM's "earnings flow" comes from the financing of those vehicle sales.
   
• GM's pension fund is under-funded by at least $17 billion, and it may be forced to seek assistance from the federal Pension Benefit Guaranty Corporation (PBGC).
   
• Some even argue that GM is more of a health-care management company than a car manufacturer. The health-care costs for its pensioners and retirees burdens the sticker price of each car with thousands of extra dollars.
   
• GM is all ramped up with production and inventory of big SUVs and trucks, right when it starts to cost triple digits for a fill-up. Good planning and timing, GM.
   
• GM is taking its crash-test dummies too literally. Its shares have hit the barrier and have been cut in half over the last twelve months, to lows not seen in at least 20 years.

To sum it up, GM is a basket-case, and for what it's worth, #2 Ford is right there with them, too.

So who cares about GM anyway? They're an industrial dinosaur from the dark ages, right? Maybe so, but GM is the world's largest private company debtor (beyond taxpayer-hitched Fannie Mae and Freddie Mac, who are in a league of their own). With its junk rating, GM's $300 billion of debt is "at risk" of default. It won't be pretty.

So, if GM is no longer a bellwether for America, who would be its successor? Let's look at a few candidates.

How about high-tech IBM? It's well-respected, it's humongous and it's omnipresent (just like GM). Bzzzzzzzzzzzzzz! Thanks for playing. IBM stunned the markets on Thursday with a quarterly earnings report that fell well short of estimates. For the week, IBM tanked 12.5%.

How about Wal-Mart, the world's largest store (and the world's largest importer of good from China)? It's well-respected, it's humongous and it's omnipresent (just like GM and IBM). Bzzzzzzzzzzzzzz!  Thanks for playing. WMT has been in a steady downtrend over the last 15 months, and it closed Friday at a fresh two-year low.

How about eBay? It's the world's largest electronic store (and the world's largest Internet enterprise). Bzzzzzzzzzzzzzz Thanks for playing. eBay stock is down a stunning 52% since the beginning of this year.

Debt and Deficits
Decades ago, debt was served up in small doses, like one of those shapely little 7-ounce bottles of Coca-Cola. A home mortgage (with a full 20% down payment) was fine. Maybe you took out a small "paycheck" loan for a diamond for your fiancée. But that was about it.

As hard as it is for those under 28 years of age to believe, people actually used to save first, and then pay cash for things, including big-ticket purchases such as a new car, a refrigerator and other durable goods. Student loans were virtually non-existent. If you didn't have the funds to pay for tuition, you got a part-time job and worked your way through college - what a concept! The thought of buying a new suit or dress, the weekly groceries or a vacation trip "on credit" was unthinkable.

Today, debt is served up as if Homer Simpson were lying under a running soda dispenser with his mouth open: "ahgghghghghg, aghghghghg, aghghgghgh." Today, consumers go into debt for anything and everything they can get their hands on. A wallet-full of affinity credit cards is a necessity. Second and third mortgages are de rigueur. A zero percent, 7-year SUV loan is the only way to drive. (Go ahead, pull out that alumni credit card for the $100 fill-up tab.)

Yep, back in the "good old days," a little bit of brown sugar-water was a good thing. Today, 7-11 will gladly accept your 23.9% APR credit card to buy that $1.39, 64-ounce Super-Sized Big Gulp.

We discussed the looming debt and deficit crises in detail in our January report, and things have only gotten worse since then.

Here are a few more recent data-bits on the size and scope of "the problem":

• In the last 30 years, household debt as a percentage of personal income has doubled from 60% to 120%.
   
• Total household debt is now $8.2 trillion, over $29,000 for every man, woman, and child in America.
   
• Total US credit market debt is approaching 350% of GDP, twice the level of October 1929.
   
• The personal savings rate of Americans is next to non-existent, a meager 1.0% of income in January. By comparison, the typical poor Chinese peasant saves an estimated 25% of his meager income. What's wrong with this picture?

The U.S. federal government continues to spend, spend, spend at a rate that gives drunken sailors a good name. Our distinguished elected officials continue on their insatiable spending spree, leaving no stone unturned in their quest to "serve the public."

The 2005 budget will put the U.S. about $550 billion further in the hole. There are $71 trillion (that's trillion with a "T") in un-funded liabilities, $750,000 per American household! Who will end up paying off this tab, most of it incurred by politicians in the name of getting re-elected? Let's do it to, errh, for the children.

The U.S. trade deficit will approach a gargantuan and yet again unprecedented $725 billion for 2005. Federal Reserve Governor Ben "We'll drop money from helicopters if necessary" Bernanke must be reading a lot of George Orwell lately. In Newspeak that would make Orwell envious, Bernanke recently flipped the U.S. trade deficit on its head. It's not a trade deficit, he declares, it's a "global saving glut." It's off to Room 101 for you, Ben.

Real Estate
The real estate bubble is stretched to the max. It may not pop with the same thundering thud as did the Nasdaq bubble in 2000, but real estate's time is fast coming to an end. The early warning signs are flashing like a six-track railroad crossing.

• The National Association of Realtors reports that about 25% of all homes purchased in 2004 were for investment purposes, not occupancy. If the value of a home starts to drop, people who actually live in it are generally not inclined to sell it, at least not right away. They've still got to live somewhere, right? The same cannot be said of people owning a second or third home for speculative purposes. When prices stop increasing, the momentum will be gone and the speculation will no longer make sense. You can't put in a stop-loss order to quickly get out of that condo you own across town. When real estate's lack of liquidity is shifted into reverse, prices will plunge.
   
• In January, the inventory of unsold homes rose 17%. This inventory represents 5.2 months of supply, up from 3.5 months a year earlier.
   
• March new residential housing construction plunged 17.6% from the February and down 8.2% from March 2004.
   
• $3 trillion in mortgages were refinanced in the last four years. Just about everyone paying a mortgage has refi-ed (many two or three times) and cashed out as they traded up (up and away). Americans cashed out an unprecedented $300 billion in home equity in 2004. There just isn't much equity left to extract to keep the spiral going.
   
• 40% of first-time home buyers put no money down.
   
• Mortgage applications dropped by 9.5% in the latest reporting period.
   
• An estimated 11.8% of FHA loans are in default.
   
• Foreclosure.com reported last week that 28,190 foreclosed homes were put on the market in March, up 50% from February.
   
• Fannie Mae's stock (FNM) has plunged 24% so far in 2005. Fannie and her Siamese brother Freddie guarantee nearly half of all mortgages issued in America.
   
• On April 6, Sir Alan of Greenspan practically pleaded with Congress to put limits on the escapades of Freddie and Fannie. Sir Alan was so bold as to say: "Without restrictions on their balance sheets, we put at risk our ability to preserve safe and sound financial markets in the US..." Sorry Sir Alan, the horse is already out of the barn.
   
• Even the tax lien market of late-night infomercial fame is bubbling over. At a recent tax lien sale in Mojave county Arizona, 59% of the liens were bid so high that the buyer is guaranteed a loss on his "investment" if the lien is redeemed by the property owner. 98% of Mohave county liens have been redeemed in past years. Go figure.
   

As it has for at least the last 25 years, California leads and dominates the national real estate market. The California Association of Realtors describes the current situation this way:

• The median price of a home in the state is $470,000.

• The median household income in the state is $53,240.

• It takes a household income of more than double that median income, $109,320 to be exact, to qualify to purchase that median-priced home.

Clearly, something has to give. You make the call - is it more likely that household incomes will double, or that property prices will be cut in half?

Gold
Our outlook for gold from our January 1st report remains on track:

"Bull markets don't run in straight lines and at this juncture, gold looks and feels as if it is ready to at least take a breather in the $430-$450 area, if not undergo a sizable pull back "

So far this year, gold has been treading water as a result of the stabilization of the U.S. dollar, which in turn was induced by the seven straight increases in short-term interest rates by Sir Alan and His Merry Monetarists. Spot bullion closed this week at $424.30, essentially unchanged so far this year.

International Affairs
We need to keep a close eye on China. No, not because of the trade deficit or commodity accumulation or the un-pegging of its currency from the U.S. dollar. Instead, our focus is on geo-politics.

Indeed, mainland China is moving closer and closer to a direct confrontation with its renegade province, Taiwan.  Last month, China's pseudo legislature authorized a military attack if Taiwan pursues formal independence. The vote was 2,896 to 0. (Despite China's capitalistic successes of late, it's still ruled and populated by party-line party members. 2,896 to ZERO!)

Things could soon explode like, ahem, a Chinese firecracker factory. Seriously, the China dispute could have very serious consequences for the entire globe. The U.S. military will likely be called in like the Cavalry to at least try to quell the hostilities. The U.S. is Taiwan's strongest and most interventionist ally, and President Bush will not resist the call.

China is also making noises against arch-rival Japan. Thousands of people have staged violent anti-Japanese rallies across China over the past few days.

Beware the famous curse, allegedly of Chinese origin: "May you live in interesting times."

© 2005 www.bearmarketcentral.com. All rights reserved. Please read the disclaimer.