Remember when Richard Nixon was President? Remember the funk that the nation fell into? And do you remember the oil embargo and the horrible stock market crash of 1973-1974? If so, a chill must be running up and down your spine. If not then you are too young or you suffered some irreversible brain damage.

Consumer confidence just dropped to its lowest level since those dark days of Watergate, corruption and scandal. The numbers dropped from 76.4 in February to 64.5. Last summer it was about 106, gulp!

On top of that we got more bad news in housing data. The S&P / Case-Shiller index reports the home prices in 20 metropolitan areas. I like this index because there are no government economists involved! This is private sector stuff by a respected Yale professor. They don't manipulate numbers. The only other non-government group that publishes suspicious numbers is the National Association of Realtors. Did you know that the government routinely manipulates economic data? I will make sure we post more on government deception in the future.

The home price drops for January were the most on record. The index dropped 10.7% from a year ago after the December figures showed a 9% decrease. This number has dropped for 13 straight months. Remember these are year-over-year numbers and not the drop from the previous month. Some areas like Las Vegas and Miami are seeing drops of 20%. There will be some great buying opportunities coming up.

American's income is getting smaller. According to Merrill Lynch, 36% of consumers' disposable income (Dec 2007) went to food, energy and medical care, the biggest in 47 years. To compensate, restaurants are being frequented much less. The National Restaurant Association says that 54% of restaurants reported less patrons in January and furthermore, eating at home increased for the first time since 2001.

As if that is not enough, you should see the expected inheritance of boomers. Remember how a few years ago boomers were set to inherit $12 trillion (or more depending on who you believe) and were guaranteed fat city? New studies show the average boomer will inherit $48,000. Only 2% who have gotten an inheritance recieved more than $100,000. And last, only 15% of boomers expect any inheritance at all. Gee whiz honey, I thought our McMansion was going to be paid off.

I just saw our Treasury Secretary on CNBC the other morning. He looked pretty stressed from the weekend of manipulations in the Bear Stearns / JP Morgan Chase debacle.

Only a student of body language could have appreciated what he (or rather his body) had to say.

While blinking his eyes rapidly (a classic sign of lying) he shook his head violently from side-to-side (which means no way Jose) while proclaiming his faith and confidence in America's credit markets.

I don't know about you but this looks pretty fishy. As a money manager, this speaks volumes and we immediately made trades to cover up the potentially damaging effects of his cover-up!

We are finally getting the message, Mr. Bernanke. You think the whole financial system is on the verge of collapse!

You sure have fooled a lot of professional money managers including me. For months I have shaken my head wondering why in the world is Ben dropping money (more like manna) from the skies? Now the answer is clear and it has manifested itself the past few days.

The real truth is inflation is not a factor in the grand scheme of things. Yes, gas is up, food costs are escalating and health costs are out of control. What is really happening is the underpinnings of our country, being the economy, is in grave danger. You see, the Fed is terrified of DEFLATION not inflation. They are worried that we could slip from recession to depression in short order.

Just take a look at all the unheard of remedies being used. Some have not been used since the Depression years. If it worked in the last depression, perhaps it will work in the next one.

Commodity prices have tumbled this week. We sold our oil, gold, silver, grains, agriculture and food positions. In a deflationary or recessionary environment demand will soften and commodity prices will come down. What about China and India you might ask. Yes, China may be strong until after the Olympics but have you noticed the starving children from India in the Financial Times? My guess is they aren't too concerned about copper and steel prices right now and demand is falling off.

Gold has sunk like a stone. On Sunday night when it looked like the financial world was in collapse, gold shot up to around $1035 an ounce. Today it is about $910. Wow, talk about a turnaround. What is happening there?

What I think is the hedge funds are in trouble. All of us have made serious money in commodities and precious metals. Because of the Bear Stearns collapse, liquidity is a problem. Margin calls are a problem. And so, they are having to unwind their profitable positions to stay afloat. The junk cannot be sold but taking profits in the money makers may stave off closure.

The market is neurotic. The swings this week have been frightening as Wall Street tries to figure out what to do next. These are challenging times. I look forward to next week as we watch for the next shoe to drop. Maybe the world as we know it will be just fine but I would not bet client money on it!

On Sunday night, as the Asian and European markets went into a free fall, it seemed like the financial world would change forever. But then the good ol' Fed started spewing George Washingtons from heaven and yesterday's rally showed just how much confidence in our Fed.

Don't believe it for one moment! Right now, there is no way the Fed can stop the de-leveraging of the credit markets. We saw a big sell off in commodities today including oil and gold as well as the raging hot agriculture products. I think we may be seeing some profit taking as well as a concern of a greater crisis.

As the Fed continues to lower interest rates, the dollar got weaker and gold went up. This is to be expected. When there are more dollars due to Fed manipulations there is going to be inflationary pressure which leads to buying gold.

Now it appears that what is really a concern is deflation and if I may be so bold...depression! The R word is off my mind and has been replaced with the D word. Gold had its biggest sell off ever supposedly due to the Fed not cutting rates by 1%. I think we are seeing a fear of a collapsing world market. I still see gold as the haven of protection long term as things play out.

Yesterday's rally is a thing of the distant past. Today we saw the rally slip away and the bears are back. Strong rallies are common in bear markets. How many remember the big rally in early January of 2001 after the tech collapse started the previous March? In one day, the Nasdaq posted a 14% gain, it's biggest one day advance ever. Don't be fooled. The bears are back.