*Market Metrics over the Moving Average
*Credit Crunch Closes Chrysler for Christmas...for good?
*2009's Best Investment Strategy...

Wishful thinking came to blows with good judgment in yesterday's markets, sending the indices twisting into a wicked tailspin.

And why not? Everyone sobered up from the Fed's rate-cutting party on Tuesday and began to notice the corruption, Ponzi schemes and poor regulation rife in the marketplace. And I don't think Obama's selection of Mary Shapiro as head of the SEC settled anyone's stomach.

Shapiro not only failed to catch Madoff's scam in her former post as CEO of the Financial Industry Regulatory Authority (FINRA), she actually hired one of Madoff's sons and appointed him to a disciplinary oversight position. The markets grumble, wondering if this is the "Change we need."

As we said yesterday, you can expect more and more of these scams to come to light in the next few weeks and months, as a hectic market and steep losses expose some of the worst Wall Street has to offer. As Buffett puts it "You only find out who's swimming naked when the tide goes out."

But if history is our guide (and you don't mind occasionally steering a boat by its wake) we could reasonably expect a rally on the heels of Tuesday's wild upswing. That session broke the S&P's moving average for the first time since September...suggesting that the old bull might still have some steam left in him.

Breaking the moving average after being under it for so long is generally a good sign, as it can spark a buying spree that will carry a handful of good sessions into a serious near-term rally. But historically speaking, the average gains on such an event pale in comparison to the magnitude of our bounce since the November bottom.

Add to that the fact that "Fed days" as they're called, often lead to a near-term decline, and that the market has a historic tendency to close below its "Fed day" closing within the next 3 days, and any rally starts to seem like pure wishful thinking...

Chrysler: Detroit's Sacrificial Lamb

"I think this is the end for Chrysler, they're passing the point of no return," said David Newman, our Market Analyst and Editor of Accelerated Income in response to Chrysler's decision to close all its plants and try to ride out the storm until Obama's inauguration.

Think about it. If you were out looking for a car today...would you buy a Chrysler? Knowing that all the plants are closed and it might be hard to get parts two or three years down the line...of course you wouldn't. It's really a snowball effect. They're already done."

"And I don't think Chrysler's playing games here," he went on, "...they're not playing chicken for bailout money. They're not trying to muscle the Bush administration. I, for one, believe it's really that bad at Chrysler. They truly have no other options at this point."

Of the Big Three, Chrysler is the only privately-owned company...and it's truly the black sheep of the Detroit automakers.

After a successful bailout in 1980 - one that actually turned a handsome profit for the taxpayers - the company was eventually picked up by Daimler in 1998. Realizing their lapse in judgment, Daimler hastily unloaded it on our pick for "suckers of the decade," Cerberus Capital.

"Cerberus really gutted the company...they extracted a lot of cash and left little worthwhile infrastructure behind," says David. Here's where we arrive at the real bailout conundrum. Why should we give billions to a fledgling auto giant when the auto giant itself is owned by Cerberus...a company worth US$100 Billion? Can't they foot the bill?

Or are they just too good to pay for their own mistakes?

No, we here at The Sovereign Society have been thinking that Detroit would need to have a sacrificial lamb to get their bailout money. Like the 9/11 attacks that spurred on the Patriot Act...or the 700-point-drop in the Dow that forced Paulson's US$820 Billion blank check through the Senate. They would need to prove that some sort of emergency was forcing their hand here.

That they're once again infringing on our personal rights and liberties...for our own good. It's an argument we would never buy into, but it seems to do the trick. Chrysler will be sacrificed here. And it will be the perfect excuse to serve up buckets of free money for Detroit.

Investment-Grade Debt in Fashion for 2009

Usually you hear a 'did-you-know' and it tickles your brain. You say 'that's interesting,' and ponder for a moment before going back to work. But this one...well this was one of those 'did-you-knows' that made me feel ashamed for not knowing...

"Over the last 20 years, the S&P 500 Index has returned only 2% more than the investment grade corporate bond market but was accompanied by nearly three times the associated volatility," says Sovereign Society Investment Director Eric Roseman. "And over the last 16 months, I think investors have seen enough volatility to last a lifetime."

"Why take on more risk in stocks when you can sit tight in corporate debt and get paid at least 6% while possibly securing some capital gains on any price appreciation?"

He goes on to question the likelihood of a Santa rally... "It's true that stocks have declined sharply over the last 12 months and might be poised for a massive bear market rally. Perhaps stocks are the better choice compared to corporate bonds."

"But if we're heading into deflation, even a mild bout of falling prices, then look no further to the Japanese experience since 1990. There's no assurance that stocks will hold above current levels - now up 21% off the November 20 low. Each rally since October 2007 has been met by a hungry bear taking stocks to new bear market lows."

Central Banks have pretty much finished the race to zero, and the credit markets are finally starting to reflect as much. LIBOR has fallen from the realm of insanity into the 'still extremely high' range, but it's certainly trending downward. And that's a great sign for investment-grade debt issued at today's outlandish levels.

We'll be covering these bonds in detail over the coming year, so stay tuned for what's probably the best investment strategy of 2009.

An Early Christmas Gift for You...

But for now, we've got a special treat for you. It's a little parable from the "Oracle of Omaha" himself, Mr. Warren Buffett.

You see, everyone's spent the last year worried about what's six inches in front of their face or just around the next corner. But in a year when our national debt breaks 14 digits (that's ten trillion for those of you watching at home), people are asking frighteningly few questions about the nature of that debt...or how exactly we're going to pay it off.

In this article by Addison Wiggin and Kate Incontrera, Buffett takes a look at the trade deficit, and what it means for the future of America & our ability to pay off debts. His insights are straightforward and accessible to any reader, and they might change the way you think about international trade...

Yours in Sovereignty,
MATTHEW COLLINS, A-Letter Editor

Don't get burned by Wall Street's lies, Read Economist John Pugsley's special lies report here

The Road to Squanderville

Today's Special Comment was contributed by Kate Incontrera and Addison Wiggin of Agora Financial...

Although still seen as the world's economic superpower, the United States has found itself with a myriad of problems: a skyrocketing federal debt, growing annual budget deficits, an almost nonexistent personal savings rate, and the dubious honor of being the country with the largest current account deficit, of which trade makes up the largest part.

A trade deficit occurs when you are importing more than you are exporting - in other words, you are consuming more than you are producing. So the next time you are at Wal-Mart or Target, take a look around. Just about everything you can purchase there comes from another country.

Economists are generally split over what the economic impact of a trade deficit is on a country. Those who defend running a trade deficit argue that when the United States sends money to another country for its goods or services, that country will take that money and invest it back into the United States, in one way or another.

In economist Milton Friedman's opinion, having a large trade deficit meant that your country's currency is desirable. He believed that a trade deficit simply meant that consumers had an opportunity to purchase and enjoy more goods at lower prices; on the flip side, a trade surplus implied that a country was exporting goods its own citizens did not get to consume or enjoy, while paying high prices for the goods they actually received.

However, as those on the other side of the argument point out, countries with large and long - term trade imbalances also maintain a low national savings rate. Conversely, those countries with trade surpluses (such as Germany, Canada, and Japan) have a high national savings rate.

Those arguing against trade deficits believe that GDP and employment will be pulled down by a large trade deficit over the long run. As goods flow into the United States from other countries, the country is losing opportunities to produce these goods domestically, which subsequently has an adverse effect on U.S. jobs.

Somewhere in the middle of these two sides is the world's richest man, Warren Buffett. Mr. Buffett believes that, on a whole, trade is a good thing for America, but that over the long-term, running "large and persistent" trade imbalances will be problematic for the United States.

Mr. Buffett realizes the importance of having the average American understand big economic issues, like the trade deficit. As a result, he wrote an article in 2003 for Fortune magazine, called "Squanderville vs. Thriftville." This parable of sorts was designed to simplify for the readers the problems inherent in trade imbalances.

"Economics tends to put people to sleep," Mr. Buffett told us when we sat down with him in his office at Berkshire Hathaway, where he is CEO and largest shareholder. "And I thought by creating a couple islands with inhabitants of quite widely different activities that it might get across a point that otherwise they get lost on."

In Buffett's story, he outlined two side - by - side islands: Thriftville and Squanderville. On these islands, land is the capital asset, and these primitive people only need food and produce only food. At first, the citizens of both islands work eight hours a day and produce enough to sustain themselves.

However, as time passes, the Thrifts realize that if they work harder and put in longer hours, they can produce a surplus of goods and then trade what they produce with the Squanders. The people of Squanderville like the idea of working less - and all the Thrifts want in exchange for these goods are "Squanderbonds," which are denominated in "Squanderbucks."

As time goes on, these Squanderbonds begin to pile up and it is clear that the Squanders will have to put in double time to eat and pay off their growing debt. "Meanwhile," writes Buffett, "the citizens of Thriftville begin to get nervous.

Just how good, they ask, are the IOUs of a shiftless island? So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville."

"At that point, the Squanders are forced to deal with an ugly equation: They must now not only return to working eight hours a day in order to eat - they have nothing left to trade - but they must also work additional hours to service their debt and pay Thriftville rent on the land that they so imprudently sold. In effect, Squanderville has been colonized by purchase rather than conquest."

In a nutshell: Buffett's story illustrates that any short-term actions have long-term consequences that sometimes people don't think about in the short run. This is true of the United States.

"Our country's net worth,'" Buffett writes in the introduction of his Fortune article, "is now being transferred abroad at an alarming rate. A perpetuation of this transfer will lead to major trouble." And it may be more than just economic trouble. History shows that countries with similar trade and debt problems are fertile ground for political movements we're not accustomed to in a democratic society.

In 2007, the total U.S. trade deficit was $ 738.6 billion, which is down 9 percent from 2006. Much of the decline could be attributed to a decline in the value of the U.S. dollar. The popular argument suggests that a lower dollar makes production of goods in the United States cheaper and therefore more attractive to buyers of U.S. goods overseas. Exports would go up. And in fact they are, each year.

Some would argue that the dollar is being kept weak to help close the trade gap. "If I could finance all my own consumption today by handing out something called Warren Bucks or Warren IOUs and I had the power to determine the value of those IOUs over time, believe me, I would make sure that when I repaid them ten or twenty years from now that they were worth less, per unit, than they are today. So any country that piles up external debt will have a great temptation to inflate over time, and that means that our currency, relative to other major currencies, is likely to depreciate over time."

And this is just what the United States is doing. From November 2002 through August 2008, the dollar has fallen more than 50 percent against the euro. Some experts will argue that a weaker dollar benefits the United States - at least where the trade deficit is concerned.

What is not pointed out in this argument is that a falling dollar paired with low domestic productivity means that the country is consuming more than it produces. In that sense, since the dollar is losing purchasing power, Americans are paying more for these imports, and the rise in these import costs erases any sort of benefits the country would have seen because of a falling dollar.

In other words, America is getting fewer goods for the same amount of money - but that isn't slowing down the rate of American consumption. "In the past six or eight years," Buffett explains, "the United States has started consuming considerably more then it produces. It's relied on the labor of others to provide things that are used every day. Because the country is so rich, this can continue for a long time, and on a large scale - but not forever."

Buffett likens it to a credit card. "My credit's pretty good at the moment," he says, which usually draws snickers from the audience. "If I quit working and have no income coming in but keep spending, I can first sell off my assets and then, after that,I can start borrowing on my credit card. And if I've got a good reputation, I can do that for quite a while. But at some point, I max out. At that point, I have to start producing a whole lot more than I consume in order to clean up my debts."

The trade deficit aside, Buffett doesn't believe that the economic situation in the United States is as dire as many of the other experts with whom we've spoken have made it out to be. While he warns to not "bet against America" because he believes that we have an overall healthy economy, what does keep the Oracle of Omaha up at night is the imbalance between imports and exports.

"The rest of the world is buying more and more of our goods all the time, but at an even greater rate, we're buying more and more of theirs. More trade, overall, is good - as long as it's true trade. If it's pseudo trade, where we're buying but not selling, I do not think that's good over time."

This is why the U.S. trade deficit remains high. The United States is consuming more than we are producing. The country's dependence on foreign oil, automotive parts, and cheap consumer products from China accounts for almost the entire deficit.

KATE INCONTRERA & ADDISON WIGGIN, Agora financial

Editor's Note: The above was taken from the companion book to the critically-acclaimed documentary I.O.U.S.A. Included in the book you'll find interviews from some of the most revered voices in the nation, including Warren Buffett; former Treasury Secretaries Paul O'Neill and Robert Rubin; Pete Peterson, CEO of The Blackstone Group; Congressman Ron Paul (R-Texas); and bestselling Empire of Debt author Bill Bonner. Defiantly non-partisan, the empowering solutions outlined in these pages are a must-read for any American who wants to help change "business-as-usual" in Washington as a new administration heads towards the Oval Office.

To get your copy, along with the I.O.U.S.A. DVD and a special "Emergency 'Personal Bailout' Bundle" click here.