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Optimists:
House prices expected to fall until 2009 (articles.moneycentral.msn.com)

Paulson
Credit Push Earns Jeers From Free-Marketers (bloomberg.com)

Disaster
capitalism, the new Manifest Destiny (eyeonmiami.blogspot.com)

SIV
Bailout Plan: Don't Ask, Don't Sell (seekingalpha.com)

Text
of Paulson's Remarks on Housing (blogs.wsj.com)

As Defaults
Rise, Washington Worries (nytimes.com)

Mortgage
Securities Bailout Fund: A Bribe? (seekingalpha.com)

Banks May
Pool Billions to Avert Securities Sell-Off (nytimes.com)

Boom
Boom Tuesday (market-ticker.denninger.net)

Wells
Fargo, Regions Financial, KeyCorp Profits Miss (bloomberg.com)

Wells
Fargo Hit by Mortgage Woes (thestreet.com)

Foreigners
Sold Record $69.3 Billion in U.S. Assets (bloomberg.com)

German
bank hit by subprime crisis slashes results, directors leave (afp.google.com)

Builder
D.R. Horton Orders Fall (cnbc.com)

D.R.
Horton Orders Fall to Lowest in Almost Six Years (bloomberg.com)

Housebuilder
Outlook Falls to Record Low (biz.yahoo.com)

8
Areas in the U.S. Most Unaffordable in World (efinancedirectory.com)

Blame
the Downturn on Homebuilders and Banks (doctorhousingbubble.com)

Southern
California house sales plunge 30 pct in Sept (reuters.com)

2005
San Diegeo Sales (sandicor.com)

2007
San Diego Sales (sandicor.com)

Dear Subscriber,

I'll never forget
Hurricane Jeanne, which struck Florida four years ago this week.

My wife, young
daughter, and I huddled in the shower of our older house as the
battery-powered TV flashed tornado warnings and updates on the storm's
115-MPH winds.

Every now and then,
I'd peek out the only unshuttered small window we had, only to see it
raining sideways and watch electrical transformers exploding in flashes of
blue flame.

And I'll always
remember how the walls of the house practically "breathed" -
flexing inward and outward ever so slightly - as Jeanne's winds tugged at
them.

Scary times, to say
the least. It reminds me a lot of what's happening in the credit markets
right now, only what we're seeing there is no Category 3 like Jeanne ...

It's
the Biggest, Baddest

Category 5 Financial Cyclone

The Markets Have Ever Seen!

Just look at what's
happening out there ...

#1. London Interbank
Offered Rates (LIBOR, for short) are surging. For instance, three-month U.S.
LIBOR jumped 29 basis points (0.29 percentage points) today after rising 27
basis points yesterday. At 3.77%, LIBOR is well above the federal funds rate
of 2%.

These are the rates at
which banks lend short-term money to each other. The surge in rates shows
that banks are hoarding cash, rather than lending it out.

#2. The yield on the
3-month Treasury Bill is plunging - to as little as 0.46% this week from
1.66% two weeks ago. This is the lowest T-Bill rates have been since at
least 1954. This shows that investors are fleeing any and all forms of risk,
pursuing safety above all else.

#3. A major U.S. money
market fund - the Reserve Primary Fund - recently "broke the
buck." In other words, losses on Lehman debt forced its net asset value
below the $1 level.

Money market funds are
supposed to be extremely safe, and breaking the buck is exceedingly rare.

Black
October Dead Ahead!

Only 5 Days to Prepare!

$700
billion bailout is too little, too late to save ailing banks ...

It
does virtually nothing to stem mortgage defaults or to make credit
available to cash starved companies and consumers ...

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#4. The TED spread -
the difference between the yield on three-month Treasury bills and
three-month LIBOR rates - blew out to 326 basis points. That's the highest
level I can find, and my Bloomberg data goes back to 1984. Think of this as
a risk spread - how much riskier financial institutions think it is to
lend money to each other rather than the U.S. government. The fact it's off
the charts speaks volumes.

#5. Two-year swap
spreads have exploded, hitting 166 basis points at one point this week. This
is the highest level in at least a couple of decades. And it's yet ANOTHER
sign that financial market players are panicking over the credit quality of
their counterparties and the possibility of a full-scale meltdown.

Clearly, the credit
market problems Martin and I have been warning about over and over again for
the past few years are coming home to roost.

We suggested some ways
for Congress to deal with the crisis without busting the U.S.'s own credit
and causing counterproductive moves in interest rates. You can read
our paper here. It appears that the actual bailout plan is somewhat
different, though final details and all the implications of them are still
being worked out.

The Biggest Question
of All: Will the Bailout Work?

That Depends on Your Definition of "Work" ...

First, it may help
some banks avoid some additional losses, but it won't help all banks do so.

Depending on what the
government pays for these crummy assets going forward, the plan could
actually cause even MORE losses.

Plus, the sheer
magnitude of bad debt out there is enormous. Even if the government buys
some bad paper, plenty more loans will still sour, plenty more banks will
see earnings tank, and plenty more banks will fail.

Second, the bailout
package won't magically make lenders take on huge risks again.

After all, they've
been burned big time. I don't think we'll see the ridiculously easy
residential mortgage, commercial mortgage, auto loan, credit card, and
leveraged buyout lending that we saw from 2002 through 2007 for a long, long
time. I'm talking years, not months or quarters.

Third, the cost of
this bailout will be gigantic.

Even before this
latest proposal, the U.S. had committed hundreds of billions of dollars to
various rescues. That includes more than $25 billion to bail out Bear
Stearns, $100 billion each for Fannie and Freddie, and $85 billion for AIG.

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Treasury is also
talking about spending at least another $50 billion to backstop money market
funds (the ultimate cost is unknown).

Not to be left out,
the auto industry looks like it's getting its own $25-billion bailout in the
form of government-supported low interest loans.

And of course, the
latest package has an initial price tag of up to $700 billion.

All told, we're
looking at more than $1 TRILLION in bailouts - and it's not like we have
all that money sitting in a bank somewhere. We're a nation that spends much
more than it earns, and borrows the rest.

The White House was
ALREADY projecting that the 2009 federal deficit would be $482 billion. Now,
with the additional bailouts announced and proposed, we could be looking at
tacking another $1 trillion - or more - onto that number. This would
push the budget deficit so far into the red, we'll all be swimming in
crimson ink.

To fund those
deficits, we're going to have to borrow an ASTRONOMICAL amount of money. The
Treasury just held a record $34 billion sale of 2-year Treasury Notes. That
was followed by a $24 billion sale of 5-year Notes, the biggest such sale in
more than five years. Those numbers will only go higher with time.

In fact, Congress is
raising the federal debt ceiling to a whopping $11.3 TRILLION to account for
this additional borrowing.

The likely impact: All
the additional supply will drive bond prices LOWER and interest rates
HIGHER. Heck, 10-year Treasury Note yields have already surged from around
3.4% to almost 3.9%. That will blunt the impact of the bailout by driving
financing costs higher on all loans whose rates are benchmarked to
Treasuries.

Last, this crisis long
ago stopped being just a financial one.

This bailout bill
won't prevent the "real" economy from sliding into recession.
Factories are closing. Layoffs are rising. Spending is slowing. And the
downturn that began in the U.S. is spreading to other economies overseas.

Heck, just yesterday
we learned that durable goods orders plunged 4.5% in August - more than
double the decline economists were expecting.

Meanwhile, initial
jobless claims soared to 493,000, the highest since the period right after
the 9/11 terrorist attacks. Some of that gain stemmed from Hurricanes Ike
and Gustav. But the trend higher is clear, and a sign of real economic
weakness.

So I still think you
have to be cautious with your investing strategy ...

I suggest keeping the
lion's share of your money in safe havens such as Treasuries or
Treasury-only money funds.

And for your more
speculative funds, I think it's a good time to target some of the stocks
that will get hit the hardest as the post-bailout euphoria wears off. For
more on my favorite way to do that, click
here.

Until next time,

Mike

P.S. With this credit
market storm hitting in full force, I'll be giving you frequent updates on my
blog. Be sure and check
in regularly!

About Money
and Markets

For more
information and archived issues, visit http://www.moneyandmarkets.com

Money and
Markets (MaM) is published by Weiss Research, Inc. and written by Martin D.
Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson,
Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss
Research and its staff do not hold positions in companies recommended in MaM,
nor do we accept any compensation for such recommendations. The comments,
graphs, forecasts, and indices published in MaM are based upon data whose
accuracy is deemed reliable but not guaranteed. Performance returns cited
are derived from our best estimates but must be considered hypothetical in
as much as we do not track the actual prices investors pay or receive.
Regular contributors and staff include Kristen Adams, Andrea Baumwald, John
Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen
Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie
Underwood.

Attention
editors and publishers! Money
and Markets issues
can be republished. Republished issues MUST include attribution of the
author(s) and the following short paragraph:

From time to
time, Money and Markets may have information from

Years from now, when
historians look back at this decade, they will probably pinpoint it as
America's turning point - from abundance to scarcity, from risk to
caution, from false prosperity to real sacrifice.

In the final analysis,
it is a healthy change.

But the transition is
very painful: Large banks and brokerage firms fail, trapping millions of
investors. Stocks and bonds plunge in value. Even many people who thought
their money was "safe" suffer devastating losses.

This is a unique
situation that demands unique measures. That's why Mike and I recently
unveiled our "X" List of the nation's institutions most vulnerable
to financial difficulties. That's why we held a 60-minute Q&A session on
live Web TV. And that's why I am dedicating the two issues of Money and
Markets to an edited transcript of the entire event.

In last Monday's
issue, we published Part I, including the list of large U.S. banks we feel
are most vulnerable. If you missed Part I, the first thing you should do is
to read
it by clicking here.

Now, here's Part II
...

The "X"
List: The Next Big Failures

(Edited Transcript of Second Half of Program)

Announcer:
We've been getting a large number of calls and emails from customers online
right now who want to know the rating of their individual bank. Plus, we've
gotten hundreds of similar questions in the last few days via email. For
example, a couple of days ago, we got one from Gisela, who's asking for the
rating of Park Cities Bank in Dallas, Texas, and for Regional Frost National
Bank in San Antonio, Texas.

Martin
Weiss: I saw that email and I went online to get the ratings for
those two banks. So let me walk you through those steps, one by one.

Step #1. Go to www.TheStreet.com.

Step #2. In the menus,
in the upper right, you'll see one called "PORTFOLIO & TOOLS."
Pull down that menu and select "Banks & Thrifts Screener."

Step #3. This will
take you to a new page, where you'll see a box on the left-hand side to fill
in your bank information. To narrow the search, I typed in the state, Texas.
Then, under "Bank Name," I naturally typed in your bank name, Park
Cities Bank. Result: Nothing. The program could not find the institution.

That's when I
remembered that this program does not like full names. It searches strictly
for one key word. So I searched strictly for the first name -
"Park." This time, it worked and gave me the result in a box
immediately to the right: Park Cities Bank, Dallas, TX: C-, a rating which
is a yellow flag.

The other bank you
wanted was Regional Frost National Bank in San Antonio, Texas. So having
learned my lesson from the previous one, I typed in strictly the word
"Regional." Again no luck. But I didn't give up. I then entered
another key word in the bank name - Frost. Sure enough, the program found
it: Frost National, San Antonio, TX: A-, an excellent rating.

So this gives you a
handy tool for finding the safety rating of your bank, and I'm very glad
TheStreet.com is making this vital information available to everyone at no
charge.

Mike
Larson: We have a question from Gary, who asks:

Q.
What are the best ways to store valuables such as jewelry, coins and small
bars since bank deposit boxes no longer seem to be a safe option?

Martin:
Wait a minute, Gary. We never said that bank safety deposit boxes were at
risk. Back in the 1930s, my father, Irving Weiss, was an investment advisor,
and he told his friends and customers to get their money out before the bank
failures. But years later, he also told me this: During the bank holiday,
what the banks closed was customers' access to withdraw money from their
bank accounts. Safety deposits remained open and available.

Mike:
That makes sense. When you have a safety deposit box, you're not entrusting
your money to your bank. You're merely renting space in a box under the
bank's auspices.

Ray
Belcher: Ray here in customer service. We have a subscriber who is
asking:

Q.
What would be the impact on otherwise safe institutions just by virtue of
the fact that this world is now so interconnected and highly leveraged
through risky derivatives? Is any bank safe under the scenario of a domino
derivate meltdown?

Martin:
This is the scenario lurking in the minds of nearly virtually every central
bank official and regulator in the world. This is what gives them sleepless
nights. Can they, or we, or anyone sit here today and guarantee that a
meltdown will not occur? No, we cannot. A meltdown could occur.

But as long as there's
no World War III or some doomsday scenario of that nature, we have a nation
with a solid, modern infrastructure, tremendous resources and great talents.
We have a government, which despite all its faults - and all its debts -
is still a healthy, vibrant democracy.

Therefore, despite
glitches, perhaps some big glitches, any meltdown is likely to be relatively
brief - frightening but brief - and our financial system should quickly
get back on its feet.

We also know that not
all banks and not all brokerage firms have taken the same risks or made the
same mistakes and that many are still financially strong. That not only
means you can personally trust them with your money, but it also means that
we, as a nation, can count on them to play an important role in lending
their strength to the financial system as a whole.

Q.
I've been hearing Wachovia Bank is one of the banks that's not doing well
these days. I have my retirement account being managed by Wachovia
Securities. Are they one and the same? Should I be worried?

Mike:
Please don't let financial difficulties with separate affiliates cloud your
vision about your broker or your bank. By the same token, don't assume that
financially strong affiliates will come to the rescue of their weaker
sisters. For the most part, we prefer to evaluate each separate financial
affiliate on its own merits, and we think you should do the same.

Q. I
am between a nightmare and heart attack. I recently told my broker to get us
out of the stock market, and he's telling us that's a big mistake. I also
want to know if ANY U.S. banks and brokers are safe. Or should we just pull
out and invest everything overseas?

Martin:
Mike, let me take this one. First and foremost, if rational concerns are
prompting you to take protective action, that's a good thing. But if
irrational fears are keeping you up at night or driving you to make rash
decisions, that's not good. Step back and look at the big picture. Yes, we
have very serious troubles. But this is not the end of the world. We've been
through worse before and we survived it. We'll get through this as well.

I agree it's time to
get out of most of your stocks. But that doesn't mean you should willy-nilly
sell all your stocks across the board.

There are stocks that
go up well despite bad times. There are some stocks - as well as ETFs -
that go up because of bad times. Plus, there are ETFs that are designed to
go up even faster when stocks fall. Provided you own some of those ETFs as a
solid hedge against a falling market, you could hold on to some of the
strongest companies in America or abroad and continue to earn the nice
dividends that many of them pay.

I also don't think
it's a good idea to pull all your money out of the United States. If you
want to invest internationally, you can do so through a U.S. brokerage
account with investments listed on U.S. exchanges. And we'll give you a list
of strong brokers in a moment.

Q.
Martin and Mike, in your Safe Money Report, you have recommended
conservative investors keep a big portion of their money in T-bills or
Treasury-only money market funds. Why don't you recommend Treasury
Inflation-Protected Securities (TIPS)? Wouldn't they be just as safe and
have a little higher return?

Mike:
We have no fundamental objection to TIPS. But right now, we prefer straight,
short-term Treasuries because we think that, sooner or later, interest rates
are going up, and we believe they're going to go up faster than the
inflation adjustments you get with TIPS. With short-term Treasuries or a
Treasury-only money fund, you'll be better able to take advantage of the
new, higher interest rates as they become available.

Now, we have a whole
batch of questions from Francia:

Q.
Thank you and God bless you and all of your team for the information, which
I treasure each day for my survival for my old age. My questions are: Could
this crisis be a deliberate draining of Americans funds to start the North
American Union and dissolve the United States of America?

Martin:
No. It's the natural consequence of human greed and human error.

Q.
Where are all the missing or written-off billions of dollars? Who got them?
Where did all the money go?

Martin:
Much of the wealth was not there to begin with. It was a fantasy, a bubble
with no substance. So the money didn't go anywhere. Rather, what we're
seeing is a rude awakening to the fact that the assets are worth a lot less
than they thought.

Q. Do
you see yourself and your family still living in America after all this?

Martin:
Yes. We spend about 10 or 11 months of the year here in Palm Beach Gardens,
Florida. Plus, my wife's family also has a nice farm in the interior of the
State of São Paulo, Brazil. Naturally, we always choose locations where we
feel safe. But that's true no matter where you go in the world today,
whether in the U.S. or any other country.

Q. Do
you think gold will be confiscated from Americans?

Martin:
No. I have an instant message here from Customer Care. Go ahead, please.

Q.
Please discuss annuities and the rating which you feel would be safe for an
annuity insurance company.

Martin:
We want to save insurance companies for another Q&A session at another
time. But let me give you a quick answer: If you have a variable annuity,
your money is kept in separate account, much like a mutual fund. Even if
your insurer fails, that money does not get tied up in the failure. If you
have a fixed annuity, that's a different story. In either case, though, find
your insurer's rating at TheStreet.com and follow the same steps I just
outlined for bank ratings. Then, follow essentially the same guidelines we
gave earlier for bank ratings. (Editor's note: The guidelines are clearly
set forth in Part
I of this transcript.)

Q.
Money market funds, even Treasury-only funds, use banks for their custodial
services. If such a bank fails, what happens to my money, which is in a
Treasury money market fund? I find that none of the banks they use have an
"A" rating.

Martin:
The answer is similar to the one I gave earlier for safety deposit boxes.
Custodial services are entirely separate from the bank's assets. Moreover,
there are plenty of banks rated B or B+ that act as custodians, which is a
good rating.

Q. My
son has a business checking account with a major bank. And due to real
estate transactions or big checks outstanding, he may at times have more
than $100,000 in the account. What should he do?

Martin:
This raises a very important point: On an active business checking account,
even though your book balance is under the $100,000 insurance, your actual
bank balance, including big uncashed checks, could be way over the $100,000
limit. So if your bank fails, that overage could be at risk. This just goes
to show the importance of our earlier recommendation:

1. Keep your bank
balances under $100,000. And at the same time ...

2. Seek to do business
only with safer banks.

Or you can use a
Treasury-only money fund for your business checking account. Like I said
earlier, the Treasury securities they buy for you are guaranteed by the
Treasury Department with no $100,000 limit. And they allow you to write as
many checks on them as you like, at no cost or a very low cost.

Q. My
brokerage accounts are at Merrill Lynch. I own mostly stocks, plus open and
closed mutual funds, and have between $1 and $2 million at three different
accounts. Are they safe or will Merrill Lynch also go belly-up? If so, do I
risk losing everything?

Mike:
There are no safety ratings for brokers. But we're ready to present today
the facts we do have.

All brokers currently
doing business must meet the SEC's minimum capital requirements. But the
minimum capital requirements are merely a bare bones minimum - not nearly
enough, especially given the uncertainty regarding the valuation of certain
new securities like mortgage-backed securities and derivatives.

So when we look at a
broker, we look for a capital cushion that is much larger than the minimum
capital requirements. The question we ask is: For every dollar of capital
that they're required to have, how many dollars in net capital do they
actually have?

Martin:
In other words, is it triple the required minimum? Is it four times more?
Ten times more? And we're calling that number "the capital
multiple." Here it is:

This list is a
sampling of firms we've selected based on the questions we're getting and on
some points we'd like to make.

The brokers listed at
the top have the highest capital multiples. The brokers listed at the bottom
have the lowest capital multiples. Bear in mind that there are other factors
which can contribute to the strength or weakness of the firm. So this
capital multiple alone is not enough to pan a particular firm. But it does
give you something solid to hang your hat on.

At the top of the
list, Edward Jones has almost 20 times the capital required by the
regulators. Bank of New York Mellon, which includes Pershing, has almost 16
times the capital required. T. Rowe Price has nearly 14 times the capital
required.

Mike:
And that's considered a lot.

Martin:
Yes. We can't pin down exactly how much is enough, but we'd like to see at
least five or six times the required minimum.

Scottrade, for
example, has almost 14 times. OptionsXpress, 12.6 times. Raymond James,
almost 12 times. Merrill Lynch, 8.6 times. Fidelity, almost 8 times. Between
the last two, we prefer Fidelity because it's far less involved in
sophisticated and often risky transactions.

Overall, if you're
shopping for a new brokerage relationship, all else being equal, favor firms
that have higher capital multiples.

Mike:
Here's a question from one of our readers that came in earlier:

Q.
Once a brokerage firm fails, who steps in to take over operations? Can
securities be traded with a failed brokerage company? How long does it
generally take for the acquiring brokerage company to take over the assets
of a failed brokerage company? Can stocks be sold during this process?

I think this question
does a nice job of raising the key issues.

Martin:
Yes, it certainly does. But unlike the banking history, which gives us,
unfortunately, many examples of failures and how they were handled, in the
brokerage industry, the experience with failures is sparse. That's a good
thing and a testament to the industry's skill in avoiding failures. But it
also means it's harder to know what to expect. Here's what we do know ...

First, the brokerage
industry regulators will do everything possible to find another firm to take
over the operations and the accounts. So that's the primary line of defense.

Second, if regulators
cannot find a buyer and the firm fails, Securities Investor Protection
Corporation (SIPC) covers individuals up to a ceiling of $500,000 per
customer, including a maximum of up to $100,000 for cash claims.

So overall, we feel
that the protections in place for the brokerage industry are relatively
robust. However, consider these three facts - and you'll understand the
critical risk:

Fact #1. SIPC does not
bail out investors when the value of their stocks, bonds and other
investments falls for any reason.

Fact #2. If your
brokerage firm runs out of its own capital, if regulators cannot find a
buyer, and if the Fed doesn't bail it out, your account could be frozen. You
will still have your stocks, bonds and ETFs. They're not going away. But you
may not be able to sell your securities when you want to.

Fact #3. In all
likelihood, if brokerage firms are failing, it's going to be in a market
environment in which most securities are more likely to be going down in
value than up in value.

Mike:
So you'll get all your stocks and bonds back. But what good is it if they're
worth a lot less?

Martin:
My point entirely. As I said a moment ago, SIPC will not cover losses in the
value of your securities. Another subscriber is asking a similar question:

Q.
What's the first thing I should do if my broker fails and I am denied access
to my account?

Mike:
The very first thing I would do is to open another account at a stronger
firm to hedge against the risk of a decline in your stocks. And fortunately,
there are numerous hedging vehicles readily available to individual
investors for precisely that purpose, such as inverse ETFs or put options.
You can buy inverse ETFs to hedge against financial stocks, real estate
stocks, tech stocks, industrial stocks, specific stock sectors, foreign
stocks, even bonds and commodities. If you use them wisely, you can reduce
your risk dramatically. And if you use them as pure profit vehicles, you can
turn this crisis into a major opportunity.

Q. My
brokerage company is Fidelity. How do I know if it's a good place to have my
accounts? In fact, I have five accounts at Fidelity, including IRAs and
company 401ks. Are these accounts safe?

Martin:
We believe the answer is yes. The company has nearly eight times the capital
it's required to have. And it engages in virtually no complex, risky
transactions.

Q. One
of my IRAs has some funds in Fidelity's money market fund. But it seems that
money market funds are not insured. What does that mean?

Martin:
You're referring to FDIC insurance. Unlike bank deposits, which are covered
by the FDIC, money market mutual funds are not covered by the FDIC.

Mike:
It's very rare - almost unheard of - for a money market fund to lose
money. But it could happen, especially if it invests in commercial paper
that is backed by shaky mortgages or other shaky loans.

Martin:
That's why we favor Treasury-only money market funds. Our position is that
the Treasury securities that the money fund buys for you are, themselves,
guaranteed by the U.S. Treasury. So in my opinion, insurance is a moot
point.

Mike:
Nick in California asks:

Q. Why
are financial stocks doing well over the last couple of days? Does that mean
your warnings about banks are overblown? Or does it mean that Wall Street
isn't savvy enough to know about the problems that are lurking?

Martin:
Neither. Mike, you want to elaborate?

Mike:
Sure. Stock markets don't move in a straight line, and short-term rallies in
the stock market are always going to take place. So I wouldn't interpret
them either way. Our warnings, which we have been issuing now for over two
years, are far from overblown. And Wall Street is savvy enough to be aware
of the problems. Trouble is, they often try to hide them from the average
investor. So when you see a rally like we're having now, it's a selling
opportunity - an opportunity to get out at a better price than you could
have gotten by selling into a panic environment.

Martin:
Pat is asking:

Q.
Martin, if I own put options on "Sure-To-Fail Bank of Metropolis"
with a strike price of $20 and it goes under, how do they figure out what
the option is worth? Or are you just stuck in limbo?

Mike:
The whole purpose of a put option is to profit from the decline in the
stock, regardless of what causes the decline. And the options are traded on
an exchange separate and apart from the company that issues the stock.
Actually, the threat of bankruptcy is the one thing that can cause the
sharpest, deepest decline in a stock and the most dramatic upsurge in the
value of put options. So if investors own put options and the company goes
bankrupt, that's when they can make the biggest fortunes.

Martin:
Like WCI, the home builder. In our last conference, Mike, you panned WCI,
and now, sure enough, just this week, it has filed for bankruptcy.

Mike:
Right. In the case of this question, if the bank goes under, the stock would
fall to zero and your put option would probably be worth about $20 per
share. If you paid, say, $2 per share, you would have multiplied your money
10 times.

Martin:
The way I see it, put options and inverse ETFs have two functions. You can
use them to help shield your portfolio against stock price declines. Or you
can use them as a pure speculative play. And provided your timing is right,
they can work fabulously well for both purposes.

Q.
With banks and brokers losing tons of money, the Dow has fallen. So with
banks and brokers failing, what will happen to the Dow?

Mike:
Failures are the final straw. That's when we think you'll see a massive
sell-off in most stocks. And that's when we think you can implement a simple
strategy not only to preserve your wealth, but also to actually grow your
wealth rapidly.