Dom Rich says the Congressional Budget Office (CBO)’s estimates of the taxpayer losses from the bailout of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) are implausibly conservative.

The real estate bubble of this decade was the biggest of any asset class in history. Rather than the CBO’s $25 billion figure, Dom says the real cost is at least $1.3 trillion, and could be as high as $2.5 trillion.

And this doesn’t even account for the inflationary consequences of rescuing Wall Street. The Fed is on a money printing binge session, and anyone holding dollars will be picking up the tab…

An inherited budget deficit of over $400 billion will tie the hands of whoever is elected president this November.

However, Money Morning’s Martin Hutchinson says a McCain victory would boost defense and Big Pharma stocks. And McCain’s VP choice, Sarah Palin, is a strong advocate of more drilling for oil, which is encouraging for domestic oil stocks.

On the other hand, McCain would likely hold onto Ben Bernanke as Fed chief. This would mean an extended period of low interest rates and painful inflation down the line.

Taipain Publishing’s Adam Lass says investors should be wary of luxury retailers that claim they will emerge unscathed from the current economic downturn.

Real incomes and real private spending are falling, inflation is ticking upwards and consumer confidence is in the gutter.

This makes Tiffany & Co. (NYSE:TIF) - with its overly optimistic earnings expectations for Christmas spending - ripe for shorting.

Several data releases last week - including new home sales, durable goods orders and GDP growth - signaled an improvement in the U.S. economy. But Rick Pendergraft in Investor’s Daily Edge says it is important to distinguish between stabilization and reversing course. A huge backlog of unsold houses and ongoing job losses will keep the economy on shaky ground for the time being…

Financial charts can generally look good or bad. But sometimes, one comes along that is downright ugly. The Rude Awakening’s Joel Bowman says the earnings chart for the Dow Jones Industrial Average index (.DJI) is particularly sore on the eyes. Earnings were negative in Q208, for the first time ever, giving the index a price-to-earnings ratio of nil. Such losses will heighten deflationary fears, encouraging the government to crank up its inflationary policy. More from Joel…