“Investing in this market is like trying to take cheese out of a set mousetrap,” Chris Mayer begins today. “It’s very tempting to make a grab, but you are also fairly certain about what will happen if you do. The market’s 50% rise from its March lows is stunning. It’s like the cheese in the trap. But we also know that no market moves up like that for long. The kill bar is never far from such rallies.”

Check out Asia early this morning… you can almost hear that bar whipping through the air:

Today’s global stock sell-off really started on Friday, when the U.S. suffered its worst bank failure of 2009.Alabama-based Colonial Bank gasped its last breath late Friday. With roughly $25 billion in assets, it was the biggest bank failure since Washington Mutual back in September.

Like WaMu, the FDIC brokered most of Colonial’s burden onto another bank’s balance sheet. BB&T picked up the lion’s share. And just like the WaMu/JP Morgan deal, the FDIC greased the gears by including some kind of backstop provision. In this case, BB&T and the FDIC (read: your tax revenues) will enter a loss sharing agreement on $15 billion in shaky Colonial assets.

Colonial’s failure took a $2.8 billion chunk out of the FDIC’s deposit insurance fund. With just $13 billion left — at best — the fund is at its lowest level since 1993. Along with four other banks that failed over the weekend as well, the FDIC has closed 77 banks this year. One more and we’ve tripled last year’s count.
“The FDIC has been tardy in resolving banks and cleaning them up,” says Dan Amoss, “which will result in higher costs to the FDIC in the long run. Plus, with these ‘loss sharing’ deals (Colonial/BB&T), the FDIC is putting off the recognition of losses over a period of years, and its estimates of ultimate losses will likely be low, whether they’re ultimately absorbed by the deposit insurance fund or acquiring banks like BB&T.

“A perfect example is Integrity Bank in Georgia, which should have been shut down long before it was allowed to attract new deposits with high CD rates.

“Also, note to 5 readers: If your CD rates seem too good to be true, your bank may not be healthy, and you may have to deal with the hassle of not accessing your money while the bank is resolved.”

Dan has quite a knack for spotting bad banks. His Strategic Short Report readers bagged gains of 162% betting against Allied Capital, 220% on PNC Financial and the whopping 462% winner shorting Lehman Brothers. We just published his latest short-financial play… available to readers of The 5 for just $1.
Already anxious over Friday’s lousy U.S. consumer confidence number and Colonial’s failure, Chinese traders slammed the bid today on rumors that the Chinese government is going to tighten lending standards. No official word yet from Beijing, but rumor alone was enough to knock the Shanghai Composite down almost 6%. The Chinese benchmark is down 12% so far this month.
Thus, the foundation of the U.S. bear market rally is quickly eroding: The consumer is pulling back again, the banking crisis (as we noted Friday) is alive and well, and China — the world’s great hope for growth — is looking tired. Add all that up and the S&P 500 opened down almost 2% this morning.
“Investors might forget we’re in a bear market because investing this year has looked easy,” continues Chris Mayer. “Those who have missed out on the rally must be tearing their hair out. Their money burns a hole in their pockets.

“In fact, the evidence is that most investors have the attention span and patience of a field mouse. Here’s the average holding period for a stock on the New York Stock Exchange:

“What jumps out at you right away is that the average holding period is less than a year. That means that, on average, an ‘investor’ typically holds an NYSE stock for a matter of months. This is not investing, which is why I put the term in quotes. I don’t know what it is. Mindless gambling comes to mind.

“It’s no surprise that the last time we were down here was in the Roaring Twenties. We all know what that was the opening act for.

“This chart also speaks to a larger problem in the markets today — there are too few owners and too many renters. Just as in real estate, owners generally take better care of a property than renters. Why should it be different with companies?”

If you’re among the few long-haul investors left, you should team up with Chris. Check out his long-term “paycheck portfolio” here.
Commodities are under lots of pressure today, thanks mostly to Chinese investor anxiety. Oil’s down about $5 from Friday’s high, to $65 a barrel. Gold has fallen over $20 since Friday and goes for $932 an ounce as we write.
Thus, the dollar and U.S. Treasuries are today’s winners.The dollar index is up a full point, to 79.4. Bond demand has pushed the yield on a 10-year down 5 bps, to 3.5%.
Ben Bernanke is taking extra steps to save commercial real estate. The Fed announced this morning a three-six month extension of the Term Asset-Backed Securities Loan Facility (TALF).

The trillion-dollar program was set to expire at the end of the year. The Fed said today — conveniently, right before the market was about to open into a big sell-off — that it would bump the program back to June 31, 2010, for commercial mortgage-backed securities and to March 31, 2010, for other asset-backed paper. That should, in theory, encourage banks to securitize lots of new mortgage and consumer loans… the kinds they would avoid in a normally functioning free market. God bless the Fed!

The TALF has been in action since November 2008.
China’s sovereign wealth fund is preparing to buy up to $2 billion in U.S. mortgages. Having not felt quite enough pain from their Morgan Stanley and Blackstone investments, China Investment Corp. is rumored to be vying for a seat at the Public-Private Investment Plan — the yet-to-be-launched scheme the U.S. Treasury cooked up to get mortgage backed sectors off of U.S. bank balance sheets.
“We’re watching Far East telecoms,” Penny Stock Fortunes’ Greg Guenthner tells us. “Chinese Internet population is increasing at an astronomical rate, growing 42% last year alone, to nearly 300 million users, according to the China Internet Network Information Center. Now the government is setting its online ambitions toward the countryside, vowing to hook up every village with broadband lines by 2010.

“Still, the region’s penetration rate is only 17%, compared with 75% here in the U.S. The opportunities are boundless.

“Most of the time, backdoor plays offer the largest profits in growth industries like this one. Sometimes, however, a straightforward approach is your best chance at the quickest gains. This is one of those times.

“Take China Mobile, for instance. This telecom behemoth is the most obvious play in the region. In the last three years, the company doubled the number of subscribers and grew its bottom line 107%. That’s a rare feat for a $230 billion company.

“China Mobile’s growth is impressive, but it’s nothing compared with what a small-cap player can do in this field. There’s plenty of room to grow in the telecom industry of the Far East.

“That’s why we’ve been looking for under-the-radar Internet providers in Asia. And we just we found a beauty.”

Want the ticker? Subscribe to Penny Stock Fortunes here.
Japan has joined the ranks of recession-emerging nations. This morning, the Japanese government claimed the country’s GDP grew 3.7% in the second quarter. That puts an end to a five-quarter losing streak and the longest period of Japanese GDP contraction since World War II. As with Germany, France and Hong Kong last week, there’s little expectation for Japan to maintain this growth in the coming quarters.
Employees of the Chicago city government might be reading The 5 in their pajamas today. In a sign of the times, the city closed up shop to help close its budget gap. Running a skeleton crew will save ’em about $8 million a day
Last today, another strange reoccurring theme: Even the dead can’t escape the credit crisis.

An LA widow is auctioning her husband’s famous gravesite so she can afford the mortgage payments on their $1.6 million house.The deceased, Mr. Richard Poncher, is a relative unknown. But you might recognize the tenant immediately below his crypt:

At the end of the eBay auction — currently up to $4.5 million — Mrs. Poncher will rip her hubby out of his resting place and deed the crypt to the whoever the winner chooses. Before you fret for Mr. Poncher, we should add that he bought the place from Joe DiMaggio and insisted he be buried face down, in everlasting creepiness.

The new tenant will have to share Marilyn with Hugh Heffner, who has the crypt next to her reserved.
“Are you serious?” a reader asks. “How can this recession/depression possibly be over?” We enjoyed an overwhelming response to Friday’s issue, when we asked you to guess when the government/NBER would claim the recession is over.

“The causes of this man-made disaster have not been addressed and the same banksters-political class-financial oligarchy are still actively proceeding backward with their own hidden agendas. To quote Albert Einstein: “Never expect the people who caused a problem to solve it.” In other words, business as usual on the USS Titanic with its numerous enormous self-inflicted holes. Full speed ahead to the 1930s.”

The 5: We’re not suggesting it’s all sunshine from here on out. Here’s an example of someone who was closer to “pickin’ up what we were puttin’ down”:
“By my statistical analysis, the recession ended in May of this year; and that’s the good news,” he writes. “The bad news is that the DEPRESSION began in the following June. If anyone believes these smoke blowers at the gov’t and/or financial institutions (perhaps that’s redundant), they deserve what is upon us. It is not all sweetness and light. Bitterness and dark is the life we will lead until we restructure and begin the long pullback.”

The 5: Not a bad guess. Off the cuff, the average guess for when the government/NBER will officially declare an end to the recession is around November 2009. Most readers added that it won’t feel like it’s over for years to come. Lots of double-dip guesses too, which seems to make a lot of sense these days. And there were outliers, of course, which we’d be remiss not to share:
“2015,” a reader wrote. “No sooner — no way. Expect to defend yourself. It will get ugly.”
“It will officially end sometime in 2025-2028,” declared another.
“This depression should end technically around mid-2016 with the Dow under 1,000,” opined another. “So-called normalcy will not return until the mid-2020s. God only knows what this country will look like when it’s all over. Good luck to us all.”

Source: Global Sell-Off, Long Haul Investing, A Small Cap Opportunity, Commercial Real Estate and More!

The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.

– Meanwhile, Reuters reports that U.S. banks will need more $700 billion in government cash injections to stay afloat because “banks cannot predict how many of their loans will sour because they do not know how much the economy will shrink, and forecasts of their future losses would only spook investors.”

– The numbers are certainly worrying:

By the numbers, the outlook for banks is troubling. U.S. commercial banks had about $1 trillion of capital as of the end of the second quarter.

That may sound like a lot, but Alpert estimates that banks globally could have a total of $1.25 trillion to $1.5 trillion of writedowns and losses from mortgages, of which perhaps $600 billion have already been recorded.

– Earnings season is upon us. Investors are reacting to the prospect of corporate losses. This from MarketWatch:

U.S. stock futures pointed to a second straight drop on Wednesday on concerns for earnings in a rocky economy, though Apple looked set to buck the trend after the consumer electronics giant was able to sell far more iPhones than expected.

S&P 500 futures fell 20.1 points to 939.20 and Dow industrial futures tumbled 166 points. Futures on the tech-concentrated Nasdaq 100 fell a more modest 15.5 points to 1,277.00.

– Global stock indexes also fell. This from Bloomberg:

The MSCI World Index lost 2.9 percent to 944.07 at 12:02 p.m. in London. The index has lost 40 percent this year and oil has tumbled more than 50 percent from its peak in July as concern deepened government bailouts to save the global banking system won’t avert a recession.

– In the currency markets, the British pound hit a five-year low against the dollar. The euro plumbed a 20-month low against the buck.

– Crude oil prices fell below $70 a barrel on growing fears of a global economic slowdown. OPEC’s scheduled meeting on Friday to discuss output cuts has so far failed to stem oil’s slide.

– A lot of investors are calling a bottom — at least a tentative bottom — in stocks.

– Addison Wiggan and Ian Mathias in The 5 Min. Forecast note that Jeremy Grantham, self-proclaimed “perma-bear” is turning bullish.

Grantham says the time has come for “hesitant and careful buying” of equities. Grantham, who also correctly called a global bubble among all asset classes last year, told his $120 billion worth of clients that this is the quarter to start buying.

“On Oct. 10, we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas. We will, therefore, be steady buyers at these prices. Not necessarily rapid buyers — in fact, probably not — but steady buyers…

“History warns, though, that new lows are more likely than not.

“Fixed income has wide areas of very attractive, aberrant pricing. The dollar and the yen look OK for now, but the pound does not. Don’t worry at all about inflation. We can all save up our worries there for a couple of years from now and then really worry!

“Commodities may have big rallies, but the fundamentals of the next 18 months should wear them down to new two-year lows. As for us in asset allocation, we have made our choice: hesitant and careful buying at these prices and lower.”