For many investors, a low Price/Earnings (P/E) ratio is a sign of value. But don’t you bet on it – at least, not yet. According to Michael T. Darda, chief economist for MKM Partners LLC, analysts have overestimated earnings by an average of 30% to 35% in the last three recessions. For millions of investors who use low P/E ratios as a litmus test for selecting their investments, that’s going to be a rather unpleasant shock.

Underlying the credit crisis gripping the U.S. and world economies is a crisis of confidence. Blame has been laid at the feet of the U.S. Federal Reserve, and an investment bankers’ brew of toxic financial products. Ultimately, however, it was the supposedly trustworthy rating agencies that got everyone to drink the poisoned Kool-Aid.

Expect more pain in the housing market next year, says Don Miller. Rising unemployment will keep the foreclosures coming. And as the backlog of inventories swells, Don says homebuilders still look ripe for shorting in this environment.

Fannie Mae (FNM) and Freddie Mac (FRE), the mortgage giants taken over by the federal government back in September, will lower monthly payments for hundreds of thousands of struggling U.S. homeowners as part of a plan to accelerate anti-foreclosure efforts, federal officials announced yesterday (Tuesday).

By all reasonable measures, we are already in a recession, says Shah Gilani. Deflation has become today’s number one threat. But massive government rescues mean another bout of inflation looms on the horizon. Shah says investors should look to short vulnerable stocks in 2009. But in 12-18 months, they should be prepared for a “generational opportunity” to make a fortune.

Former professional trader and hedge-fund manager Shah Gilani says the very complexity of the global financial system brought us to the brink of a total meltdown. Asset-backed securities such as structured collateralized debt obligations, credit default swaps and the horrific offspring of the two, credit default swaps on structured collateralized debt obligations, are the main culprits, says Shah:

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There’s nothing fundamentally wrong with the core insurance business units of AIG (NYSE:AIG). The company’s downfall was an accumulation of misplaced bets on credit default swaps.

“There’s more distressed debt trading right now than at any other point in history,” says Keith Fitz-Gerald in Money Morning. Nearly $184 billion worth. Based on historical precedent, Keith says this means we could be in for a record number of bankruptcy filings – “including some of the biggest corporate bankruptcy filings in history.”

As Wall Street implodes, Bank of America Corp. (NYSE:BAC) has become the “new big kid on the block,” says Jennifer Yousfi. BofA has bought struggling Countrywide Financial and now Merrill Lynch (NYSE:MER) to become a US leader in financial services.