This week I am in California giving two speeches to the Financial Planning Associations of San Diego and Orange County. This and next week’s letters will be the broad outline of the speech. We will look at how the retreat of the American consumer will affect the stock market. Has the recent drop (can we say crash, gentle reader?) in stock market valuations given us an opportunity to find value? We look at some very powerful evidence that suggests that may be so.

In the mid-80s Money Morning contributing editor Shah Gilani ran a hedge fund from the floor of the Chicago Board of Options Exchange Inc. As an independent market maker, he could trade in any pit on the floor. The most important lesson he learned there was how to play the crowd. It’s one of the four basic rules of contrarian investing.

Clusterfuck Nation author James Howard Kunstler says “a cascading collapse of international finance is underway.” And it makes makes the 1929 crash and the events of the 1930s “look like an orderly small town auction of somebody’s grandmother’s effects.”

Billionaire investor George Soros just gave a great interview with PBS’s Mill Moyers. In it he said the massive breakdown in turst on Wall Street marks the “end of an era.”

It’s not a new subject for Soros. He accurately predicted the crisis in subprime loans that punctured the lung of the financial markets.

In the interview Soros also slammed Treasury Sectretary Hank Paulson, saying the onetime Goldman Sachs boss was part of the very Wall Street system of “financial engineering” that caused the crisis in the first place.

The buzz on Capitol Hill is that Congress could pass an updated version of the bailout bill before the end of the week. But Shah Gilani in Money Morning says taxpayers are being “force-fed a political solution, instead of a sound economic market-based solution to a financial crisis.” He says the the bailout bill has eight key failings.

Remember how this whole financial mess started? Here’s a clue: house prices fell by a record 16.3% y-o-y in July.

Investors have fled the real estate market over the last year. But Andrew Snyder says the best time to invest in a sector is when it’s beaten down and oversold.

REIT Associated Estates Realty (NYSE:AEC) allows investors to bet on the housing recovery without the need to buy and sell property. It also pays healthy dividends in the meantime.

Building suppliers aren’t popular with investors. Today, US housing market data revealed existing home prices fell by a record 9.5% in August. In Britain property sales are at their lowest for 50 years. Nevertheless, Tom Bulford says  Eleco (LON:ELCO) is a great contrarian play. The company has diverse profit stream from prison- and school-building programs, which should protect it from a recession.  With a P/E of over six and a yield of over 4%, Tom says this is a stock to watch.

Barack Obama and John McCain are scrambling to respond to the financial crisis on Wall Street. Both are calling for greater oversight and regulation of the banking sector. But neither is inspiring confidence in his ability to deal with the crisis. Few will admit it – and fewer still in Washington – but the answer to the current crisis does not lie in greater regulation. In fact, as Frank Holmes argues in The Daily Reckoning, legislation such as Sarbenes-Oxley is making matters worse…

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:

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.