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8:15 AM EST, Tuesday, December 2, 2008: Mulling is good. I'm mulling on gold after yesterday's column. And, darn, the thing drops 5% -- in one day no less. Here are the two gold spiders yesterday:

Today, in early trading, gold is up slightly 0.41% to $780. Is it going to $2,000? Citigroup thinks so -- see yesterday's column. Do I? Is gold a commodity? In which its going down like all the other commodities. Is it a safe haven, a flight from the dollar and the mattress? In which case it's going up big-time. Frankly I don't know. These days, I'm like the banks, hoarding every nickel I have. I know not what tomorrow will bring -- except it won't be pretty, in the short-term.

Last week the stockmarket rose 18%. Yesterday it gave back one-third of that gain in a particularly wrenching 680 point fall.

Yesterday Bernanke and Paulson spoke. I watched as much as I could stand. It's clear they're making this up as they go along. They're obsessed with restoring financial markets -- not helping Main Street . The stockmarket is not impressed. Every time Bernanke speaks, the stockmarket craters. viz. yesterday's drop. Despite Bernanke and Paulson's efforts, things have gotten worse. Bernanke admitted yesterday, "Economic activity appears to have downshifted in the wake of the deterioration in financial conditions in September." Bernanke pointed to a litany of soft spots: in the job market, household finances, exports and financial markets.

Oppenheimer's Meredith Whitney was the first to forecast the financial crisis. She went on CNBC yesterday and said the financials had further to fall. She said one further shoe to drop was banks pulling credit card lines. This will put "real strains" on the economy. Says Whitney, "Just when the consumer is losing their job -- their first source of liquidity -- then they lose their second source, their credit card line. 90% of credit cards revolve one time a year; 45% revolve many times a year. You cut that back and you do real damage to U.S. consumer spending." She says "the (financial) system is shrinking."

Meredith Whitney. It's unnerving to see such a beautiful face forecast such gloom and doom.

Whitney thinks the financial stocks are "very expensive." Her earnings estimates are 30% to 50% lower than street estimates. She instanced Wells Fargo as the most overpriced.

On Friday she wrote a comment piece for the London Financial Times (the pink newspaper):

America must keep consumer liquidity flowing

By Meredith Whitney

As an analyst, it is my job to do fundamental research and call it as I see it, and my bailiwick is financials. My outlook has been negative for over a year and, technically, I have been “right” on my calls. Seeing massive capital destruction has brought me no pleasure, but unfortunately I see little on the horizon that would change my outlook. In fact, after observing the US economy so derailed, I feel that I must act as a citizen of this great country to attempt to offer solutions to this economic train wreck we are all involved in.

First, I am more bearish today than I have been in the past 18 months. In so far as the market has impacted on the economy, capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not stabilise the effects of shrinking liquidity to corporations and consumers. More than $3,000 billion (€2,365 billion, £1,995 billion) of available credit has been expunged from the markets and therefore corporate and consumer borrowers so far this year.

I estimate that the mortgage market will shrink for the first time in US history and that the credit card market will be 18 months behind it. While just over 70 per cent of US households have access to credit cards, 90 per cent of these people use credit cards as a cash-flow management vehicle, or revolve payments at least once a year. While the credit card market is small relative to the mortgage market, it has grown to play a key role in consumer liquidity. Declining liquidity here will have disastrous effects on consumer spending and the economy. My primary concern is preserving liquidity to consumers, who command more than two-thirds of gross domestic product.

There is no doubt that time will be the greatest healer, but there is a strong argument for putting the financial system through a methadone-clinic-style rehabilitation as opposed to the “cold sweats” rehab that we face. The US government appears to feel the same, which is why various versions of direct government lending and quasi- as well as real bail-outs have been announced. Certainly, credit was extended to unworthy borrowers, but the baby is now being thrown out with the bath water. I expect more broad-based credit contractions but, specifically, more than $2,000 billion in credit lines to be cut in reaction to risk aversion, constrained capital and regulatory change.

Here are some easily adoptable changes that would make a difference.

First, re-regionalise lending. Since the early 1990s, key bank products, mortgages and credit card lending were rapidly consolidated nationally. Banking went from “knowing your customer” or local lending, to relying on what have proven to be unreliable FICO credit scores and centralised underwriting. The government should now motivate local lenders (many of which have clean balance sheets) to re-widen their product offering to include credit cards and encourage the mega banks to provide servicing and processing facilities to banks that sold off these capabilities years ago.

Second, expand the Federal Deposit Insurance Corporation’s guarantee for bank debt. Banks need to know they can access reasonably priced credit for an extended period to continue to extend new credit lines. Any semi-conscious bank management team knows that capital and liquidity are precious and therefore is hoarding both.

Third, delay the introduction of accounting rule FAS 140 until 2011 or 2012. These moves to bring off-balance-sheet assets back on balance sheet for the sake of transparency are a mirage. The primary assets that will come back on to balance sheets are credit card loans. Frankly, there is more transparency in off-balance-sheet master trust data than in on-balance-sheet accrual accounting. Banks cannot afford it now and it will further constrain credit.

Fourth, amend the proposal on Unfair and Deceptive Lending Practices that is set to be adopted in 2010. The proposal includes one major change that will lead to a severe unintended consequence – pulling credit from consumers. Restricting lenders’ ability to reprice an unsecured loan will cause them to stop lending or to lend less. This change could cut over $2,000 billion in unused credit card lines, or over 40 per cent of unused credit lines. With so many Americans relying on their credit cards as a major source of liquidity, it would be equivalent to a major pay cut.

This is no time for partisanship. The situation is too dire. These changes are ones I would never have imagined endorsing a year ago, but these are extraordinary times.

Cash remains king. You need at least two years of expenses. Now is not the time to be in the market, except for shorting selective stocks on a very short-term basis -- e.g. Best Buy, Google, and Wells Fargo. Now is not the time to catch falling knives. Stocks are not "cheap."

Important to go shopping. Important to keep the economy thriving. There are so many bargains out there.

Never leaving the house.

I haven't left my house in days. I watch the news channels incessantly. All the news stories are about the election; all the commercials are for Viagra and Cialis. Election, erection, election, erection -- either way we're getting screwed! -- Bette Midler.

Latest ghoulish "humor"

Q: What do Wall Street and the Olympics have in common?
A: Synchronized diving.

Overheard in a City bar:
'This credit crunch is worse than a divorce. I've lost half my net worth. But I still have my wife.'

Q: What's the capital of Iceland?
A: About $3.50.

Q: What is the difference between an investment banker and a large pizza?
A: The pizza can still feed a family of four.

Q: What's the definition of optimism?
A: An investment banker who irons five shirts on a Sunday night.

"I lent my friend $20 last week. I now qualify as the country's fourth largest lender."

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.