The market is wildly overvalued given the trajectory of the economy and is being driven by traders.

The trade of the day continues to be dollar/commodities/China, but more and more, individual stocks are being rewarded or whacked based on fundamentals, a good thing for stock pickers, but a bad thing for the vast majority of money managers who know little more than the movement of the indices.

Banks are the kink between the financial markets and the Main Street economy. They are also the lubricant -- when they are lending -- of a growing economy.

Using time-honored but now discarded accounting standards, U.S. banks, as a group, are insolvent. They are hoarding cash because deep in the recesses of little offices, they know they will be exposed as insolvent if they have to dump toxic assets on the market. They are also looking at reduced activity due to the economy and new taxes and regulations, and therefore lower profits. And when the Fed raises interest rates, their spreads will contract, also hitting profits.

With reduced national income due to unemployment, reduced spending power due to tightened credit, reduced wealth due to falling home and stock market values and reduced confidence due to all of the above, we are seeing consumers take on new attitudes toward spending.

This "New Frugal" will not be a fad that passes quickly. U.S. consumers will continue to keep their purse strings tightened.

The optimism on Wall Street about housing is surreal given all the public data on housing values, mortgage defaults, foreclosures and new home starts.

Housing prices are going to fall nationally for another couple of years as foreclosures hit 6-7 million in the next 30 months, and the 600,00 to 800,000 homes foreclosed but not yet listed are added to housing inventory. The headwinds created by this will last until foreclosures peak and those homes hit the market in late 2011 to mid-2012. Foreclosures will not hit historical norms until a year or two from that peak.

Large and rapidly growing deficits and public debt at the federal and state level will eventually lead to a rise in interest rates and to the crowding out of other spending as governments service debt. This will likely start near the end of this year or early in 2011.

And please don't blame the Democrats, the party of fiscal rectitude. The Republicans doubled the debt while they controlled the White House and Congress, financing a war off balance sheet, led by a cheerleader in chief who told people to go shopping rather than tighten their belts after 9/11. And historically, red-staters spend more on their key constituents than the Dems, so if they grab power, nothing will change.

I love my country: the chaos, the hurly-burly of democracy, the hard work of quiet people and the great, big heart as shown by our private donations to Haiti at a time of near 20% unemployment and underemployment. We forgive wayward politicians and athletes, let our children make more decisions than virtually any people on Earth and we stand for something -- a true city on a hill. But right now, that city is in political chaos ... and pretty broke.

Although, I don't like to say it, it is time to short the United States.

This little gem was perpetuated by tech guru and investor Roger McNamee. Of course, he is a member of the Palm (PALM) board of directors, and his firm is an investor in the company.

Did I mention that PALM shot up after his comment, before the mediocre and overpriced Pre hit the market? The company then issued shares a few days later? You and I would go to jail for doing this.

If you think China saw double-digit growth this year, you may also believe swine flu is spread via flying pigs.

The London-based Lombard Group, using energy data from the International Energy Agency -- which we can assume is a bit more accurate than the nonsense printed by the Chinese government -- shows GDP growth may have been just 2% in the first quarter rather than the reported 6.1%. And even that growth is being held up by government stimulus and state banks lending money to anyone and everyone to build capacity no one needs or to invest in Chinese equities no one can fairly value since Chinese accounting is as good as Chinese government data.

Monetary neurotics, led by the polite, appealing and economically brain-damaged Ron Paul, believe the U.S. dollar is dead because of our growing debt and the Fed running the printing presses, which must lead to inflation, which, in turn, will kill the dollar. Recent falls in the dollar seem to confirm this, uh, shibboleth (look it up again) of the monetary right.

In actuality, though, the dollar is no weaker than it was a few years ago. And it is the only currency in the world for the foreseeable -- and I mean long-term foreseeable -- future that can serve as a reserve currency due not just to our economic and political power, but our political system.

This is a cornerstone of the Fed, a true shibboleth (Google that one). But one of the first set of bonds the Fed bought under the TALF program were bonds backed by motorcycle loans made by Harley-Davidson (HOG) to its customers.

The Fed program was designed to provide loans and capital to businesses that were shut out of frozen credit markets, which is a good thing. But loans to Harley made to boost the sale of motorcycles to people who could not get loans elsewhere?

With 70% of the GDP driven by consumer spending, Wall Street wants to believe this lie so badly that it has convinced itself it's true. Even worse-than-expected Black Friday sales haven't forced the Street to give up this inane hope.

Real consumer wealth is down more than 40% in the past two years; credit is contracting and unemployment is rising. That is not exactly the recipe for increased consumer spending.

The headline consensus on Wall Street is that the banks are stable and no markets are melting down. In short, things are returning to normal.

But we've seen a $1.5 trillion reduction in consumer credit during the past 18 months, and another $1 trillion (at least) is likely to be pulled back in the coming year, according to uber-analyst Meredith Whitney -- someone I wouldn't bet against. And almost no one is getting a home equity line.

Moody's reported that the rate of defaults on home mortgages has fallen to roughly 6.5% of all mortgages, and that the number will be slightly lower throughout 2010. They neglected to mention that the historical default rate is one-third that, or that the 2010 default rate on mortgages will be 300% higher than the historical rate.

Housing sales in 2010 will be worse than expected, and home prices will continue to fall as more and more foreclosed homes enter the market. There are currently more than 800,000 foreclosed houses that the banks have yet to put on the market, and another 1.5 million homes are expected to go into foreclosure in the next 18 months.

Sure the unemployment rate fell from 10.2% in October to 10% in November, but the November data (and the December number when it is reported) are hopelessly skewed by seasonal adjustments. And another statistical adjustment, known as the birth/death adjustment, assumed 800,000 new jobs were created this year by the birth of companies compared to the number of jobs lost due to the death of companies.

Really? If it were not so sad, it would be funny.

The recession "officially" ended in the third quarter with 3.5% GDP growth. Time to start celebrating, right? Not so fast.

Analyst and editor of Shadow Government Statistics, John Williams, wrote: "The estimate of 3.5% annualized real growth for third-quarter GDP included a 1.7% gain from auto sales, a 0.6% gain from new residential construction, and a 0.9% gain from a largely involuntary inventory buildup, which appears to be understated. ... In aggregate, those one-time stimulus or inventory items represented 92% of the reported quarterly growth."