It was another remarkable week for the global financial markets. We actually saw a country go bankrupt - Iceland - thanks to their banks following the American model and using unbelieveable amounts of leverage. The leverage blew up in their face, just as it did for American banks.

Luckily for Iceland, it looks like they will be bailed out by the Russians. Most Americans don't know it, but thanks to oil the Russians have hundreds of billions of dollars in reserves.

Here in the US, it turned out to be a decent week overall for stocks. However, the stock market continued swinging wildly with this past Wednesday having the largest percentage drop since the 1987 crash.

Are things settling down at all? Yes, but very slowly. The extremely key commercial paper market is beginning to unfreeze thanks to purchases by the Federal Reserve. High quality companies are again able to borrow, as are entities such as the state of California.

Another area that has improved slightly is the LIBOR rates. These markets still are not functioning normally, as banks still do not trust each other. The LIBOR rates have dropped somewhat thanks to the approximately $1 TRILLION that the Europeans poured into their banks and money markets this past week.

I want to emphasize again the point that I have made in past articles. The Europeans spent $1 TRILLION in an attempt to solve the problems they face with their banks. And their problems are much smaller than ours here in the US.

The US has only allocated $700 billion so far to fix the problems. That amount is not even close to what will be needed. Stock market players know that - that is why the stock market is still acting crazy. US taxpayers should be prepared to fund a fix for the banking problems that is at least $3 TRILLION, perhaps even a much higher amount.

What Should a Small Investor Do?

Famed investor Warren Buffet said today in an op-ed piece in the New York Times that investors should be buying. I agree that any investor with a long-term view should be accumulating quality stocks now.

Notice I said, accumulate. Do not jump in now with all of your money. The stock market is still going to see some nasty downside moves. And stick with quality stocks that pay a high dividend, if possible.

As I discussed last week, one piece of good news is that most of the
"forced" selling by the moronic, highly-leveraged, greedy hedge funds is over. Most of these guys are either out of business or sitting in 100% Treasury bills right now.

This selling by hedge funds has been particularly acute in the foreign markets.
All the 'dumb' Americans have sold everything and brought their money back to where it is "safe".

Think of what these hedge funds have done in this way - a nuclear blast has gone off. Instead of getting as far away as possible from ground zero, they are running full speed toward ground zero (the US). Absolutely insane.

Despite the huge drop in their stock markets, next year China will still grow at 8%, India 6%, Russia & Brazil 4%, etc. Meanwhile the United States will be mired in a recession.

The other piece of "good" news is that the last week saw huge liquidations of mutual funds by investors. In fact, so far in October we have seen the largest liquidation of equity mutual funds ever since records have been kept. This tells me that we have probably seen most of the 'panic' selling by the small investors too.

So don't be afraid to dip your toe into the stock market waters.