by Addison Wiggin & Ian Mathias

• Brazil flexes new muscles… wins Olympics, demands more global economic power
• Market recovery rally fades… our advisers weigh in, from short-term options to dividend stocks
• One year after Lehman, another financial crisis? CIT Group on the brink…
• Could a depression be good for you? Bill Bonner on bizarre life span trends during tough times

  This is big for Brazil, the other BRIC nations… the world really. And it’s got nothing to do with Rio in 2016.

“We still think we are underrepresented,” Brazil’s finance minister Guido Mantega told the IMF over the weekend in a semiannual meeting. He’s referring to BRIC nations’ voting rights within the IMF, which currently stand at a measly 5%. BRICs, especially China, have promised to support upcoming IMF bond sales more than other sovereign states. As we forecast -- they intend to use this to their advantage. Mantega wants more say in where IMF funds are deployed, and we suspect he’ll get it… lest the BRIC checkbook suddenly slams shut. 

"If our conditions are not accepted, I think it will be difficult for us to continue contributing…”

  Brazil must be walking extra tall this week, given its winning bid for the 2016 Olympics. Hell, we certainly would have given it to ’em… maybe this is the problem with the way we see things, but Rio seemed to be the only candidate that was actually part of a growing economy. Shouldn’t that be one of those initial qualifiers?

Either way, there’s no better time for us to be launching BRIC by BRIC, a newsletter that sources all of our “go teams” in Brazil, Russia, China and India. Learn all about it right here.

  Back in the U.S., stocks have hesitantly concluded their best quarter in over a decade. The Dow posted a 15% rise from July-September, its biggest quarterly jump since 1998. But lousy jobs and manufacturing reports helped push the blue chip index down 1.8% last week -- its worst week of that same quarter. Heading into the official start of third-quarter earnings announcements this week, hopes for the “2009 bull market” are fading.

  “Stocks found some support Friday, so we could see a bounce,” notes our options trader Steve Sarnoff. “But until proven otherwise by action of the market price, sellers retain the overall edge. It’s their ball to run with. We shall see how far they take it.

“Volatility (fear) is coming back into the market, but last week’s drop has done little to shake investor complacency. That indicates more downside to come. There is no easy money in markets; so buckle up and, as ever, be sure that you, or your broker, monitor your positions closely.”

Steve moved to protect his readers yesterday by recommending put options on a popular rebound stock. If you want the ticker -- plus access to the portfolio and Steve’s weekly trade recommendations -- be sure to check out Options Hotline.

  Naturally, at the focus of renewed market pessimism is a struggling financial: CIT Group. The company -- a hundred-year-old staple of small/medium business lending -- is no stranger to walking the credit tightrope. They narrowly averted fiscal meltdown late last year with $2.3 billion in TARP bucks… then again in July by goosing bondholders with a $3 billion a debt-to-equity deal. Back then we joked, “Look for this crisis to repeat in a couple weeks.” We were wrong… it took a couple months.

So with some historic irony, one year and two weeks after Lehman Bros. bit the dust, another debt-burdened, credit-reliant, potentially “too big to fail” institution is looking to either stick its bondholders with a raw deal or enter sudden bankruptcy. We won’t pretend to know exactly how this one will end, but the market has certainly voiced its opinion:

Heh, and of course, Goldman Sachs has a horse in this race. They stand to make about a billion bucks if CIT goes into bankruptcy -- the fruits of a smartly designed loan agreement. Hank Paulson, despite his GS pedigree, didn’t make such a deal when he put $2.3 billion in TARP funds on the line… a CIT bankruptcy would mean a near-total loss of taxpayer bailout loans.

CIT is one of the biggest lending sources for small- and medium-size business in America… what happens to this recovery when this well runs dry?

  With or without CIT, “The real job creators in the U.S. economy, small businesses, will not expand hiring as expected,” forecasts Dan Amoss. “There are many reasons for subdued hiring plans; an emerging reason to avoid expansion and hiring will be heightened expectations that tax rates will soar in the future to pay for out-of-control government spending.

“So I expect over the next several months, mainstream pundits and forecasters will start worrying about tepid hiring, even as the pace of job losses slows. As we ‘lap’ the 2009 corporate cost cutting by early 2010, and top lines fail to rebound, earnings estimates will have to come back down. I’m amazed at how many sell-side analysts are modeling V-shaped recoveries in 2010 earnings. Most stock prices are disconnected from reality…

“The labor market is dealing with a structural imbalance fueled by government-sponsored housing and credit bubbles. Many will call for the government to ‘solve’ this labor market problem, which will cause a new type of market dislocation. By early 2010, some will push for the federal government to start hiring the chronically unemployed in ‘New Deal’ types of programs.”

  “In September, the stock market saw 16 dividend cuts,” notes Jim Nelson, our income investment adviser. “That’s the lowest number of cuts since March 2008. In fact, it’s the first month that we saw a year-over-year decrease in the number of cuts since November 2007.
“Is this a turning point for income investors? Hard to say…

“While dividend cuts are becoming less common, increases are still hard to come by. September saw the second fewest increases in a decade. The only worse month for dividend growers was March this year, which was when many companies were declaring their 2008 year-end numbers.
 
“So active income investors should look to where the least number of cuts are occurring. And more importantly, which sectors are the few increases coming from?

“As you can see, consumer staples, industrials and utilities are the three sectors still increasing their dividends consistently. Financials, as you could probably guess, is the sector to stay away from.”

So it’s no surprise Jim has a concentration of consumer staples, telecoms and utilities in his Lifetime Income Report portfolio. If you’re seeking safer, dividend-yielding investments during these tumultuous times, Lifetime Income Report is a good place to start… check it out here.

  The FDIC shut down three more banks this weekend, bringing the 2009 total to 98. The failures put the FDIC’s deposit insurance fund another $293 million in the red.

  Over 1 million Americans have filed for bankruptcy so far this year, the highest count since 2005. According to Friday’s report from the American Bankruptcy Institute, that’s up 35% from this time last year.

  Last today, cheer up… this economic malaise we’re suffering will probably make you live longer. “According to a pair of researchers from the University of Michigan, a depression does more for longevity than diet or exercise,” reports Bill Bonner in his latest Daily Reckoning missive. We promise this is not a cruel joke.

“Life expectancy during the worst years of the Great Depression increased from 57.1 years in 1929 to 63.3 years in 1933, says the report by Jose A. Tapia Granados and Ana Diez Roux. It didn't matter whether you were a man or a woman, black or white. And it didn't matter if you were in the U.S. during the Great Depression or in Spain, Japan or Sweden during their economic downturns. The results were the same.

“As CNN reports, ‘By contrast, life expectancy declined during the boom years. For most age groups, mortality tended to peak during years of strong economic expansion (such as 1923, 1926, 1929 and 1936-1937).’

“Conventional wisdom holds that recessions are times of stress. People do not eat as well. They skip medical checkups. They should drop dead earlier. Instead, they live longer. Perhaps it is because the economy slows down, allowing people to live at a more comfortable pace. Maybe the unemployed get more sleep. We don't know. But if you want to live an extra six years, nothing works like a slump.”

  “I am Chinese,” a reader writes, “and I believe the reason people made the wrong prediction about China is because they do not understand the essence/mission of the Chinese Communist Party and why the Chinese people, after all the calamities in the last 60 years, still support the party. Its mission has been to rescue China from oppression, robbery and humiliation. So in its essence, it is the same as the Nationalist Party that retreated to Taiwan 60 years ago. The difference is they choose different paths to achieve basically the same goal.

“Yes, I know in the process of ‘liberating’ they caused more oppression than ever, like in the Cultural Revolution, and more insanity, like in the Great Leap Forward, but overall, China has risen from a weak, humiliated nation to be independent, proud and powerful, so people give the CCP a passing grade.

“I am a libertarian and I share many points Doug Casey expressed about nation-states, but the fate of the nation really affects your life. When you feel the pain, it is very personal.

“If I am right, then I predict the CCP will (1) eventually discard its ideology on paper (it has done so in action), (2) change its name and (3) merge with the National Party, and after all this, people continue to support it.”

Best regards,

Ian Mathias
The 5 Min. Forecast

P.S. “They’re taking consumerism to a whole new level over here,” Addison writes over AIM this morning, having just landed in Dubai. “I’m staying in a hotel attached to the Burj Dubai, the world’s tallest building. It’s enoumous -- surreal, even. I’m on the 11th floor, and when I look to the top of the Burj, I have to hold onto the railing to stifle the vertigo. I’m in spitting distance of the world’s biggest shopping mall, the world’s biggest fountain and the world’s biggest candy shop… this place it absurd.” 

Addison relayed a few bits and pieces from his first day in the U.A.E., which included a press meeting with economists from Standard Chartered Bank, a huge player in the region. He and Chris Mayer will have more to report after they’ve shaken off the jetlag… stay tuned.