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Market fear has been running rampant recently and with the Dow Jones Industrial Average dropping hundreds of points daily, it is easy to understand why. The CBOE Volatility Index know as the VIX has hit all time high levels that have exceed all previous readings since they started the index back in 1990.

Today the VIX hit 70.90; a month ago it closed at 24.52 ---an average level for the year. That is a 189% rise in the last month! In 2007 it averaged 17.3.

Before the current crisis the highest reading for the VIX was 45.74 recorded on 10/8/98. That means we have surpassed the previous high by 55%.

The VIX is based on call option premium scared investors are willing to pay for protection on their stocks.

Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

Newt Gingrich has gone on the record with a solution to the crisis that is the best I have seen so far. Rather than pass a $700 billion bailout, suspend the accounting rules that are causing the liquidity crisis to begin with.

In the past few years, accounting rules changed and these changes are in part causing the current crisis. Specifically, the problem is mark-to-market accounting where all assets are required to be valued at current market prices. If the market is temporarily depressed, it can cause an artificial crisis.

Let me give a silly but simple illustration. If you have 20 one dollar bills in your wallet, we would all agree you have a net worth of $20. Thirsty Bob also has one dollar bill in his wallet and walks into the break room and wants to buy a Coke. Soda in the machine costs 50 cents, but it only takes quarters. Thirsty Bob asks if anyone has change and they all say no. Sam says he has only two quarters and will trade Thirsty Bob -- who is really thirsty -- two quarters for a dollar. Thirsty Bob quickly agrees to take Sam up one his offer in order to get the Coke now. Bob knows that two quarters for a dollar is a bad deal, but he is takes the deal anyway.

There is a bit of trepidation as I sit here at my screen, watching the S&P 500 drop more than 3%, reading about yet another bank "buyout," and especially after skimming through Congress's just-released 110 page $700 billion Emergency Economic Stabilization Act -- Wall Street bailout plan.

Apparently, no on likes it. The bright point of the plan is the two inch margins and the double spacing that make it readable.

As an economist, I am very concerned about the long term consequences of the plan, whether it will train the markets to expect government intervention. Also, the sheer cost is very high -- about $4,600 per working person -- unless, of course, the government is able to make money with it.

Is this just the fore shocks and tremors before the financial earthquake? With all these banks failing, things could get very messy. Is this market setting up for a crash?

Bernanke warned that a recession might come if the bailout plan did not pass. And as much as I like the idea of the government bailout of Wall Street -- I hate government interference in the free markets, and bailouts can encourage more bad behaviour. It is hard to get a good understanding of the cost of this Wall Street bailout plan. But I ran some numbers that I thought were interesting.

• $700 billion cost of proposed plan
• 305 million estimated number of Americans
• $2,295 estimated cost per American
• 151 million estimated workforce (excludes retirees, kids, etc.)
• $4,635 per working American
• $13.8 trillion estimated US gross domestic product
• 5.1% cost of bailout plan in one year's domestic product
• 13 days each American has to work to pay off bailout plan (5% of a year)

Considering we could be looking at a recession, and the economy normally grows 3% a year, this does not look so bad. A $700 billion dollar bailout would be equivalent to a one-year recession with a negative 2% growth rate. These calculations are a rough estimate of the impact of such a plan and gives one food for thought as to which is worse. So which would you prefer, a recession or a bailout?

Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

Stock options give investors a great tool to control risks or speculate on stocks. Call options give investors the right to buy the stock and are typically considered a bullish tool, while puts give investors the right to sell the stock and are typically considered a bearish bet on the future price movement of the stocks. I was interested in seeing what equities have the highest open interest or most outstanding options issued on them looking at all strikes and all months (excluding ETFs).

The top six stocks with most options issued are:

Citigroup (NYSE: C) has an open interest of 5,366,521 options, 2,751,255 are calls and 2,615,266 are puts. The stock has been trending down with the rest of the financials for the last year. Speculation now appears equal with about the same number of calls and puts traded.

Bank of America (NYSE: BAC) has an open interest of 5,204,313 options; 2,575,909 are calls and 2,628,404 are puts. Like Citigroup, this stock has seen its price cut in half over the last year.

General Electric (NYSE: GE) has an open interest of 3,877,635 options; 2,138,926 are calls and 1,738,709 are puts. With 23% more calls than puts outstanding, speculators look slightly bullish on GE.

We had the internet bubble and the real estate bubble and now, there is the ethanol bubble. Recently, I ran some numbers on ethanol and to my amazement realized that it is – too use a catch phrase from the environmental world -- not sustainable. Turning food into fuel is just plain silly; and when oil prices come down the ethanol bubble could pop big.

I ran did a little research and found some numbers:

• 47% of the Mexician' diet is corn
• it takes 2.4 pounds of corn a day to feed a hungry person
• it takes 22 pounds of corn to make one gallon of ethanol
• there are 42 gallons of refined gas in one barrel of oil

I ran into an interesting article in Fortune titled "Don't expect another bull market: Stock returns may never be the same -- at least for this generation of investors." The article made a bold prediction:

Barring a miracle -- or the creation of a New Math of the market variety -- there's no way we'll ever see a bull market along the lines of what so many of us grew up with.

This is very interesting from a sentiment viewpoint. A few years ago, at the height of the dot com boom, some claimed that we were creating a new economy in which the stock market could not go down. Then it crashed.

I say, don't buy into these extremes. In the long run, the market will have ups and downs, but will continue a slow long-term uptrend. We may have rough periods of adjustment -- like we are currently seeing in housing -- but that doesn't mean that the fundamentals have changed.

Articles like this can be a good contrarian sign. As writers predict the end of stock market gains, it may be a sign that we have reached the bottom.

Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

People are always looking for the perfect investment that is going to be able to beat the market. I have been intrigued recently with the Ultra EFTs. For some investors Ultra ETF's may be the magic bullet to beat the market over the very long term.

ETF's such as SPY, QQQQ and DIA have become very popular tools for investors to mirror the indexes with minimal fees. The QQQQ has a management fee of 0.40% a real bargain compared to some mutual fund fees. The ETFs do not try to beat the market they try to match the market; but for an investor who has other investments it can be a great vehicle.

Recently, I noticed the ultra ETF and I guess they have been around for a couple of years. Ultra ETFs try to exactly double the market performance. If the market goes up 2% their goal is to go up 4%. On the other hand if the market falls 3% their goal is to fall 6%. No matter what the market does; the ultra EFT is suppose to double it.

To say the least, this has been one interesting and turbulent week for the stock market. We saw international markets crash for two days, severe down action, a three-quarter point emergency interest rate cut by the Fed, a $7 billion mistake in France and work on a rebate package in Congress.

It can be a little hard to understand international markets and how they all work. But allow me to use an analogy to explain their interaction.

We all grew up in a family, and one of the most important people in the family is Mom. Mom does a lot of work -- making meals, doing laundry, cleaning the house and even working outside of the house. Families can have very complicated interpersonal dynamics in them. There is a saying that "if Mama ain't happy ... nobody's happy." And I think there is some major truth to it.

But it applies to international markets as well. The U.S. market is the "mama" and the most important player. The $13 trillion U.S. economy is bigger, stronger and more dynamic than each of the other markets, and if it has troubles, other markets have troubles as well.

Last week Bank of America (NYSE: BAC) bought Countrywide Financial (NYSE: CFC). The deal benefits Bank of America in that it gets a big chunk of the US mortgage market and a nice tax write-off, while Countrywide gets saved from a deep mortgage mess and pending liquidity crisis.

What is interesting to options traders though is the option activity that happened in the days before the deal. The deal was widely reported on Friday 1/11/08. But the stock options tell a slightly different story. It appears as if there are some who got wind of this deal a little early.

Call options allow an investor to take on a levered position in the stock and make huge gains if the stock appreciates. In the days before the buyout the call options were extremely active and this is typical of insider trading on the news. If you look at the number of options trading on the day before the announcement and the number that were trading several days earlier, it is very apparent that some traders had wind that something was up. On 1/10/08, the day before the announcement 195,000 January call contracts traded hands. If you compare that to the volume of three days earlier there were only 13,000 January calls traded. That is a 14 fold increase in the daily number of January contracts trading.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about. Mr Kersten does not own or control BAC or CFC positions at the time of this writing.

Due to the losses on mortgages, Merrill Lynch (NYSE: MER) is expected to take a big hit to earnings this quarter when it reports on Thursday. Analysts estimate the company may lose $4.57 per share, and the stock could face some more rough weather before it gets through all the financial subprime loan turbulence on its books.

Looking back at past earnings, the stock is not headed in a good direction right now. The stock beat estimates for 11 quarters in a row, but that record turned around last quarter when it reported a 45 cent loss and dropped 9% on the earnings release. With Merrill Lynch looking at a $4.57 earnings hit this quarter, things could get worse before they get better.

While the race for Democratic nomination for president seems to be 67% wrapped up with Hillary Clinton getting the nomination, the Republican nomination is far from settled. According to Intrade.com, a betting site where you can bet on the outcome of the elections, Mike Huckabee has been gaining a lot of ground recently.

As a stock analyst, I can recognize a healthy, up-trending chart, and support for Huckabee has taken off in the last two months, from a 3% chance of the Republican nomination to a 12% chance of the nomination.

Over the weekend there was a referendum in Venezuela that would have scrapped constitutional the term limits for president Hugo Chavez. He has been president of Venezuela since 1998 and constitutional term limits will not allow him to run again in for reelection in 2012. The left- leaning Chavez has been following in the steps of Fidel Castro and turning Venezuela into a communist state. He has enacted emergency powers, nationalized oil infrastructure, expelled foreign missionaries and allowed crime to run rampant. In order for him to constitutionally stay in office though he needed to get rid of the presidential term limits. That referendum this weekend failed, which is good news for democracy.

Venezuela is the forth largest oil exporter to America after Canada, Saudi Arabia, and Mexico. About one half of its 2.3 million exported barrels a day come to the US representing about 9% of all US oil imports. Like Iranian President Mahmoud Ahmadinejad, Chavez likes to talk and can move oil prices higher with off handed remarks and his railing against US foreign policies.

The Venezuelan people led by Chavez have headed down the road to socialism and almost a Cuban style dictatorship. While by no means the end of the story, this referendum is a win for democracy and should help the long term stability in the region which is important for US oil prices. Exxon Mobil (NYSE: XOM) and ConocoPhillips (NYSE: COP) have both been had investments in the country in past years.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

AutoZone (NYSE: AZO) is scheduled to report earnings before the market opens on Tuesday, December 4, 2007 with analysts estimating it will report $1.91 per share. Last time AZO analysts estimated that AutoZone would report $3.25 and just missed analyst's expectations with earnings of $3.23.

Beating estimates is not a given with AutoZone as it has missed five of the last 12 times is reported. But just because it misses does not mean those stock will go down; most of those misses were small and four of the last five times the stock missed it actually went up after earnings. In fact, the stock has rose 9 of the last 12 times it reported earnings.

It seems that there is a lot of concern over the economy, the credit crunch, the falling US dollar, rising oil prices and unemployment. How much worse can things get? A lot.

The fact of the matter is that unemployment in this country is super fantastic, but if you have been watching the news recently, I doubt you know that fact. Let's look at the unemployment numbers I downloaded from the US Bureau of Labor Statistics.