Dear Reader,

Every coach knows that a team with a lot of confidence and determination can often beat a less focused opponent that has greater skills and experience. That's fortunate because it was the only way my group of high school klutzes ever won a game. We had heart but not much else.

Determination and confidence can also serve countries well during a crisis. Both qualities helped propel America to victory in the Revolutionary War, the War of 1812, WW1, and WW2. In each case, our troops faced larger armies that appeared more likely to win.

In recent years, however, American's normally positive outlook fell sharply and is now at an all time low.¹ That's not surprising since the country has been subjected to a long run of bad news and disappointments, and with far fewer reasons to cheer. The photo on this page summarizes the darkening outlook very well.

Leading the discouraging list are the huge losses that millions of people took on their homes. At the same time, wages declined for the decade and countless jobs disappeared.² One in seven Americans is now below the poverty line.³

At the same time, China is overtaking America in many areas – a topic that I will have more to say about on the next page. The two long wars in the Middle East are also going badly, and with no end in sight. There is no way to gloss these problems over with happy talk from politicians and the media.

Meanwhile, the government is in a toxic loop trying to fix the problems by doing more of what caused them, and doing it again when they get worse. That's one of the biggest reasons that I wrote in the Aug-09 GCOR that big government is a bubble that will someday seize up and break. It was one of my most important articles. I urge you to read it again.

Most people are beginning to realize that relief from their distress is unlikely to come for many years. As I will discuss on page 8, many won't live long enough to see it.

Young adults are especially upset about their prospects for the future. Ron Paul was astounded at how many of them flocked to his presidential campaign in 2008. The disaffected young are now even more numerous and angry. The following unvarnished quote is representative of what they are saying:

There is a revolution happening in America and it is coming from all sectors and it is being brought to you by people from all walks of life. My generation has been subject to vicious propaganda and brainwashing since we were born and we are waking up to it. We are not happy about it and we are going to change this sick system. Did anyone else find it odd that the media decided to blow up a story about some nut that wanted to burn Korans? We are in a depression and THAT is a story they chose to headline? Very suspicious. Don't fall for it. Take the red pill⁴ and let's get on with it.⁵

Nevertheless, there is increasing evidence that an American turnaround is underway. Big countries are like supertankers not sports cars, so the change won't happen overnight. But the momentum is increasing.

If I were an ossified politician, a thief (oops, I am being redundant), a company on federal life support, a bankster protected by powerful friends in Washington, or any of the other dead weights who have been dragging the country down, I would be very worried. Their easy rides are coming to an end. As in the movie Network, Americans are shouting "I'm mad as hell and I'm not going to take it anymore!" It's a heartwarming development.

I'm equally happy to see that defections are beginning to appear among Keynesian economists. The trend started this year in Britain and Germany. To the surprise of their colleagues, several top analysts in those countries persuaded their governments to begin multi-year spending reductions rather than the planned increases.

Almost immediately the British pound and the euro started to recover, construction and manufacturing began to turn around, business investment increased, and second quarter growth surged.⁶ Although the countries are not yet out of the woods, they are discovering which way to go.

The developments in Britain and Germany are all the more striking because they are occurring while the recession is deepening nearly everywhere else. Committed Keynesians, of course, are stunned. Their economic model predicted the opposite.

Keynesians who are intellectually honest will look for a better system. It should not take them long to discover Austrian (free market) economics. I'll be happy to send them a primmer on the subject. Chapter One: You Can't Spend Your Way To Prosperity. Chapter Two: Reread Chapter One.

From all outward appearances, the U.S. government has not learned anything from the upturns in Britain and Germany. However, changes are happening behind the scenes.

For example, several prominent economists are now urging the Obama administration to let housing hit bottom and then recover on its own.⁸ That's a big change from the "extend and pretend" programs that did little but further increase the national debt.

The bottom line is, one by one the mistakes of the past are being corrected. Along the way there will be setbacks, so the next few years won't be a carefree stroll through a summer garden. At times it may seem like a dash through a dark alley with Uncle Sam, the Mad Hatter, and Poncho Villa in pursuit.

However, the trip should be profitable for people who understand what's happening and how to respond. It will also be a rewarding time for everyone who prayed they would see America return to the principals that made it a beacon of hope for the world.

Fish have the same basic shape because it requires the least amount of energy to move through the water. Nature eventually finds the most efficient way to do everything.

Efficiency also exerts a big influence on economics. Market-based economies deliver goods and services at a far lower cost than state-driven systems. I think it is only a matter of time before the world's booming population and declining resources force every country to put a premium on economic efficiency – or vanish.

The trend towards less restrictive economies is already well along. In the former Soviet Union, the means of production was controlled by the government for over 75 years. During that time, over 20 million people starved to death and nearly everyone else lived at a subsistence level. In 1989 the system failed entirely and the Soviet Union broke up. Now a freer economy is rapidly improving the standard of living in Russia.

As the Soviet economy deteriorated, China's premier, Deng Xiaoping, was determined to prevent a similar disaster in his country. In 1978, Deng legalized many free market practices in China's otherwise socialist economy. China's upturn began almost immediately.

The latest country that's finding it necessary to put efficiency ahead of ideology is Cuba. The country's people are tired of ration books, shortages, hunger, shabbiness, and empty promises of relief from the Castro regime.

On September 9, Fidel Castro admitted to Jeffery Goldberg of Atlantic Magazine that socialism wasn't working for Cuba⁹. Fidel later claimed he was misunderstood but that was clearly not the case. The aging El Comandante let a very big cat out of the bag and there is no way he can stuff it back in.

As I reported in my October 2009 letter, Raul Castro – Fidel's brother and current president of Cuba — has been implementing many economic reforms to rescue the country's economy. In late August he made his most significant move when he announced that 500,000 public workers will soon be laid off and will need to find jobs in newly-legalized small private enterprises.¹⁰

Allowing the formation of private companies was the last barrier that needed to be removed before Cuba could open its door to foreign investment and ownership of businesses. The next hurdle is getting U.S. approval for American companies to enter Cuba, but the Obama administration is clearly moving in that direction.

As soon as it is possible to do so, several North American companies are likely to move quickly to enter Cuba, the greatest untapped opportunity remaining in this hemisphere.

For the broadest selection of the leading players I continue to recommend the Herzfeld Caribbean Basin Fund (CUBA). Its price is only up fractionally since I discussed the fund last October, but its recent performance looks good. I think the fund will do well when Cuba opens its doors to Yankee capitalists.

For a more focused investment, several large companies are in line to profit from a more business-friendly Cuba. I think your best strategy is to chose a company that is already doing well without a Cuban connection. If Cuba opens up as I expect, it will be a nice bonus. If not, you should still have a good investment. Here are the top choices:

If you can buy only one stock, I recommend Imperial Sugar (IPSU). The company was an important contributor to Cuba's economy before the revolution. It would make sense for the Castro regime to give the company's property back to restore the Cuba's multi million dollar sugar industry.

Last year when Raul Castro started moving towards a market economy, I recommended Imperial Sugar at $12.31. Later the company suffered losses due to an explosion at its principal refinery and a $6 million OSHA fine. The stock fell sharply but soon rebounded. It is now $13.60, a modest 10.5% gain. I think IPSU is still undervalued. Sugar prices are rising and the company should do well.

If you can buy two stocks, I suggest Royal Caribbean Cruises (RCL). For several years, one of the company's subsidiaries regularly took tourists to Cuba. Of course, the U.S. embargo terminated that business. When it ends, as I'm sure it will, the voyages will resume.

I think Cuba will be a hot destination. Thousands of Americans each year already visit the country despite the U.S. embargo and the risk of prosecution. Meanwhile, RCL is doing well despite the recession.

It isn't just nations that must become more efficient and practical to survive. The same is true of people, including those in the U.S.

It is especially important that young people chose vocations that will have value in a world where life is becoming more difficult and competitive. Ditto for retired people who may wish to develop a small business with which to supplement their incomes.

In the U.S., millions of families are having a tough time, and they will continue to do so for many years. People who can supply their basic needs will be in far greater demand than many with college degrees in purely intellectual subjects. The latter may never find the rewarding jobs they expected.

For example, I have a friend who is the head of the psychology department at a nearby university. Last spring the department advertised for a half-time instructor for a position that would only last a year. They got over 380 applications, mostly from people with doctorate degrees.

At the same time, the university's maintenance department needed a skilled machinist. It took nearly six months to find one. Here's the kicker: they needed to pay the machinist nearly twice as much per hour as the psychology instructor.

Likewise, most of the waiters at my favorite restaurant have college educations. So does the contractor I use for my remodeling projects (see the May-09 GCOR). Their knowledge of history and anthropology is a joy to them, but it has little market value. It's only what they can physically do that is keeping them in groceries.

Companies that are hiring today want engineers, computer specialists, research scientists, statisticians, marketing experts, patent attorneys, and other people in highly skilled fields.¹¹ Ditto for machinists, toolmakers, welders, health care workers, alarm installers, high end chefs, and other specialties. Most people who only have a high school diploma have poor prospects. They may never rise above low-paying dead end jobs.¹²

The bottom line is, the era of look-good paper shuffling, prestigious titles, and diploma waving is over. It's time to make something, grow something, or provide support services for those who do.

I know a former aerospace worker who is now driving a bus. Millions of people like him also went from well-paying positions to low wage jobs.

Riches to rags plunges were rare in the past. Most people went in the other direction. If a person was laid off from a good position, he went across town and got another. At the worst, he might have needed to relocate. But, equivalent jobs were available.

Now when people lose good positions, there are usually few alternatives. So, they fall all the way down the economic ladder. The impact on the family is catastrophic.

I think the best protection against such a blow is to have your own business and hire yourself. A man I know in Chicago did just that when he lost his job as a commodity broker.

He bought a hotdog cart across from the Art Institute and upgraded the humble meal. He went to all meat wieners, fresh-baked French rolls, real watermelon relish, and so on. It was an overnight success.

He actually helped himself two ways. Not only did he create his own business, he went from a paper job to a basic needs job. One cart eventually became a chain and he made a ton of money. Nobody ever laid him off again.

Self employment is no panacea. There is still the economy to worry about. But the self employed have far more control over their futures than people who are totally dependent upon an employer.

I urge you to think about self employment when you council your children and grandchildren about choosing a career. It might make a lot more sense to set them up in business than to send them off to college.

With the increasing need for practical skills, I think the for-profit education industry has a bright future. It expands educational capacity in the U.S. at a time when state budgets are severely constrained.

The best for-profit schools prepare students for high-demand jobs. These schools do not offer Mickey Mouse courses or fluff degrees. Students work hard and they learn marketable skills. The top schools also help place their students, often with companies that are pleased with the graduates they hired in the past.

In April, the for-profit education industry came under fire from the government. Because a significant amount of a school's income can come from federal tuition grants, some schools became diploma mills. Their poorly trained students can't find work and most default on their loans.

The government responded by threatening to cut payments to schools whose graduates have a high default rate. When the news came out, investors dumped school stocks, as you can see from any of their price charts.

Although the powerful teacher's union would love to put private schools out of business, that's most unlikely to happen. I don't think Washington will touch the industry that serves people who would otherwise not pursue an education. That's too hot to mess with, especially in this recession. In any event, the better schools would not be hurt by the proposed cutbacks.

The stocks of the leading for-profit schools are now moving back up, but I think their recovery has a lot further to go.

In my opinion, the for-profit education company with the most promise is DeVry, Inc. The firm has been in business since 1931, and it has a very good reputation for turning out qualified graduates. Hewlett-Packard, Cisco Systems, TransUnion, Accenture, CSA International and other successful employers regularly come to DeVry for talented employees.

DeVry has schools in over 300 locations that offer a wide range of programs. Its namesake University serves over 26,000 students who study business and technology. DeVry's Becker Professional Review prepares candidates for the rigorous CPA and Certified Financial Analyst exams. The company's Chamberlain College of Nursing just opened two new campuses in Arlington, VA, and Chicago. Nursing enrollment is up 65.2% from last summer.

DeVry also operates the Ross University School of Medicine in Dominica and its veterinary counterpart in St. Kits. DeVry Brasil plans to expand its facility next year to accommodate rising enrollment due to the host country's strong economy.

Particularly promising is Advanced Academics that provides online secondary education to public school districts in the U.S. Few such schools have online programs, but they know they need them. Tighter public school budgets should make efficient online programs very attractive.

DeVry has a great balance sheet with a lot of cash and very little debt. The company is profitable and it pays a small dividend. A low 8.8 forward P/E sweetens the deal.

Speaking of dividends, the bargain window is closing for the top blue chip stocks I have been recommending since April 2009. As I mentioned last month, it is unusual to find these world-class companies at good prices. It only happens during recessions when pension funds, insurance companies, and other deep pocket investors are afraid to come out of their bunkers.

The fear factor is now declining a bit and blue chip prices are recovering. Of course, that's pushing yields down.¹³ For example, Kinder Morgan Energy Partners (KMP), one of my income recommendations, yielded 7.4% at this time last year. Because the price has since moved up but the dividend has not, the yield is now 6.3%. That's still a great return, but not as good as before.

Other GCOR stocks that are particularly attractive (with their symbols and yields in parentheses) include: Eli Lilly (LLY – 5.50%), Sasol Ltd (SSL – 5.10%), H.J. Heinz (HNZ - 3.80%), Kraft Foods (KFT – 3.70%), ConAgra (CAG – 3.60%), Lockheed Martin (LMT – 3.60%), Johnson & Johnson (JNJ – 3.50%), and General Mills (GIS – 3.10%) – to name only a few. Among them, I think you should favor the food stocks, as I will explain in the next section.

For easy diversification within the top-paying blue chips, I continue to recommend the iShares Dow Jones Select Dividend Index (DVY). This ETF tracks the 100 highest-yielding securities (excluding REITs) in the Dow Jones U.S Total Market Index. The fund is ideally positioned to benefit from the world's growing preference for large, stable, dividend stocks.

We live in a hungry world. It's about to get a lot hungrier because the earth's population is expanding faster than crop yields. To make matters worse, the production of many staples is dropping due to climate extremes. The shortages are forcing prices to levels that millions of people can't pay.

Russia, for example, had a drought and a record heat wave this year that devastated its wheat crop. President Putin immediately banned the export of wheat, and its price soared 90%. At first it looked as if a bumper crop from Argentina would make up some of the Russian shortfall, but drought is hitting that country too.¹⁴

The Midwest corn crop is also down sharply. In this case, the problem is too much rain. As the low harvest estimates started to come in, corn prices shot up 40%.

Neither wheat nor corn prices would have made such leaps if there were ample supplies left over from previous years. The fact is, big food surpluses no longer exist.

For the world's poor, switching from an expensive crop to one that is still affordable is rarely possible. That's because a shortage in one usually pushes prices up for the others. If people can't afford wheat, for example, they buy rice, corn, or barley. With both wheat and corn prices moving up at the same time, the food outlook is especially grim.

It's not only wheat and corn that are in trouble. Sugar is also in short supply, which is one of the reasons I recommended Imperial Sugar on page 3.

Since the balance between the food supply and demand is tight, any additional shortfall could have serious consequences. With all the climactic and political turmoil that's occurring in the world today I think a crisis is more likely than not.

I believe agricultural commodities are the last safe harbor for investors. Not even precious metals can rival food as a bedrock investment that can be expected to perform well over the long term. Eating is the most basic of the basic needs.

That doesn't mean prices won't decline in any single year – they often do. But the big multinational blue chip food producers always come back. I don't see how you can do anything but make money with them if your time horizon is three or more years.

One good way to take a broad investment in the agricultural industry is with a leading fertilizer company. That's the reason I recommended Mosaic (MOS) in the April GCOR. The company is the world's principal source of phosphate, a key growth factor for which there is no substitute. The stock gained 6.5% since then, which doesn't put it in the Champagne and party hat category – but I think it's on the way. MOS is still a buy.

For a more direct food investment I like the eight world-class stocks that I put in Portfolio #1 of our four recovery portfolios.¹⁵ If we put a premium on those that have the most attractive dividends, we get the four companies that I listed in the previous section: Heinz, Kraft, ConAgra, and General Mills.

For the broadest possible agriculture investment I recommend the Market Vectors Global Agribusiness Fund (MOO). The ETF tracks the stocks of most of the world's leading agriculture companies. For most investors, the "MOO fund" is the way go.

If you would prefer a broad investment in the commodities themselves, I recommend PowerShares DB Agriculture (DBA). The ETF uses futures contracts to track the price of corn, wheat, soy beans, sugar, and other widely traded agriculture commodities — not the stocks of the companies that produce them.

On several occasions I urged readers to own precious metal coins of all sizes, not just the big 1 ounce manhole covers. The large bullion coins will be difficult to use in day to day transactions. No one will be able to make change for them. You won't want to pay with gold and get paper back.

I think the most useful coins to have in an emergency will be 1964 and earlier 90% U.S. silver dimes. Each of them contains 0.0723 ounces of silver. At the metal's current price ($20.75), each dime is worth $1.50 – an excellent amount for buying small items such as bread, milk, and eggs. I believe "real dimes" will assume the role that paper dollars have today, and you should have a large supply of them.

Next up, of course, are 1964 and earlier 90% silver quarters, each of which contains 0.1808 ounces of silver. At the current silver price, each real quarter is worth $3.75. Real half dollars contain .3617 ounces of silver, and are worth $7.50 today. For larger daily transactions, such as buying gas for the car, the larger denomination silver coins should be very useful.

One big advantage of having U.S. silver coins is they are legal tender. The government can't require you to use its paper dollars for your transactions. In my opinion, that makes the coins all the more attractive.

There has been a change in the balance between the pros and cons of an attack on Iran. Momentum has moved decidedly to the cons, at least for awhile.

The reason is purely economic. The wealthy states of the Gulf are starting one of the largest defense buying binges in peacetime history. Over $128 billion is being spent by Saudi Arabia, the United Arab Emirates, Oman, and Kuwait to counter Iran's military power.¹⁶ Moreover, nearly all the equipment the countries are buying will require expensive long term maintenance, providing another source of profits for the defense industry.

But there is a catch. If Iran is defanged, most of the big ticket orders will be cancelled. The region's kings, emirs, princes, sub princes, and ordinary poobahs would much rather spend their billions on gold toilets, villas overlooking Lake Como, and other necessities.

You can be certain that Washington has been told not to allow such a disaster to happen. So, unless Iran does something stupid, I think the country will be safe from attack for awhile.

Israel, of course, is a wild card in the equation. I don't think that Tel Aviv will attack Iran without Washington's approval, but there are no guarantees.

Once again, the defense industry appears to have found another big source of profits. General Dynamics (GD), Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTN), Orbital Sciences (ORB), and iRobot (IRBT) are all in line for additional business. As I mentioned earlier, LMT is also paying a respectable dividend.

Last month, I wrote my third article about the growing instability in Mexico and the danger it poses for the U.S.¹⁷ Since then, the violence has become even worse, and more Mexicans than ever are trying to get into America.

Even people in Monterrey, which has long been one of Latin America's richest and safest cities, are joining the exodus.¹⁸ Caterpillar took the extreme measure of ordering its executives with children to leave the city. The U.S. State Department also ordered its diplomats out. These unprecedented actions show how serious the situation is becoming in Mexico. Much of the country is disintegrating.

I believe the number of Mexican refugees – for that is what they are — will soon become a flood. The pressure from Mexicans within the U.S., and internationally, to help them will be overwhelming.

It's possible that the Mexican government will ask Washington to send in troops to attack the drug cartels, as Columbia did during the Clinton administration.¹⁹ That program established seven U.S. military bases in Colombia to fight the drug-supported left-wing insurgency.

However, I doubt that such an action will be taken with Mexico. The country is too large and there are too many combatants. Moreover, the cartels would probably call a temporary truce and combine forces to push the U.S. out.²⁰ Mexico could quickly become another Iraq.

But even if Washington should undertake such a folly, the added violence would actually increase the number of refugees.

The United Nations recognizes two types of refugees. The first are people who are leaving a country primarily for economic reasons. The U.S. already has between 8 and 11 million of them. This group is given little or no assistance.

The second group are political refugees who are fleeing to save their lives. Such people qualify for help by the United Nations High Commissioner For Refugees (UNHCR) and many non-governmental charitable organizations (NGOs). There are also international agreements that require countries to give shelter and sustenance to political refugees from adjacent areas.

If large numbers of refugees are allowed to enter the U.S. and go wherever they wish, it will create enormous problems. As we saw with the Mariel Boatlift from Cuba in 1980, many criminals would also come in with the refugees. With Mexico we would also get the terrorists I warned about last month. The result would be chaos.

The rising violence in the Southwest would also widen the divide between America's haves and have-nots, which is already an explosive issue. The haves will fortify themselves in gated communities with armed guards and electronic systems. The have-nots will live in free-fire zones. To survive, many people outside the protected areas may have little choice but to join the cartels, just as their counterparts in Mexico often do now.

I think the financial strain of a Mexican refuge crisis could also shatter the fragile U.S. economy.

Outside of the Hispanic population, I doubt the American people would stand for an emergency open border policy and thousands of Mexican refugees. I believe the only politically acceptable solution for Washington would be to let the refugees come in, but put them in camps. That's what the government is doing already with people from Haiti.

That's also what the U.N. does with most political refugees it helps throughout the world. To give legitimacy to such camps in America, Washington may ask the U.N. to help manage them.

Last month I ended my article about Mexico by saying, "What's happening in Mexico is a far bigger threat to the U.S. and its citizens than what is happening in Afghanistan or Iraq." That is even more true today.

For years there have been reports that FEMA has plans to establish camps on several of America's many unused military bases. Most of the mothballed facilities have barracks, single family housing, schools, stores, clinics, and the necessary infrastructure to support them. The bases are actually complete towns inside secured areas. After being refurbished, they would make excellent refugee camps. If Mexico continues to disintegrate, I think that's what they will become.

The company that's in the best position to construct refugee facilities in the U.S. is KBR, formerly Kellogg Brown & Root. KBR was spun off from Halliburton (HAL) in April 2007 after serving as that company's engineering and contracting unit for 44 years. During that time KBR won many multimillion dollar contracts with the Pentagon to design and build mega-bases in the Middle East and elsewhere. Despite their size, most of the bases were constructed secretly, and they remain unknown to the public.

KBR also rebuilt the port facilities in Louisiana and Mississippi after Hurricane Katrina. No other company could have done such a massive and complicated project in such a short amount of time.

It is clear from KBR's history that the Pentagon already considers the company to be part of its team. I think KBR will get the contracts to do the FEMA work, if it doesn't have them already. I think the company should be considered for your long term portfolio.

Lastly, please review my personal security recommendations from last month –particularly if you live in the Southwest.

On September 20, Ben Bernanke at the Fed said he was prepared to take additional steps to fight the recession and low inflation.²¹

Fight low inflation? Since when has the Fed wanted to raise inflation?

Of course, what the Fed is really worried about is deflation – the problem that I have been warning about for months. It's the elephant in the middle of the room that nobody wants to talk about because someone might ask who let it in.

On the same day of the Fed's announcement, the National Bureau of Economic Research reported that the recession actually ended in June 2009. So, does Washington think there is a recession or not? The two agencies really ought to compare notes so their confusion isn't quite so obvious.

I can assure you that nobody on Main Street has any doubt about whether or not there is a recession: they deal with its grim reality every day. The only question is, when will the downturn end?

In my opinion, it will be years before we see more than minimal growth.

During healthy economic expansions, growth averages about 3.5%. Unfortunately, servicing the federal debt to foreigners will consume about 2.5% of America's GDP through 2017 – and that's without any increases.²² As a result, net economic growth is likely to be no better than an anemic 1% even under the best conditions, which are nowhere in sight.

Even after the government's $3.7 trillion stimulus program, the economy is only expanding about 1.6%, and that's with Mr. Bernanke's fat thumb on the scale. When debt payments are subtracted, net growth drops below zero.

Of course, the Fed won't do the arithmetic for you – and it probably hopes that you don't know how to do it yourself. In Washington, public ignorance isn't just bliss, it's a necessity.

The necessity for us is to remain informed about what is really happening in our country and the world, and how to respond to it. I'm doing my best to help make that task easier for you.