There's a reason economics is called the dismal science, and weeks like this just give it further meaning. In economics, there is what you see and what you don't. This week we are going to examine the headline data we all see and then take a look for what most observers do not see. Then we'll try to think about what it all really means. With employment, housing, and the ISM numbers, there is a lot to cover. And this letter will print out longer than usual, as there are a lot of charts. Warning: remove sharp objects from the vicinity and pour yourself your favorite adult beverage. This does not make for fun reading.

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The market, we keep hearing and reading, is telling us that there is recovery around the corner. And pundits point to data that seems to suggest the worst is behind us. The leading economic indicators, while still down significantly, seem to be in the process of bottoming. There is a large amount of stimulus in the pipeline. Mark-to-market has been modified. Housing seems to be finding a bottom, if you look at the rise in sales from January. And so on.

In this week's letter, we look at what past recoveries have looked like in terms of corporate earnings; and we look at the continued slide in earnings on the S&P 500, which has a negative price-to-earnings ratio looming in future months (yes, that is not a typo, we have an unprecedented earnings multiple). We take a peek at housing and foreclosures. There is just so much bad news out there (like continued unemployment) that it just has to get better, doesn't it? This should make for an interesting letter.

This week the market seemed to like financial stocks and was buoyed on news that Pulte Homes would buy Centex to create the largest US homebuilder. And with banks having some room to adjust their writedowns as mark-to-market is modified, the market saw significant increases in the financial sector. Everywhere I keep hearing the old saw that the market predicts a recovery about six months out, so won't we see a recovery in the fourth quarter of 2009?

This week we look at the Land of the Rising Sun. Japan is going through major upheavals, and they will have consequences all over the world. And what are those wild and crazy Swiss central bankers up to? It's time for another round of competitive devaluation. And of course I have to look at the recent Barron's cover story, about how stocks are cheap. There's a lot to cover.

But first, and quickly, I just wanted to take a moment and remind you to sign up for the Richard Russell Tribute Dinner, all set for Saturday, April 4 at the Manchester Grand Hyatt in San Diego - if you haven't already. This is sure to be an extraordinary evening honoring a great friend and associate of mine, and yours as well. I do hope that you can join us for a night of memories, laughs, and good fun with fellow admirers and long-time readers of Richard's Dow Theory Letter. The room is filling up and there will be a very large crowd.

A significant number of my fellow writers and publishers have committed to attend. It is going to be an investment-writer, Richard-reader, star-studded event. You are going to be able to rub shoulders with some very famous analysts and writers. If you are a fellow writer, you should make plans to attend or send me a note that I can put in a tribute book we are preparing for Richard. And feel free to mention this event in your letter as well. We want to make this night a special event for Richard and his family of readers and friends. So, if you haven't, go ahead and log on to https://www.johnmauldin.com/russell-tribute.html and sign up today. The room will be full, so don't procrastinate. I wouldn't want any of you to miss out on this tribute. I look forward to sharing the evening with all of you.

It is not just the US that is in recession. The world is slowing down, and rapidly. This week we quickly survey the rest of the world, and then come back to the US. We follow up with the implications for corporate earnings worldwide, and specifically address my speculations about earnings forecasts for 2009.

Let's start with some charts from my friend Simon Hunt, out of London. The following chart shows World Merchandise Export Values and World Industrial Production falling off a cliff. This is the worst such period since the end of World War II. And as the data we will examine next indicates, it is likely to get worse. Simon notes that consumer spending is about 60% of world GDP, and it is not just in the US that spending is slowing down. Consumers all over the developed world are in shock, as assets such as stocks and houses, real estate, and commodities fall in value. Unemployment is rising.

We think that almost 2,000,000 lost jobs in the last three months in the US is a catastrophe. China lost a reported 20,000,000 jobs in the last quarter, and migrant workers came back to the cities after Chinese New Year to find factories and jobs simply gone. Unemployment is rising rapidly in Europe, as the demand for goods has clearly been falling since last October.

When confronted about an apparent change of his opinions, John Maynard Keynes is reported to have said, "When the facts change, I change my mind. What do you do, sir?" The earnings season for the 4th quarter is almost 80% complete, and the facts are dismal. It is worse than the current data shows, and could get uglier. Unemployment is increasing, and consumers are both saving more and spending less as incomes are not keeping pace with what little inflation there is. All in all, a very different set of facts than a few quarters ago. This week we examine some of the new facts, and start out by analyzing how Thoughts from the Frontline has done over the past two years with some of the more important predictions. It should make for an interesting letter.

At the end of the letter, I have a few notes on my upcoming Strategic Investment Conference in La Jolla, April 2-4 (which looks like it will sell out), information on the Richard Russell Tribute Dinner, a mention of my new Conversations srvice (which is getting very good reviews), and the need for one or two part-time editors.

Over the last year, I have become increasingly more bearish on the economy than I was in January of 2007. In my 2007 annual forecast issue, I said that we would be in a recession by the end of the year (we were), and that it would be a long but not too deep recession, with a multi-year below-trend Muddle Through period to follow. I was thinking GDP would maybe be down 2-3%. As I have repeatedly written in this letter and said in speeches, the US stock market drops by an average of 43% in recessions. I saw no reason to be in the stock market, as there was just too much risk of a serious bear market. Further, since international markets now have close to a full correlation with the US markets, foreign stock indexes would be in trouble as well. I also said interest rates would be coming down and deflation would be a problem before we got through this recession.

"The stock market is a voting machine in the short run and a weighing machine in the long run." - Benjamin Graham

The voting part of the equation is tempered by fear and greed. It is largely emotional, although investors like to think of themselves as rational players. That emotion is driven by views of the future. If you can be confident of large and growing returns, you are less likely to be swayed by the erratic movements of a stock. But as confidence wanes? Well, that is the stuff that bear markets are made of.

Because at the end of the day, what the market weighs is earnings and the ability of a company to reliably produce them. This week we look at what earnings are likely to be over the next year and see if we can discern what that suggests for the markets. We also take a look at the energy markets, the possibility of a further drop in the price of oil, and muse on what a sane energy policy for the world would look like. There is a lot to cover, but it should make for an interesting letter.

This week we look at the recent upspike in volatility, see if we can connect some dots with the recent slew of earnings downgrades and the problems in the subprime mortgage world, and follow the money as risk is being taken off the table. I don't "buy" the China problem, but there may be an Asian connection. Let's try and keep it simple as we try and see what's behind curtain #3 labeled "Which direction is the stock market headed?"

But first, if you have not signed up for my Strategic Investment Conference in La Jolla, California, April 19-21, this week's market action is a perfect reason why you should. Want to get the real lowdown on China? Come listen to one of the premier Asian investment experts, Louis-Vincent Gave, give us his on-the-ground view of Asia. Dr. Woody Brock, a regular at Davos (with a bio that is MOST impressive - I sit on a fund advisory board with him and I am excited about him coming to the conference, as those who attend will be!) will explain derivatives and a whole lot more. Dennis Gartman will give us the view inside the head of a trader. And then there's Richard Russell's take on the markets, Rob Arnott (one of the smartest investment minds in the world, in my opinion), as well as Dr. Mike Roizen (You, The Owner's Manual ) telling us all how to live longer. And your humble analyst will add his two cents. Right now, I am working on research and a new presentation on risk.

Because of regulations, the conference is sadly limited to those with $2,000,000 in investable assets. The conference is by invitation only, and we are required to verify each attendee's financial situation and suitability prior to their coming to the conference. I wish it were different, but we are very serious about playing by the rules. There will be a select number of hedge funds and commodity funds making presentations and available for questions throughout the conference, so you will have an unprecedented chance to learn about what the press calls the "secretive" world of hedge funds.

Earnings season is upon us, and with each announcement the market seems to surge on new ecstasies or retreat with disillusionment. Each new announcement is cut open, like so many sheep, to see what its entrails will divine to us about the future, as if one more bit of fresh data will give us the clear forward vision we think we so desperately need. Is the bull finally back? Are we climbing a wall of worry, or just on another fool's errand, rising in a bubble toward the inevitable pin? Yet, earnings are up by more than 100% since the end of the last recession. How can we not be optimistic?

I wrote about a study last year that suggested corporate earnings in the US could not grow by more than the growth of GDP.

"Our median estimate of the growth rate of operating performance corresponds closely to the growth rate of gross domestic product over the sample period ....the growth in real income before extraordinary items is roughly 3.5% per year" (after inflation and dividends. Before them it is about 10%.) "This is consistent with the historical growth rate in real gross domestic product, which has averaged about 3.4 percent per year over 1950-98. It is difficult to see how over the long term profitability of the business sector can grow much faster than overall gross domestic product. " (From a National Bureau of Economic Research Report by three economics professors: Chan, Karceski and Lakonishok).

Today I discuss one of the most dangerous threats to your retirement and then we listen to a few seasoned pros tell us why the market is not going up. It should make for an interesting session, so let's get started.

I got the following email from a reader yesterday which so upset me I decided to make it the lead for this week's letter. Quote: