This week I am in California giving two speeches to the Financial Planning Associations of San Diego and Orange County. This and next week's letters will be the broad outline of the speech. We will look at how the retreat of the American consumer will affect the stock market. Has the recent drop (can we say crash, gentle reader?) in stock market valuations given us an opportunity to find value? We look at some very powerful evidence that suggests that may be so. Then we look at the counter to that view. Are we at the bottom, or is there more pain? And given the current state of affairs, how should we then invest? Where do we put our money to work when the dust settles, as it surely will.

As I noted above, this will be a two-part letter, finishing up next week. It will also print out a lot longer than normal as I have a lot of PowerPoint slides that are really important for you to see. A note to the 25% of my one million-plus readers who are outside the US: I am using illustrations from the US stock market to discuss timing and valuations, but the principles will translate to markets worldwide. In fact, considering that most stock markets worldwide are down even more than the US markets, they may be even more applicable. The time to become bullish on a lot of markets may be closer than we think. Let's jump right in.

What makes one person a pessimist and another an optimist when speculating about the future of the US and the markets? How do we come to our most basic assumptions? This week we look at some insights into human nature I picked up in Tahoe at George Gilder's Telecosm, as optimistic a gathering of bulls I have ever been to. I close with a few quotes from here and there on Fed policy and Muddle Through. I think it will stir your thought processes a little.

Let's set the stage. I am sitting in the back of the rather crowded hall and Rich Karlgaard, the publisher of Forbes asks, "How many people think the market will be up a year from now? How many people think the economy will be better next year?" It was clearly 80-90% in the optimist camp. When asked the opposite question, there were a few lone hands here and there.