Before we begin reflecting on those things for which we can be thankful, we want to share a few thoughts this month and next month to help us prepare for what we think will be a dramatic 2010. And so we start with “what if’s.”

“What if” questions help you think things through. They keep your mind sharp For example, one of the most important questions we ask in making an investment is “What if we’re wrong”?

Just imagine how much heartache would have been avoided had people who bought real estate during the past decade had simply asked, “What if real estate goes down?” Of course, few, if any, did. For too many people, real estate always goes up.

So let’s take a look this month at a few “what if” questions that will help sharpen our minds as we face the uncertainties of the future.

Through it all, investment “experts” continually hammered Baby Boomers to invest in the stock market. In fact, for most of their adult lives Boomers were told to invest in stocks “for the long run.” Just keep plowing money into stocks and you’ll be OK to retire someday.

If you’re a Boomer about to retire and followed this strategy, maybe it worked out. It’s possible that if you really saved a lot and invested in stocks since the recent great stock bull market began in 1982 — and you managed to get out of the market before the 2008 collapse — you may be in decent shape. We hope so.

But lots — and we mean LOTS — of Boomers don’t have enough on which to retire right now. Maybe they didn’t save and invest enough over the years. Maybe they lost a huge chunk of money in 2008.

Sure enough, the experts still insist that investing in stocks for the long run will work out just fine. After all, the very fact that the market’s been flat for so long kind of assures that it will be heading up…someday…right?

We’ve talked about these ideas in past letters. We’ve showed you the statistics that demonstrate that buying and holding stocks for the long run may not be your — or even the — best strategy.

But what’s this? We’re actually seeing commentary saying that the idea of “stocks for the long run” is dangerous, even toxic (Hooray!). People are waking up to the reality that the idea of buying some stock mutual funds — or investing in a general basket of individual stocks — as part of a kind of “set it and forget” strategy hasn’t worked all that well for a lot of people.

Now ask yourself: “What if the stock market goes nowhere for another ten years?” Then figure out where that will put you in ten years. If the results are OK — if you’re retirement plan will hold up after another decade-long flat stock market — then you may be OK in 2019.

Of course, if the stock market does remain basically flat, why not try look to some other ideas besides holding stocks for your long-term strategy? And by strategy, we don’t mean just holding cashfor the long-term either. Holding cash short-term may be OK. But for the long-term? Let’s go to our next “what if” question for some perspective.

Now, if you’ve got lots of cash, unless you’re holding your cash in multiple currencies, that means you’ve got a lot of “dollars.” So hearing about the demise of the very thing you’ve got most of your wealth tied up in has got to be a bit scary, no?

But before you panic, let’s ask some more questions. For example, how exactly do we determine that the dollar is going down? After all, it’s got to be going down relative to something else, right?

Now it used to be that the currencies of various countries would be measured against gold. The nice thing about that was that you had an objective standard against which to measure them all. It was something like when you use a tape measure and measure things in inches and feet.

However, currencies are now measured against each other. The US dollar, for example, is measured using something called the “dollar index.” And the dollar index is a “basket” (group) of other currencies — six to be exact. Oh, and each of the six currencies is “weighted” meaning that you don’t just take the six currencies and throw them in the basket to come up with the value of the dollar. That would be too easy.

No, the dollar index assigns a “weight” to each of the currencies in the index. Turns out the biggest weight — 57.6% to be exact — goes to the Euro. That means the value of the Euro counts for 57.6% of the value of the index. Not quite as simple and easy to understand as using gold, to be sure. But that’s what the folks who run the world’s monetary system have given us.

If you want to know what a falling dollar index looks like, here’s a good picture:

(Courtesy of stockcharts.com – http://stockcharts.com/h-sc/ui?s=$usd

Okay, so now we know the dollar’s going down. But if it’s going down against this basket of other currencies, why should we care? Well, for one thing, anything imported from Europe is going to cost us more. (Remember, the Euro makes up most of the index.) So say hello to more expensive French and Italian wines.

Well then, perhaps we should “diversify” our cash into some other currencies. Maybe instead of just US dollars, we should hold some Euros and some of those other currencies in that dollar index.

But before we do that it’s time to ask our “what if” question, only we’ll re-phrase it now: what if the currencies against which the dollar is measured are also going down? Where does that leave us?

Let’s see. We measured the dollar against that basket of other currencies. But what do we measure those other currencies against? To put it another way, how are we going to measure the measuring stick (that group of currencies known as the dollar index) against which the dollar is measured? (Isn’t it starting to seem like the whole way currencies are measured is a bit surreal?) The only way we know of is to get out something similar to our tape measure. Let’s try that old unit of measurement on for size: gold.

Gold is the only available “objective” measuring tool we can use to sort out this confusing mess. It’s been around a lot longer than every one of those currencies we’re going to measure. And, lo and behold, when you use gold, you get a better picture of what’s going on behind all these currencies moving around and against each other.

In the interests of saving space, let’s all recognize that the dollar is going down against gold. How do we know? Simple. The “price” of gold is rising. And the “price” you see and hear quoted is the price of gold in dollars. In fact, the price of gold has risen over 300% so far this decade.

Now, let’s take a look at how that largest component of the dollar index, the Euro, has done:

(Courtesy of stockcharts.com – http://stockcharts.com/h-sc/ui?s=%24XEU%3A%24gold

Aha! What’s this? The Euro is falling against our “tape measure,” gold. And as you may have suspected by now, other currencies are either currently going down or have gone down vs. gold.

Now if all the currencies are going down against gold, a natural question might be whether we want to be holding a bunch of those other currencies or whether we might want to be holding some gold. Good question.

Unfortunately, the dollar’s “collapse” or “demise” means something a bit worse than what we just outlined. And we just don’t have the space to get into that potentially dire scenario in this letter. Besides, if you listen to the Fed, our political leaders and many economists, the U.S. wants a strong dollar. How do we know? U.S. Treasury Secretary Tim Geithner said so on a recent trip to China, among other places.

Which brings us to our last “what if”:

There’s an assumption that people like Federal Reserve chairman Ben Bernanke, Treasury Secretary Tim Geithner, et al must have a pretty good idea of what’s going on and what to do about it. After all, we didn’t “fall off a cliff” in 2008, despite the crisis atmosphere that scared the pants off many of us.

And even if they don’t know exactly what to do, they’re “experts” and so whatever they do will be carefully thought out. In other words, don’t worry, we’re in good hands.

So how dare we ask this “what if” question? Are we being so presumptuous as to think we might know more than these fine gentlemen?

Well, we don’t claim to know more. Our problem is more with what these gentlemen seem to be claiming they know. Here are just two recent examples.

First, let’s recall Tim Geithner’s visit to China this past June. Speaking in an auditorium in Beijing, he answered questions posed by a group of China’s top students. At one point, Geithner assured the students that Chinese holdings of treasuries (which are denominated, of course, in dollars) were safe. They laughed out loud. We don’t mean winced or snickered. You could hear the laughter. It was embarrassing.

In short, the students at one of China’s top universities laughed at this very senior American official — one considered a monetary expert. And they laughed right in his face.

Later in the day, China’s Vice Premier Wang Qishan tried to smooth things out a bit, telling Geithner, “We must through our dialogue send a clear signal that China and the U.S. are engaged in practical cooperation to address the crisis.”

But the students – their smartest young folks – weren’t fooled. They see the writing on the wall. Maybe they were secretly asking the same “what if” question we are now.

Moving from Beijing to Washington D.C., we recently read some analysis that sifted through the proposed “too big to fail” legislation that’s floating around the House of Representatives and found this nugget: under Barney Frank’s proposed version, the legislation would establish a “Financial Services Oversight Council.”

Essentially, it would be a group of bureaucrats who decide what companies are too big to fail and what new regulations/capital requirements they must subsequently observe. Here is a list of the proposed voting members:

• The secretary of the Treasury, who shall serve as the chairman of the council
• The chairman of the Board of Governors of the Federal Reserve System
• The comptroller of the currency
• The director of the Office of Thrift Supervision
• The chairman of the Securities and Exchange Commission
• The chairman of the Commodity Futures Trading Commission
• The chairperson of the Federal Deposit Insurance Corp
• The director of the Federal Housing Finance Agency
• The chairman of the National Credit Union Administration

Now let’s take a quick moment to look carefully at this list of esteemed experts. None of these people saw the crisis coming (a few even enabled it). Is it just us, or is there something about this proposal that’s almost as surreal as how currencies are valued against each other?

These “experts” would now sit on a council together and decide which companies are really too big to fail. And if they’re really too big to fail, they’ll be able to keep an eye on them. Maybe they’ll monitor them the same way they monitored Fannie Mae and Freddie Mac — the government agencies that now sit bankrupt sucking in billions of taxpayer dollars even as they continue to implode.

Okay, we’ll calm down. But does this make any sense? And that’s just a small example. Is it any wonder we would at least ask our “what if” question?

Well, we started by noting that Thanksgiving just snuck up on us. And if we’re going to be ready for the family feast, that will have to be the last of our “what if” questions. We hope you enjoyed our little exercise and strongly recommend the practice to you.

Now for a few words about America’s great Thanksgiving holiday…

Thanks Geezers!

Our global economy means more give and take. For example, we give the Saudi’s money and take their oil.

Of course, there’s more to it than just dollars for oil. Check out this absurd (and rather funny) YouTube video of Saudi men dancing to Michael Jackson if you’re not sure what I mean.

So in thinking about Thanksgiving this year, something I learned about Chinese culture popped into my head: respect for elders. It’s something that I think has faded a bit here in the U.S.A. I’ll start with a little recollection.

For years, my Dad argued that Medicare was a bad idea. I was just a kid when Medicare started under President Johnson. Dad was a life-long Democrat. He also had a huge dollop of common sense and brains. I don’t think he questioned the good intentions of the program, but figured it would lead to doctors and hospitals costing a lot more.

His first surgery after Medicare proved his point. He had considered the surgery before Medicare became law. The doctor wanted a few hundred bucks. Now, with Medicare in force, he really needed the surgery. The doctor still wanted a few hundred bucks — in addition to what Medicare was going to give him.

He also used to tell me stories about how doctors in the “old days” would either lower their fees or accept some sort of barter if you couldn’t afford their regular fee. Medicare would end that practice.

He didn’t miss the opportunity to point out that he was right — and I didn’t miss the opportunity to tell him he was right.

Not that we always agreed. Take Social Security. He thought he was “entitled” to it since he’d paid into it all those years.

We once got into an argument over Social Security. I almost said he wasn’t “entitled” to it, but, besides being a questionable view, it would have also been a bit too heavy-handed a way to speak to my Dad. Respect for your elders sometimes entails keeping your mouth shut.

Nowadays elders have morphed into “senior citizens” or just “seniors” for short. I never liked the phrase. Seniors were what you were in your last year of high school or college. What’s that got to do with old folks? And what was wrong with calling them elders? Even “geezers” sounded better.

Once upon a time, we used to couple the word “elder” with “better.” Your elders and betters had a higher status in this world not just because of their age, but also because they possessed some degree of wisdom based upon experience.

The term “seniors,” on the other hand, denotes things likediscounts, early bird specials, old folks riding around on golf carts in senior communities, or the ever-powerful seniors’ voting block.

I think all of this gets in the way of that special attention and respect we used to give our elders. And it’d be a shame if, in the process, we lose the benefit of all their experience and wisdom.

I recently watched a DVD of “Gran Torino” with Clint Eastwood. Not expecting much, I was really pleasantly surprised.

Eastwood’s American “old man” character, faces the death of his wife — clearly the one love of his life — a neighborhood “globalized” by Asian immigrants (whom he despises), as well as complete lack of attention, understanding and respect from his own family. There’s not much give and take — either with his family or his neighbors.

We watch as, slowly, the give and take builds — at least with his neighbors. In the end, Eastwood’s character finds what he thought was lost: attention, understanding, respect — and ultimately love — in those same Asians he once despised. Treat yourself this holiday season and buy or rent it and you’ll see what I mean.

Just to be perfectly clear, the elders in my own life weren’t necessarily reservoirs of the wisdom of Socrates or even paragons of virtue. But they had something to give.

A lot of them gave all they could, sometimes in spite of starting out as despised immigrants. And we took.

Now that Thanksgiving’s here, if you haven’t already done it, give back some of the attention, understanding, respect and love that you got. We can all start by giving thanks.

Happy Thanksgiving!

P.S. — For a special “what if” exercise on real estate — as well as some thoughts on how Goldman Sachs does God’s work — be sure to check out our blog during your holiday break.

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com