The news is saturated with Hank Paulson’s $700 bailout plan. This is diverting attention away from the increasingly bleak outlook for the wider economy.

Rick Pendergraft says no bailout can immediately solve the problems in the housing market. And all indicators suggest these will run well into 2009 at least.

Rick says your portfolio should be all about playing safe for now. He recommends eight inverse ETF plays to hedge against this downside risk.

This from Investor’s Daily Edge:

I can understand the fixation on the bailout, but other economic reports are getting lost as a result.

Last Thursday was a day that the mass distraction was working to its full capabilities. Investors chose to ignore all economic data in order to focus on the progress of Congress.

In case you missed it, durable goods orders for August were down 4.5 percent from July (I guess the stimulus checks ran out), initial jobless claims jumped to 493,000 (the highest figure in seven years), new home sales dropped to a 17-year low and home sale prices dropped 11.8 percent (the largest drop on record).

But the bailout is going to solve all of this and it will do it immediately, right?

I don’t think so. Companies are not going to start borrowing tomorrow and banks are not going to start throwing money at people all of the sudden.

Granted the bailout should help stabilize things and keep us from going into an all out meltdown, but it is not going to fix everything and it isn’t going to do it immediately.

I hate to sound like such a doom and gloomer, but if it’s cloudy outside, I am not going to tell you that it’s sunny and hope that you don’t notice.

Last Wednesday, we had a company wide meeting and we were all asked to state what our goals were for each day. My answer was in two parts: my goal is to make my readers money or educate them. It’s that simple.

Having said this, should a bailout agreement get reached before you receive my article this morning (they are feverishly working on it), expect a rally when an agreement is reached and it is approved in congress. But don’t go buying into the rally.

I think this is going to be another case of buy the rumor and sell the news. Any agreement that is reached will cast a sense of relief for the financial sector, without a doubt. However, it isn’t going to solve the underlying problems with our economy.

We will continue to see job loss in the coming months (the September employment numbers will be released on Friday), consumers will still struggle to keep up with their obligations and the housing market will continue to slip for the foreseeable future.

I have expressed in IDE many times that I don’t think the economy turns around until the housing market turns around.