Just the Third Inning...

As you know from my posts of the last couple of months I believe the stock market is going to be a tough place to be for some time. Bear market rallies can be very powerful, and can even retrace 50% of their losses. However, I very much doubt that this will be the case in this particular bear. The reason: while the stock market may already be down 40% from its highs, the economy is just now heading into a recession…one which I believe will be an incredibly painful one for most people. Historically, the stock market begins to recover from a recession about half way through it, which tells me that we have at least 6 months to a year before that will be possible. In addition, this will not be an ordinary recession. For one, the credit market is dead to most, and it will continue to be very difficult to get loans. Since our economy is now a debt based one, this is bad news indeed, and once layoffs begin to ramp up (just as they did this past month with 159,000 people losing their jobs) the reality of this process will begin to set in. People go through 3 distinct phases when dealing with tough financial times in their life. Phase one is denial, which is the phase we are in currently. Right now most people see this as just a crack in the stock market, but believe that it will soon turn around…it will not. Phase two is when reality begins to set in. Layoffs, foreclosures and bankruptcies…which are only beginning to pick up in their intensity… become a reality. And phase three, “capitulation”. This is when things are so bad that an individual will sell everything left of value just to hold on to some semblance of their prior life. If this all sounds incredibly bleak…well, that’s because it is. 80% of the country is upside down financially, and as you’ve probably noticed, very little of the $3 trillion or so that is being pumped back into the economy by the Federal Reserve will actually help individuals directly. Yes, this newly printed flash cash will ensure that the banking system survives, but none of it will be deposited into any of our bank accounts, which is where its needed most. The following is an article from this weekends Barrons, and one that I concur on just about every point. I believe that this is the single best opportunity to buy gold and silver, and especially precious metals mining stocks. It has been incredibly difficult to watch these stocks get hit with the rest of the stock market, and it would seem to make no sense whatsoever. We bought these stocks for “exactly” the current situation; a stock market meltdown caused by a financial system based on paper money backed by nothing…a fiat currency. Yet, these stocks were hit as hard as anything. I encourage you to use this opportunity to average down on our precious metals recommendations as gold and silver begin what will be a huge move higher. The timing of this move is difficult as many see deflation as the biggest current risk, but in the near future it will become very clear that massive inflation must follow the $3 trillion of newly printed cash. Our debt balloon has a leak…no matter how much fresh air is pumped into it. Kip Herriage Editor, VRA www.vraletter.com