GD 2

Great Depression 2

I'm writing this from the beautiful Marco Island, Florida,
as we prepare for the 7th WMI m2 Wealth Conference. Outside
its gorgeous, but inside...watching the stock market...is
a totally different environment.

Folks,as much as it hurts to write this...as much as I
absolutely hate to write this...I believe that the odds are
70/30 that we are headed into another Depression. And
theres not a whole lot that can be done about it, at least
not with a weak, lame duck President in office for two more
months, along with Treasury Secretary Paulson, who should
have been fired long ago. There's plenty of blame to go
around, and I have yet to see much that has impressed me
from Obama's early appointments. There's no official
economic indicator or definition that says we are headed
into another Depression, but its obvious to anyone watching
that things are about to get a whole lot worse. The stock
market is a leading indicator,and this massive move down is
telling us all that we need to know. As I've been saying,
people are basically in denial because the economy has yet
to really get hit. When this begins to happen...when the
majority see their way of life change radically...maybe we
will finally see the talking heads on CNBC and Fox Business

News wake-up and smell the coffee. Anyone besides me
getting tired of hearing that we have a"bottom in place"??
We are a long, long way from a bottom in the market, maybe
1-2 years away. This is the reality and what you should all
prepare for.

The stock market dropped to an 11 year low today, and every
index has now broken down to new lows. As I wrote in my
last update, The Next Leg down would be quick and painful,
and now that we have no real support on the charts, the
declines will likely pick up speed from here. Sure, there
will be some bear market rallies, likely even starting
today. I would expect the bears to take a break for a
couple of days at least, which could give us a small break
from the declines, but in the end it won't matter...the Dow
is going to drop to at least 6000-6500 and could even see
4000-5000 before a final bottom is in place.

Here's why: Next year the earnings on the S&P 500 will drop
to at least $60 (some believe that we may even have just
$50). Using a price to earnings (P/E) multiple of 10 for
2009 forward earnings, which might even prove to be too
high, this means that the S&P 500 will have to drop to at
least 600. This equates the Dow dropping to at least 6000.
And remember, this might be too rosy of an earnings scenario.

But huge stock market drops will not be the worst of it.
Social unrest will be next as the economy weakens
substantially, and unemployment hits 10%+. When states,
local governments, municipalities and schools run out of
money to provide for our "welfare state", a bear market in
stocks will be just about the last thing many are worried
about. I will be writing more about social unrest and what
it means for all of us in future updates, but for now make
sure your personal financial house is in order. Keep your
debts low, control your spending, and do whatever you
believe that you should to prepare for an economy that will
take at least 2-3 years to recover.

I look forward to seeing many of you at the Conference, as
we learn about strategies that will not only help us
survive but to prosper greatly in the coming years. A bull
market in the economy and in stocks will return, and when
it does we will have lots of dry powder to buy real assets
at incredibly cheap prices.

Kip Herriage
Editor, VRA
www.kipherriage.com