Market and Precious Metals Update
/As I forecast yesterday, the market had a fairly tough day today, ending down over 240 points. If the auto bailout does not take place…as the market is expecting…we could see a 500-1000 point drop in no time at all. I continue to believe that some type of emergency funding will get completed, but all bets are off for this bear market rally if it does not.
Look, I get the argument. The government (see taxpayers….you and me) has thrown away close to $9 trillion into insolvent banks, investment firms, credit card companies and other bankrupt financial institutions, so why not give another $100 billion or so to the Big Three? After all, this is chump change compared to what Wall Street has already received. In this light it’s actually hard to argue the point. We’ve become the bailout nation after all. And, with up to 10 million jobs that could be lost forever (directly and indirectly) if they were allowed to fail, our weakened economy simply could not stand the stress. No doubt about it, this would become the Great Depression II.
So, at this point we might as well give them the money…at least the Obama Christmas bear market rally would be allowed to continue.
At the end of the day, these chickens will come home to roost, and instinctively we all know where this is going to end. Going into 2009 we will have a combined national debt approaching $90 trillion, and the only way to pay the interest (forget about the principal) is to turn the printing presses on as fast as they will run. I read a study today that showed that in the history of all currencies, only 23% have avoided total collapse. In other words, they each wound up as toilet paper and completely worthless due to massive currency inflation….which was brought on by an overwhelming debt load. Sound familiar??
So, our first major bubble was the dot-com boom and bust of the 90’s. This was followed by our second major bubble in real estate, and we see how that’s ending. Now, the final bubble to pop will be in debt and currency. This is just a guess on my part, but I look for the US dollar, most foreign currencies, and all of this massive debt to begin leaking serious air in the first quarter of 2009. This will be the “tell”, for all you poker players, that the next big leg of the bear market is upon us. Once this starts, the FED will REALLY turn up the printing presses. Then, interest rates will begin to spike up sharply and the US dollar will resume its bear market.
Folks, if this scenario plays out, and I see very little chance that it will not, the bear market we’ve seen so far will pale by comparison. If someone has an alternate theory I’ve love to hear it…and I would love to be wrong.
In advance of this admittedly bleak scenario, I am completing research on 3 different investments that will enable us to make some truly extraordinary profits as the a) US dollar, b) US Government Issued Debt Instruments, and c) US commercial and residential real estate begin their multi-year bear markets.
The US dollar and government debt have been THE place to have your money during the recession so far, and when they reverse course, the gains that we will make will be seem almost obscene. The smart money is already beginning to circle like vultures, and once they start their descent, we will make our move as well.
Remember, there is always a way to make money, regardless of market conditions. Outside of the short term moves we’ve made using SDS and SSO, along with our core positions in precious metals, I know that many of you are getting tired of having your money sitting in cash. But the time will soon come to put it to serious work. And hey, in the meantime, you’ve been in the best investment possible, because cash truly has been king. You’ve profited not only from a huge move higher in the US dollar, but as deflation continues to make its way through the economy, your dollar now goes much further than it has in recent years as the prices on just about everything consumable drops by about 10% per month (outside of food prices maybe, but those have begun to drop quickly as well). You should consider yourself a very smart investor for these very reasons. Mensa club smart, no doubt about it…
Precious Metals Update
A recent quote from Citigroup says gold could rise above the $2,000 level as the world unravels according to an internal client note from the company.
In that note Citigroup said the following:
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of 2009 as central banks flood the world's monetary system with liquidity.
The bank said that the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before.
This gamble will likely end in one of two extreme ways: with either a resurgence of inflation, or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush to gold.
Remember, this came from Citigroup folks….as mainstream as they come. Make sure you have your precious metals positions in place…at least 20-40% of what you ultimately intend to own. I don’t know exactly when the explosive move will take place, but I have little doubt that it will happen.
Finally, I look for the bear market rally to resume this week, so use the buy list from yesterday. If the auto deal doesn’t get done, then the rally will become a stampede lower…somehow I don’t think the new Obama administration is going to let this happen.
Until next time,
Kip Herriage, Editor, VRA
