2010 - The Big Picture

Long time readers know that I preach the importance of individual stock selection. The market can be falling apart but as long as you own solid companies your investments will perform extremely well over the long run. Another way of putting it...It's a market of stocks, not a stock market.

Having said that, it is incredibly important to have a clear view of the macro environment...how is the overall economy (both in the US and globally) doing and how is it expected to do in the months to come? So...lets start there. It is vital that you understand this subject and where we are headed over the next 1-3-5...and maybe even 8- 10 years.  

Long term, I am very concerned about the health of both the US and global economies. Sure, China has held up incredibly well, but outside of this still communist country and maybe Brazil and Australia, there aren't many bright spots to be found around the world. And, once you dig a little deeper into China you will discover that if it were not for their massive government stimulus programs (which were more than twice as large as the US taxpayer funded bailouts), China would be in a serious recession as well. Of course, commodity rich countries, like Brazil, Canada, Australia, etc., have done well and for obvious reasons; the stuff they are able to extract from the ground has given them lots of valuable exports and reciprocal income. The truth is, if it were not for China and their decision to provide a foundation for the weakest global economy since the 1930's, we would likely be witnessing a global depression right now.         

As we enter 2010 the question remains; what happens when the "funny money" runs out? After all, at some point governments around the world will be unable to continue printing and passing out money to replace the spending that consumers are responsible for. And we know that consumers are still spending very little money...thats what happens when they don't have jobs. In the US, over 70% of our economy is driven by consumerism...the stuff that we buy. Globally, these percentages vary from as low as 40% to our high levels domestically.

Here's my prediction for 2010 on this most important of questions; As it becomes more and more clear that the US economy is incapable of bouncing back on its own, look for additional stimulus programs to be announced. And this exact scenario will play out around the globe. So, don't be surprised to see these idiotic decisions by the powers that be to move stock markets higher in the short term. In fact, this is one of the reasons that our markets continue to rise today, in anticipation of just this sort of action. These moves are already being made in Japan, which just announced a one trillion (yen) stimulus program tonight. And who knows, these massive bailout programs may propel stock markets higher for months to come. Following the 1929 crash, the government launched one bailout after another until many were convinced that the worst was behind us, only to see the stock market drop nearly 90% in the years to come. In Japan they have repeated just about every page from our 1930's playbook only to see their stock market drop from 38,000 to 8,000...80% + over a 10 year period. This has pushed their debt to levels that make it clear it can never be repaid. And once Japan begins to default, which will begin to happen once interest rates begin to rise, a domino effect will unfold globally with such speed and force that it will be breathtaking in its magnitude.

And this is the key....rising interest rates. Folks, they are on their way and they cannot be stopped. Hyperinflation is a word that few know or understand, but in the years to come it will become a household name...and it will bring a level of fear and panic that make the last couple of years look tame in comparison.

This is why I continue to discuss, educate about and recommend the Armageddon Trade to VRA subscribers. This is why we own gold and silver, gold and silver mining stocks, and its why we are short 30 year Treasury bonds. This trade will be one of the most lucrative of the next 5 years and one that I strongly believe should be a core holding for every portfolio.

This is the central plot line for the $50 trillion wealth transfer. The greatest transfer of wealth in history has begun....make sure you are prepared.

With crisis comes opportunity. In this case, a once in a multi-century opportunity. 

Kip