-- Posted Thursday, 5 March 2009 | | Source: GoldSeek.com
Welcome to the first edition of Gold, Toilet Paper, and Water. I was inspired to name this newsletter after the only investments I feel safe recommending considering what America is facing.
Gold, well this one is pretty obvious. Toilet Paper is the one creature comfort you shouldn’t sacrifice; you can probably do without the $4 Half-Caff Soy Mocha-Lattes. And of course water. I’ll bet that you can’t go more than 48 hours without that.
There is really no need to rehash the fifteen minute news cycle that you have been bombarded with. We all know we are staring into the abyss (can’t quite see the bottom of it yet). And I’m sure that the parties responsible will never be held accountable, either.
But let’s not kid ourselves that a recovery is just around the corner. That somehow these magical bailouts will actually result in job creation and economic growth. Keep in mind that the solution to a collapsing Debt Market being pursued by the Powers-That-Be is to borrow our way out of it. I’m going to go out on a limb and just assume that it will not work.
Here is where we stand in the first week of March 2009:
First, decreasing corporate profits due to higher input costs and inflation will continue to erode value from traditional stock and equity investments. The old “Buy and Hold” strategy will probably not produce measurable gains but will probably lose considerably over time. It is already obvious that there are certain sectors such as Automotive and Financial Services that you should divest from. I am anticipating that there are even more sectors which are closely correlated to these industries that will just get annihilated.
The Dow’s break below 7000 is only the beginning. Unfortunately for the general investing public, there are limited ways to take advantage of this downturn. The less politically correct way to say this is that until the regulators reinstitute the “Up Tick” rule, you the individual investor will continue to get hammered by large funds and traders whom are engaged in Naked Short Selling.
Second, I believe that the Real Estate Market in the United States has only begun to correct in terms of price and value. Furthermore, I am projecting a long term decline in values for real estate as market interest rates for lending move towards double digit numbers like we experienced in the late 1970’s and early 1980’s. Since real estate prices have historically been inversely correlated to interest rates, I think it will take a long time before real estate prices begin to stabilize, let alone begin to appreciate in value. However, the Treasury Market hasn’t exploded yet, so this hasn’t even begun.
Third, the above-mentioned bubble in the Bond Market is getting very close to bursting. As money has flowed out of other markets, it has been crammed into the perceived safety of US Government Debt, not to be confused with US Agency debt such as Freddie Mac and Fannie Mae. Because the demand for Treasury instruments has been so high the prices of these instruments has been bid to record price levels. This demand has developed a situation where the yield on some maturities has actually gone Negative! With more rescue plans, bail out plans, and liquidity injections to come, I am expecting to see a flood of US Treasury Instruments to be unleashed onto the market to finance all of the above mentioned programs. I just don’t know who is going to step in to buy them.
The end result will be an over supply of debt instruments without a proportionate number of willing buyers in the market place, thus forcing prices down and interest rates higher. I am not in the business of calling tops and bottoms in markets, I am just expecting to see a very sharp and fast decline in prices for the major debt instruments from where they currently are.
Fourth, stuffing your mattress with cash or keeping your money in CDs and Money Market Accounts will prove to be a losing proposition over time. While this is primarily a defensive strategy and you may be waiting for a suitable investment to place your money into, inflation will begin to erode the value of your hard earned money. It is not the Quantity of your money that is at risk, it is the Value. And if you consider the amount of money and liquidity being created, the stage is set for Hyper-Inflation to take off. I do recommend to all of my clients that cash is better off being converted to Gold or Silver bullion, not margined and not in paper.
As these scenarios begin to unfold, you are probably left wondering what you should be doing. How can you possibly make money in a Bearish Stock Market, a Declining Real Estate Market, a Debt Market Bubble that is poised to burst, and potentially a Hyper-Inflationary money market?
You have two options:
#1. Go “All-In” on the above-mentioned investment vehicles. If you really believe in the power of the Printing Press, Fiat Money, and because Mr. Bernanke has said so; we might begin to recover later this year – Yippie!!! (I am not recommending that you do this!)
Or
#2. Begin converting assets into tangible store houses of value that cannot be created in unlimited quantities via the Fractional Reserve Banking System.
Call me directly at 312-379-8093 to discuss.
Mark Pasek
Global LaSalle
PH: 312-379-8093
mpasek@globallasalle.com
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-- Posted Thursday, 5 March 2009 | Digg This Article
| Source: GoldSeek.com
