"No matter what happens, a huge market decline lies ahead. The current market strategy is a no-brainer - just as it was during March 2000. Aggressively sell-short the stock market. This time, NYSE stocks are as richly overvalued as NASDAQ stocks. This time around, the coming crash will carry all sectors of the market into oblivion."
Steve Puetz
I have this friend who dropped $2 1/2 million in the NASDAQ market crash. A few months ago he sold everything and got into gold stocks. Recently, he sold the gold stocks at break even and jumped back into the NASDAQ stocks. Fortunately, he caught the war rally for a good gain. Now he sold those stocks and took some profits.
I suspect he'll be back in the market again soon. He thinks he's investing. In reality he's gambling. He's rolling the dice in the stock market. Deep in his mind he harbors the belief that stocks will come back in a big way. He likes the excitement of making money in the market. He loves checking the stock quotes in the morning paper, watching CNBC and talking to his broker. It's highly stimulating to be speculating in the market and making money. He doesn't believe it will end because he doesn't want it to end. That sentiment goes double for the people in the securities business. They don't want those big paydays to end. They'll fight the bear market until the bitter end when the bear devours them.
In January, 2000 we wrote in our newsletter entitled Market Crash, "For those who think the stock market will never crash: Here's 20 Powerful reasons to believe there will be a panic....." First on the list was, "Unsophisticated investment practices are running wild." That's still the case today. All too many people are hooked on the stock market as a casino. How else can you explain stock buyers piling into overvalued stocks on every rally. What we wrote in January of 2000 is still the case today. "Time-tested measurements of value are totally ignored. Ten times earnings was a benchmark for stock prices in past decades. When the price-to-earnings ratio climbed much above ten, that stock was thought to be a sell. Under ten it was considered to be a buy. Now stocks at 50..... times earnings are commonplace." Unfortunately, PE ratios of 50 are still the norm while record low dividend yields are stuck below 2%. Most other important ratios are still grossly out of whack.
Three down years in the markets mean things have changed. Stock investors are less exuberant. But they still have the unremitting belief that a bull market lies just around the corner. Many of those who may have sold their stocks didn't sell their mutual funds. They're hanging on to them. But most stock fund managers are also breaking the rules of sound investing. They have portfolios loaded with stocks that are overvalued by historical measures. Their cash reserves are at historic lows. Meanwhile, investors who are primarily in cash or bonds are waiting with baited breath to pile back into stocks.
But stock investors have two strikes against them. Corporations who were huge stock buyers are out of the market. Foreign investors no longer wish to acquire U.S. stocks to the extent they once did. These were big players and a major factor in the bull market. Insiders must be worried about this. For every dollar's worth of stock that insiders in the ten largest technology companies buy, they sell almost $10,000 worth.
Right now market liquidity is not a problem and it may never be. But too much selling can lead to a panic. The Fed hasn't much room left to lower interest rates. This is their major policy for boosting the economy and it hasn't worked to date. Stock investors should ask what happens to stocks when the Fed can't lower anymore?
Virtually all stock investors remain convinced that we are near the lows, or have seen the lows. Under no circumstances do they imagine a drop of any significance below the 7200 low for the Dow. However, stock bubbles never fail to backtrack to the price levels that existed at the time the stock bubble began. If we use August of 1982 as a starting point, that would put the Dow at 776.92 and the S & P 500 at 100. That means that if this bear market acts like every other bear market that followed a stock boom, an 80% to 90% drop in stock prices is still in the cards. If we use the last recession low in 1991, the Dow will drop below 2500.
Our point is that risks are still much too high for you to stay in stocks. The potential for gain compared to the potential for loss (risks versus rewards) doesn't match up. Furthermore, with profits still declining, durable goods orders dropping, consumers retrenching, and crucial capital goods spending falling even further, the argument to buy stocks because of a pending economic rebound makes no sense at all. Furthermore, weakness in the dollar, aggravated by a monumental trade deficit, should keep foreigners on the sidelines and further depress U.S. stocks. A falling dollar reflects economic failure. If it is also true that the consumer comprises 90% of GDP, and the consumer's spending, borrowing and confidence are all down while their savings are up, any bullish Wall Street argument is pure bunk. With higher energy costs, the likely end of the refinancing boom, an insignificant tax cut and an avalanche of lost jobs, the question becomes how far will the consumer drag the economy down?
It's always been said that low inflation is good for stocks. But the Fed's attempt to rescue the stock market and pump up the economy is the rawest sort of inflating. As this money and credit extravaganza begins to show up in the inflation rate, we'll no doubt hear that rising inflation has now become good for stocks. It isn't. Higher inflation means higher interest rates, the ultimate death knell of the stock market.
You can learn about bear markets through bitter experience, or you can learn by studying past bear markets. History indicates that a bear market will be over when values reach rock bottom. That means PE ratios under 10. It means stock prices dramatically lower than today's levels. It means the end of buying on dips and holding for the long term. More than anything, it means that mutual fund sales will be dead for twenty years and that you, the stock investor, will never want to buy a stock again.
SILVER BARS AND COINS
We advocate the following types of bars:
10 Ounce. These bars are portable and are more attractive than the bigger bars. Some have a reflective mirror image or a flag design. It makes good sense to have a few hundred ounces of these 10-ounce bars on hand.
100 Ounce. This is the mainstay of the various bar sizes. Each bar weighs over eight troy pounds. There are numerous refineries that have made these bars in the past and we still have them made today. The bars are .999 pure silver ingots. We ship them in plastic buckets, five bars to a bucket. You know you're getting a lot of precious metal for the money when you hold one or two of these bars in your hands. You should buy at least ten or twenty of these silver bars and a hundred bars if you can afford it. They're liquid, easily traded and widely coveted. We'll buy them back when you wish to sell.
1000 Ounce. These big unwieldy bars weigh over 80 troy pounds each. They're too heavy to be shipped through normal means, so we recommend their ownership for storage. All of these big bars that we sell are stored with the former Republic Bank in New York (now HSBC, one of the world's largest banking groups). They've been storing silver for us for three decades without a problem. As far as I can tell, this is the safest storage in the world. It's in your name and its safety is backed up by one of the world's largest banking groups with very deep pockets. Thousand-ounce bars are a good way to own silver at a slightly better price.
Preferred Silver Coins. For those who like silver coins, we advocate brilliant uncirculated bags of Kennedy Half Dollars, Washington Quarters or Roosevelt Dimes. These coins are dated prior to 1965. They are all in bright and beautiful uncirculated condition. Each $1,000 face value bag contains 725 ounces of silver. A few of them are still in original bank rolls. We never have more than a few bags available. This is a great way to own silver.
Call us now at 1-800-328-1860 and buy silver, both for profit potential and to hedge yourself against uncertainty. Put at least 10% of your net worth into silver if you think there's one chance in ten that we're right. Get this all-purpose precious metal at today's still low prices. Industry wants silver and so do growing numbers of individuals. Call us today. 1-800-328-1860
To view these silver products on line click on the link below.