Agoracom

2008 Year in Review and Outlook for 2009

I could’ve sung “It was a very good year for me in the markets if not for one big blunder - mining and exploration stocks. Foreseeing the economic and stock market crisis in October 2007 and urging reads to sell all stocks (except those related to precious metals) and actually shorting the stock market (and covering just under 8,000 on the Dow) proved to be an almost perfect year. Unfortunately, my black eye came from the annihilation of the junior resource stocks. Even knowing what I know now, I would still find it unfathomable that these stocks could nearly totally disintegrate. It does prove one thing - I put my pants on one leg at a time just like everybody else

Those of us who fool ourselves into thinking we can predict the future on a regular basis by looking into a crystal ball really end up learning only one thing: how to eat broken glass. With this in mind, I will attempt to look out into 2009 and beyond. Keep in mind that if I had any real degree of certainty, I would be writing this from my own island in the Pacific.

The Big Picture- When it comes to the good old U.S.A., I believe there’s one overwhelming view one must take despite all the political rhetoric and “I’m okay, your okay” from the “Don’t worry, be happy” crowd on Wall Street; America is trying to operate on a failed business model. While doing so, Americans have truly mortgaged their futures on a far worse situation than the sub-prime fiasco.

While there should be more bull markets to come (hopefully in our lifetime), I think one must understand that the crisis we’re currently in is going to be just a pimple to what our children and grandchildren are facing. This 30 minute video will go a long way in explaining the disaster facing us not too far down the road. I urge, no make that implore you, to send this video to everyone you know. I know in my heart it’s true and truly a prophetic message for the 21st century. If you can’t accept these findings, I don’t believe you should take any more time reading my comments.

Okay, I assume since you’re still reading, you’ve accepted the facts, figures and estimates given in the video. The $64,000 question (if our government handles it the question could likely be $6 trillion) is, “What should one do going forward?”

Praying is a good start, really. As David Walker said in the video (Davis is America’s 21^st century financial prophet), we’re suffering from a fiscal cancer and the cure is nowhere to be found. I doubt the average American is not only unaware of this, but even if they now were, dealing with the current crisis has already been too overwhelming. I doubt very much they have the stomach to do anything about this cancer any time soon. This is only going to add to the problem in the future. Read

After you’re done praying, I think there are some cold hard facts we must make part of our future planning:

• America is a fallen empire. Its ability to be the world’s #1 economic power is gone. We’ve gone from the world’s biggest creditor nation to the world’s biggest debtor nation. When we add the tremendous debt of states, municipalities and consumers themselves, we see the American people drowning in a sea of red. This debt will greatly impair our government and our fellow Americans’ ability to operate and to live a lifestyle (Listen to video) that has become unsustainable.
• Uncle Sam is no longer the world’s favorite Uncle. In fact, to many in the world, they hope he never comes to visit again. The loss of political and economic clout may not be seen in our daily lives, but it will impair us nevertheless.
• No matter what any politician tells you, taxes can only go up. Medical costs will continue to rise sharply. Government services will either be curtailed or end. On the State and local government level, things are actually worse because they can’t print money.

Pandora’s Box is the 78 million baby boomers that have already started to qualify for Social Security and soon Medicare. As this video will show, they are going to be an economic tsunami to the Social Security and Medicare system. (Watch this video. It was made “before” the credit crisis). 60 minutes video

The financial playing field going forward is unlike anything ever faced by Americans. No matter what the financial services industry tries to portray (and the airwaves and print media is full of things can only get better predictions), the pieces that make up the playing board are mostly landmines that can wound or destroy players. Opportunities to profit will still exist but the methods used to capture them will be radically different.

2009 Outlook - What a difference a year makes. Last year at this time, the overwhelming majority of professionals and individual investors still had no real idea what was unfolding and before them. I find it ironic that the vast majority of so-called experts who are calling for a much better 2009, were the same folks who failed miserably in 2008. I guess one of these years they have to end up right.

Being the bearer of bad news is not profitable nor a way to win friends. In October 2007, when I suggested selling everything but precious metals and going short, the vast majority couldn’t phantom the coming carnage.  And, even if they thought it was possible, their advisors talked them out of it. The professional community touted “Buy and Hold” as the savior to all portfolios. “It always comes back,” was their spiel. You would think the world would beat a path to those few who had the foresight to see it beforehand. Unfortunately, most investors are like a herd of deer in the headlights and/or are hoping “it always comes back” happens one more time (then they can run to for the hills).

One of the major problems with so many people “stuck” is they will indeed be sellers if they’re fortunate to recapture some of their heavy losses. The problem there lies in how much more percentage-wise prices must rise versus what they fell in order to get whole again. Another related issue is time. It is one thing for a 30 or 40 year old person to wait it out, but so much of the nation’s wealth is held by seniors. These folks have not only seen their wealth cut in half or more but have seen decent fixed income rates fall tremendously. We also have so many people who have had financial plans that used an 8%, 10% or more rate of return target in order to reach their “dream” retirement. Those dreams are now nightmares that aren’t going to disappear overnight.

There’s going to be an ample supply of equities for sale if and when the stock market rises.

One thing is for sure, the book DOW 36,000 is now strictly a collector’s item.

U.S. Stock Market - There’s good news and bad news. The Good? I don’t see another 50%+ drop from here. If it did occur, life as we know it has gone from bad to worse. The bad? Despite an avalanche of “bottom is in, bottoming process underway, we’re going higher yada, yada, yada” forecasts, the “Don’t Worry, Be Happy” crowd is going to see membership continue to dwindle and it’s public mouthpiece, CNBC-TV, will be searching for new bulls as recycling of old ones no longer works.

On December 16, 2008, the Fed fired what history may show as their biggest silver bullet through a cannon but it did little to change the uphill battle. Yes, the positive spin will continue and be enhanced by the Obama “magic carpet ride” but the overwhelming bearish fundamentals should continue to pressure the market for the foreseeable future. A minimum retest of the lows around 7500 is likely in the first quarter and, depending on if it holds or not, will go a long way in deciding if I jump back in.

What’s lost among the sea of wounded bull cries is that in bear markets like this, not only do we see deleveraging but also shrinkage in multiples people are willing to pay. S&P 500 forecasts for 2009 range from about $65 to $80. I think the market can bare a 15x multiple at best and depending how bad things get, as low as 10x to 12X. That means the S&P 500 could see a low of 650 or a high of 960. It’s currently around 895. In this scenario, buying the dips and selling the rallies seems to be the only way to make money in equities as a whole. I do think oil equities are going to become attractive sooner rather than later. I also believe if and when equities in general are worthy, overweighting in foreign markets versus the U.S. will be the way to go (one reason for this is most countries are cutting taxes while the U.S. can only raise them. History has shown raising taxes are not good for the economy).

Gold Investment Comparison Chart

Precious Metals - TOUT-TV (CNBC) and the like continue to spew out how gold failed to fire in 2008 given all the turmoil. Let me ask you something, if your house was in the middle of a big hurricane and after it was over, it was the only one still standing and sustained no real damage, would you care about anything else?  Of course not. If one bought gold on January 1, 2008, instead of any other investment, they would still have everything they had come January 1, 2009. How many people wish all they did was break even in 2008? Gold continues to offer not only that result, but gains of 20% or more in 2009, IMHO.

Silver is a base metal but still gets bundled up with precious metals. Like in 2008, I think it will mostly follow gold versus lead it.

Platinum appears to have seen its lows and while the upside may be limited in 2009, so appears the downside.

Base metals - I’ve been bearish on them for about two years. As we begin 2009, there isn’t anything to change that view other than further declines which could bring us to the point where accumulating them for 2010 and beyond could be worthy. Stay tuned.

I do think uranium has bottomed and can work its way back to triple digits in the next 24-36 months.

Oil - I threw my hat back into the bullish camp in the waning days of 2008.

U.S. Dollar Index - I’ve had a constant saying for the last few years that “the only party that doesn’t know the U.S. Dollar is dead is the U.S. Dollar. “If I was wrong and it was only sick, trust me the trillions of dollars being created and pumped into the system was its death warrant. Pity the poor souls on Tout-TV who say the Fed will be able to remove these trillions of thin-air created dollars from the system without causing inflation. If you believe that one, you should join those who believe Elvis is still alive and on an island somewhere with Jimmy Hoffa. Look for a test of the low 70s by years-end, if not sooner.

U.S. Treasuries - The one remaining bubble that should burst in 2009 (watch). While the 10-year can still get below 2% yield, the time has come to short treasuries. We may go down before going up, but by years-end I think this strategy can be a winner. Read

Mining and Exploration Shares - Can it get any worse? Since I didn’t think it could be this bad to start with, maybe I’m not the person to answer this. I do know gold is doing well, mine production is falling, new big discoveries are few and far between and someday juniors will be needed again to do the grunt work (hopefully in my lifetime).

I’m gathering updates from our client companies and hope to bring them to you ASAP.

Closing Comment - Most of us have made another set of resolutions for 2009. And most of us will sooner or later failed to keep them. Why? I believe it’s because we try to do it with our own strength, not God’s. Never in the history of mankind has the world seem on the wrong path. Many will suffer. I truly believe the only saving grace comes from the Creator of all that was and is good in the world.

They say you can’t guarantee anything but death and taxes. I’m going to guarantee you one more thing; Trust and love God with all your heart and do the same to others and life will become much easier and enjoyable no matter what.

“Put your hope in the LORD, for with the LORD is unfailing love and with him is full redemption.” Psalm 130:7

Barring anything major in the markets, this should be my last update for 2008. Rest assured if something of significance does break, I will address it.

U.S. Stock Market - I noted in my December 16^th update that a 1,000 point move in the DJIA was possible after Bernanke threw his latest “Hail Mary” pass and the “Don’t Worry, Be Happy” crowd on Wall Street was hailing it as the “Second Coming” (even though it was the umpteen time they have said so). I noted that despite all the cheerleading and pom-poms by them and TOUT-TV (CNBC), the market had still not managed to get over 9,000.

In just five trading days, we’re already halfway to the 1,000 point move. This time around a sharp five day decline took place in a virtual silent-mode and is now lower than where it was when the Fed shot what may be their last silver bullet through a cannon.

8,000 is the next key support area so stay tuned.

Oil - I’m on the bullish side again at $36.50. Some momentum indicators of mine are suggesting the decline is losing steam and oil is deeply oversold. I continue to shy away from oil stocks until such time I enter the long side of equities in general and/or oil breaks to $30 or below.

Gold - Very thin market conditions so don’t make much of any pop or pull back until the New Year.

U.S. Dollar Index - The bear market rally has been crushed and sometime in 2009 we should be seeing the lows of earlier this year tested.

I continue to avoid base metals, but like silver and uranium.

I’m hoping for all our client companies to bring us up to date by early January. I will then update you.

Some interesting reading

As noted a few weeks ago, we were entering a highly seasonably favorable period of the year for the stock market; A.K.A the Santa Claus Rally. The mortally wounded bulls are hailing this as yet another bottoming process. I can’t remember if this is the ninth or tenth one (there’s been so many all the way down from 14,000 on the Dow). While the DJIA rally has been contained under 9,000, one could start to argue a reverse head & shoulders is forming (a bullish pattern). If not for the horrific economic picture, I could buy into this development. I continue to hold onto my feathers as I sit this out in my chicken coop.

Gold has rallied nicely off dollar weakness and continuing strong physical buying. The “Talking Heads” on TOUT-TV can knock gold all they want (and they do) but it has held its value through 2008. I bet these salespeople/anchor personnel wish their 401k did as good. Let’s see how well gold does when the dollar consolidates its losses.

U.S. Dollar - The top I called for appears to have been put in. We can see some consolidation this week but make no mistake about it, Uncle Sam’s paper is only going to get cheaper in 2009

Oil - Things are getting quite interesting. We fell from $140 to $50, which was an area of support. It hardly bounced off $50 before breaking down and heading straight to $40.50. I said that was a multi-year major support zone. Oil was deeply oversold and the rally back to previous support at $50 was a typical technical pattern. The failure to hold $50 and fall back to $45 strongly suggests that unless OPRC does something beyond dramatic, not only is $40 likely to be tested again, but it may break that support as well. Stay tuned.

Interesting article on mining shares

Speaking of mining shares, two of my biggest personal holdings and companies I highly profiled, had news today:

• Mitsubishi Corp. Surpasses 10% ownership in Northern Dynasty (AMEX: NAK)

http://www.sec.gov/Archives/edgar/data/877197/000095014208001986/sc13ga2_ndm.htm

What’s interesting about this filing is to go from 9.9% to 10% was only a buy of 1,500 shares. The cost to file this action cost more than that. The rule is once you hit 10% you’ve to file on any increase that takes you up another one percent or more. This means if and when they acquired 11% they have to file. Then 12% and so on. It’s just my guess but I anticipate we’re going to see another filing before too long. They can go to 19.9% without triggering NAK’s poison pill.

• Geologix Explorations (GIX-TSX) announced the following; There’s no question that the credit crunch has hampered the ability to raise capital and/or structure a deal that can complete the purchase of the option. Having just 60 days makes it more paramount. There’s nothing to do but await the next 60 days and see what management is able to do. 

U.S. Stock Market - I said going into Thanksgiving week the stock market was at oversold levels normally seen at or near a bottom. In fact, I was looking to get back in if there was a washout the Friday before turkey day. I noted both the week of Thanksgiving and the month of December is a highly favorable seasonal time for the market. However, with the economy getting bleaker by the day, I remained on the sidelines. People are asking me did I miss the bottom. My response is you can go broke trying to catch it. From 14,000 down, widespread calls for a bottom were a daily occurrence and if the previous low held for more than a few days or weeks, the street said that the bottom was in. They continually marveled how the market ignored bad news (like today) only to eventually take out the previous lows. Now the low around 7500 is being hailed as the bottom. For the rest of 2008 and perhaps as long as into March, it may hold. Most of the distress selling appears over for now. Despite a bad year, the Santa Claus rally will be the theme for the next couple of weeks. Then in January, all eyes will be focused on the inauguration of Obama. The natural human response will be a sense of renewed hope and the “Don’t Worry Be Happy’ crowd will play that up big time.

But before you break out the party hats and horns, let me play Scrooge and bah-humbug happy days are here again.

Much of the bullish reasoning (what’s left of it) is that we know we’ve been in a recession for a year and recessions normally never last more than a year or two. The market has always come back and this time won’t be any different. I believe the fallacy of this theme is this is not a typical recession where we’re going through a normal cyclical downturn. It’s an once-in-a-lifetime life or death mess that still has no end in sight and gets worse as time goes on. Another critical difference is we were a creditor nation through most recessions and now we’re the world’s largest debtor nation. In past recessions, the average America was not indebted up to their ears, had savings to draw on and wasn’t living anywhere near beyond their means as they were entering this mess. We’re also no longer a major industrial nation but now one that depends on large-scale consumer spending. Where does the consumer get the money now to spend? The stock and real estate boom is over. No longer can the American home be an ATM. They have no or little retirement savings and there’s no way easy credit is coming anytime soon. And I believe many Americans, especially those over 55, who are really scared now, are going to take the attitude of “Fool me once, shame on you. Fool me twice, shame on me” and become far more conservative of what’s left of their wealth.

I believe the course taken so far by government is similar to what Japan did after their stock market topped out near 40,000 (now under 8,000 twenty years later). They added massive liquidity, allowed interest rates to fall below zero, cheapen their currency, yet spent almost half of the last twenty years in recession. And they had substantial savings versus our mountains of debt.

I agreed that we’re not going to see another 50% down so if you want to join the crowd and say the worse is over, it’s okay. But to expect any major sustained rise where in a year or two all or most of losses are erased is foolhardy. What I do think is possible between now and March is a wide trading range of 7,500 to 9,500.

Interesting reading:

• Record Number
• Eight largest economy sinking fast
• IOUs
• Rise to Record
• Ponzi Scheme

Gold “A battle won is a battle which we will not acknowledge to be lost.” - Ferdinand Foch

It’s not easy being a gold bug these days. While gold has certainly held its ground in 2008, the combination of it not making much progress to the upside (with all the news we’ve been told would drive it higher) and the fact mining shares have been crushed, makes one feel gold has performed as bad as the Talking Heads on CNBC claim. Perhaps the most frustrating aspect has been the tremendous physical demand for gold while the paper market can’t get out of its own way.

It’s become fashionable for some to make fun (every day) of a small camp that has pounded the table about manipulation in the gold market. The track records of those who say nay to manipulation leave much to be desired. John Crudele, a writer for the NY Post, has a tremendous record of being ahead of the crowd when it comes to uncovering the truth and seeing where things are really heading. He wrote a great column about one of the regular smears CNBC does to anyone who dare claim markets are not fair and honest.

$700 continues to be the bottom in my book and despite seemingly the whole world against gold, I think it’s only a question of when, not if, we go to new all-time highs.

Interesting Reading

• GlenN Beck $2,000 gold
• Israel/Iran
• Losing

U.S. Dollar - I truly believe the Talking Heads can’t read charts. All I keep hearing is how great the U.S. Dollar is doing. It’s right where it was in October. If that’s progress, I can’t wait for a decline. I continue to believe shorting the U.S. dollar is a worthy speculation.  Link

Oil - As anticipated, oil broke down under $50 and fell sharply towards $40. As you can see, $40 has once been key resistance but has been key support on more than one occasion since then. If the economy didn’t appear to be accelerating to the downside worldwide, I buy first thing Monday morning. My thinking is this; Risk is $10 or so to the downside. If we went that low new exploration or increased development of existing projects would grind to a halt, which would give way to a bottom. Upside over the next 3-5 years is $100. Long time readers know over the last few years I said the “Peak Oil” theory was right, but it was not going to take hold until the next economic cycle. I feel more certain about that now than ever before. So, I’m going to see how we trade day to day hour to hour and will send out an alert if and when I feel it’s time to take the plunge.

Interesting Read

• OPEC
• Opportunity knocks
• Mergers

Mining and Exploration Shares - “An expert is a man who has made all the mistakes which can be made, in a narrow field.” Niels Henrik

That’s me when it comes to this industry in 2008. While I avoided base metals for almost two years, I fell on my face in the juniors. I have no excuses other than the boat I’m in is overcrowded. What I’m concern about is talk within the boat of throwing me overboard.

Little or nothing should happen here until the New Year. One piece of great news was Northern Dynasty’s resource update. It was fantastic. If there’s ever a metals market again in our lifetime, NDM should greatly prosper (where did we hear that before?).

U.S. Stock Market - Sorry to say it but the U.S. stock market is getting uglier. The “bounce” off the October lows have been feeble while breath is far uglier on down days versus up. Meanwhile, the fundamental news is getting worse. I believe Paulson’s “switch” from using the bailout monies to buy up toxic mortgages to ejecting it into banks, has been perceived as a slap in the face to Congress and that he continues to be flying by the seat of his pants (please read). This has caused the “Big Money” (what’s left of it) to feel things are far worse than what Paulson has been letting on (please read). The feeling is all the horrible fundamental news combined with the technical picture is going to take out the lows of October 10^th and another leg down will follow. I fully believe this so I continue to advise staying out of the market.

If and when I do go back into the waters, I’m likely to be over-weighted in foreign stock markets versus the U.S.. Russia, China and Hong Kong has my eyes right now. One sign of a potential U.S. stock market bottom is if and when the financial stocks(what’s left of them) lead the way to the upside. Please read.

Gold – The physical market remains incredibly strong while the Comex market trades as if physical demand was weak. As this article suggests something is fishy. I continue to suggest waiting on the sidelines with any new money until the paper gold price can climb above $775.

Base Metals – Still on sidelines and this appears to be the place until at least the New Year.

U.S. Dollar Index – While dollar spreads are continuing to be unwound, giving the dollar some support, upside momentum has waned. Once the short-covering is out of the way, I believe we shall witness a signicant fall in the dollar.

Oil – I’ve been on the sidelines since near the highs but I’m getting itchy to pull the trigger. I think the time may come if I’m correct about another leg down in the stock market. Stay tuned.

Mining and Exploration Shares – They too are likely to be pressured in a general stock market decline. We need gold above $775 to get some separation for gold stocks from general equities.

Special Notes of Interest - I’ve felt that an Obama win would lead Israel to attack Iran’s nuclear sites before Obama’s inauguration. Please read.

It’s becoming harder and harder for the average American family to cope. Please read and read and read

Yet another crisis brewing Please read and read

Unemployment is far worse than reported and will only get worse. Please read.

Good news and bad news regarding CNBC-TV. As I noted previously, I no longer have Bloomberg News so I’ve been forced to watch CNBC-TV with the sound on (but my mute button is getting worn out). I’ve discovered one show very worthy of my time-Fast Money. Real pros that aren’t mouthpieces for Wall Street firms and a reporter who seems to get it makes this the exception to the rule on CNBC-TV.

The bad news is I watched another farce by staff of CNBC-TV yesterday morning. The show Squwak Box had a guest on who spoke about the Plunge Protection Team or PPT. Immediately, he was attacked and was being discredited. Over the years we’ve learned publicly that our government has intervened in the currency and bond market but these fools can’t accept this possibility. I believe this is so because they’re so dependent on the “Don’t Worry, Be Happy” crowd for their paychecks and to accept this would mean their pals were not fully on the up and up. Also, the lady Ms. Quick was in diapers when the 1987 crash occurred and everybody and his mother knew the Fed intervened in the S&P futures the day after the crash, which helped the market turnaround. It’s a shame that CNBC-TV continues to have guest after guest preach it’s time to buy while people like Peter Schiff and others, who actually forecasted this mess, are not on. Sorry folks, but this is mostly Tout-TV. Watch video

As per the news release of Nov.17, Farallon Resources announced the First Quarter Fiscal 2009 results and provided some clarity on the short-term working capital situation as Farallon ramps-up the G9 deposit to the full design capacity of 1,500 tpd by January 2009. With cash and equivalents of about $16.9 million and a further financing announced on Oct. 17 with a net amount of $6.9 million. The company has well over $23 million in short-term working capital to get the G9 deposit into full production.  As well, with Farallon’s agreement with their concentrate off-taker, they have the ability to request advance payments in the amount of 90% of estimated concentrate value when delivered to the port.

With a recently announced (Nov.10^th) new 20-month mine plan that incorporates several ways to optimize efficiency at G9 including the use of open stoping mining methods. Farallon is well-positioned from a cash and operational perspective to not only weather the recent down-turns in metal prices, but to benefit from any upside in the metals markets. They intend to mine high grade portions of the Southeast zone at the G9 deposit, which the average zinc grade in that zone is 16.2% Zinc. Like any mining company in these turbulent times, it is imperative to maximize cash flow and minimize costs and Farallon’s management is doing everything they can to maximize the benefit to shareholders over the longer term. If you are a believer in a longer term bull market for metals, then companies like Farallon that can survive through these rough times, should potentially see the most benefit when things eventually turn-around.

Farallon’s advantage over its peers is that with both high grades in zinc and by-product credits in copper, gold, silver and lead, this should allow the G9 deposit to be a low cost producer of zinc. With a mine-plan that optimizes the high grade in the near future, it should allow Farallon to operate through 2009 and into 2010 with any improvements in the metals markets to contribute to the cash flows at the operation. From that point, assuming metals markets improve through 2009/2010, then Farallon can get back on track to enhance further exploration on the property to set up for the next stage of growth at the property.

Farallon is a client of Grandich Publications Disclosure

“Advice is what we ask for when we already know the answer but wish we didn’t.” 

Erica Jong

DJIA 8,943

Gold $734

U.S. Dollar Index 85.99

Oil $60.94

XAU Index 84.40

On Wall Street, you’re only as good as your last call. Since mine was to sell everything (except a small amount of precious metals related investments) and actually go short the U.S. stock market in October 2007 just two days after an all-time high (okay, so I stroke my ego a little), people actually think I know what I’m talking about.  (If they knew the killing I took in junior resources they may think differently). In the last month or so, I’ve spoken at several conferences, seminars, TV and radio interviews and most people say two things afterwards:

• I wish I met or listened to you last year
• I’m hoping to get my money back

I fully understand their feelings as most equity investors have seen losses of 50% to as much as 75% or more. The only killing now they want to make on Wall Street is to shoot their advisor (or themselves for going it alone). The truth is, even if they heard me back then most would have done the same as those who did hear me—nothing. Bad news doesn’t sell unless you’re selling dried foods, ammunition, cabins in West Virginia, etc. It’s also not profitable from a sales point of view because now those who listened to the bulls are like deer in headlights-frozen in their tracks. And now they are implementing the worst possible investment strategy: “hoping” to get even. Hope is a wonderful spiritual strategy but it stinks when it comes to investing. 

Longtime readers know how often I’ve spoken about how traditional financial planning is a flawed process, and how Wall Street and Madison Avenue have created a big lie that more money equals more happiness (and they can get you there). They would have you believe that the owner of the bus company must be happier than the bus driver, but in the real world we know that’s not true. Some of the happiest and most content people I have met are those with little or no big worldly possessions. The fact is that what has helped lead us to the awful mess we face as a nation is something I’ve said over and over again: America has been robbing Peter to pay Paul but Peter is tapped out.

Longtime readers also know I’ve used two videos that I felt did more to warn us of the mess we’re currently in, as well as what’s still to come:

http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml

http://www.youtube.com/watch?v=EtrwzdILTF8

David Walker quit in disgust and now works in the private sector. I believe he is a financial prophet and the day is coming when America will regret not paying him heed.

Shania Twain said more about the reality of how we Americans were living in her song Ka-Ching than all of the Talking Heads on CNBC-TV ever did.

In the 80s and 90s, America borrowed against its future because the great bull market gave them a false wealth effect. In this decade, the great pyramid game called the real estate boom allowed homes to be either an ATM machine and/or a selling opportunity to get a bigger and so-called fancier house. Like Shania and David said, we’ve lived way beyond our means and it’s unsustainable.

Like diet fads, the “Don’t Worry, Be Happy” crowd on Wall Street and the cheerleading CNBC-TV think this is just another blip and after a few quarters Happy Days will be here again. I’m sorry to say that a few decades of fiscal mismanagement, living for today at any cost, and the practice of removing God from our nation (unlike how our forefathers intended), has all led us to where we are today. Government bail-outs seem like a cure all but in the end, only feed the habit. We bailed out Wall Street for their greed and arrogance. We now want to bail out the Big Three carmakers who for years neglected to face what overseas carmakers have realized for years – the need to build far more gas efficient and smaller cars. It’s partly the fault of Americans, too, as we made Hummers and monster SUVs into status symbols. How far do we go in bailing out bad mortgages? And what about the person who didn’t go beyond their means and losses their job? Shouldn’t they also be bailed out now mortgage-wise?

Just when you thought we’ve seen the worst in blow ups, you better prepare for the next one- credit cards. Please read http://www.businessweek.com/magazine/content/08_42/b4104024799703.htm

Thanks to David Walker, we already know we’re on a collision course with an actuarial nightmare. Shania has clearly pointed out that the American consumer has acted like a junkie and is now being forced into cold turkey in what’s shaping up to be the worst economic downturn since the Great Depression. Financial advisors and investors have been weaned on “It always comes back.” Yes, that’s true, but those who invested in 1929 were not even until 1957. Can you afford to wait 28 years? How about Japanese investors who saw their stock market hit almost 39,000 in December 1989? How long will they have to wait? How many years did we hear the Japanese market was bottoming at 25,000, 20,000, 15,000, 10,000….? What’s the chances any of us will see the NASDAQ at 5,000 again?

The ultimate crime in investing is not being wrong but staying wrong!!!

Where do we go from here? The late, great Kennedy Gammage used to say, “Those of us who live by the crystal ball end up learning how to eat broken glass.” Only almighty God knows the future (and the rumor that he’s short is unfounded). My best “guess” is we haven’t seen anything yet economically. Third quarter GDP fell at an annual rate of 0.3 percent, led by a 3.1 percent drop in consumption—the largest decline since the 1980 recession. Consumer confidence is falling off the cliff and mass layoffs and job losses are now mounting. There’s a big difference this time around versus the 1970s, 80s, and 90s when factory workers bore the brunt of job losses. This time around, white collar workers are getting the biggest hit thanks to a much larger service-based economy. With consumers representing about 70 percent of the economy, we’re going to see a rippling effect for months or years to come.

Read this http://www.barrons.com/article/SB122428334019246203.html?mod=9_0031_b_this_weeks_magazine_main

U.S. Stock Market – They tossed a realtor off the top of the Empire State Building and all the way down she said the same thing – so far so good!  Just like a realtor will say it’s always a good time to buy real estate and a Chevy car salesman will say a Chevy is the best, rest assured most on Wall Street will always be buying. I’m convinced that the Archangel Michael could come to virtually all so-called market strategists and show them the market was going to collapse and these folks would either ignore him or, if they tried to tell their firms’ clients, their bosses wouldn’t let them. Think about it: if I was working as one of these strategists last October, do you think I could have said what I said? If your answer is no, then wake up and smell the roses. Your accounts at these firms can never ever get completely unbiased advice. What you have to ask yourself is why do you remain there?

A measure I use to value whether or not a stock market is overvalued is the ratio of total equity (including private equity) to gross domestic product. In the dark days of the 1970s, that ratio was 0.4 equity to GDP. That ratio peaked at 1.8 around 2000. It recently dropped to 0.8, but that’s still twice the 0.4 equity-to-GDP ratio of the mid-1970s

Can Obama come to the rescue? Change was his slogan. No offense, but like David Walker, I don’t think any politician will ever come close to doing what must be done. Only hoards of Americans coming together and demanding what Mr. Walker and others have shown to be the very tough, but only doable way, will we ever see true prosperity again. Read this article http://money.cnn.com/2008/10/28/magazines/fortune/babyboomcrisis_walker.fortune/index.htm

I’ll say it again: I can’t stand traditional financial planning. And what’s happening now is just one of the many reasons why. Mr. Walker speaks about the 78 million baby boomers. Many of these boomers had traditional financial plans done in the last ten years. And most of them were heavily filled with equities as one of the four sins I always speak about is chasing rate of return. I can assure you that these poor boomers (they weren’t poor when they first met their advisors) had an 8%, 10% or more “rate of return” target to reach their “target” to live happily ever after. Over the past decade, the Standard & Poor’s 500 index has returned a mere 3.7% (not including the latest debacle). You’d have to go back to the end of the 1970s bear market – or to the late 30s, to find a worse 10-year stretch for blue-chip stocks. Not only are these boomers now facing a major retirement hiccup, but I assume you realize the above average returns they now need to compensate for the underperformance of their “financial plan.” We’ve seen $2 trillion in retirement funds wiped out in just a couple of months. There are tens of millions of boomers who are going to have no choice but to work longer and/or settle for a much simpler retirement.

This past October 10^th, I felt the market had reached a temporary low and suggested all short positions be covered with the market under 8,000. Since then, I’ve spoken about a re-test of those lows before any real thought could be given to going long for a trade or longer. I still believe this is the best strategy at the moment. Stay tuned.

Please Note – If and when the time comes, I’m likely to suggest foreign markets over the U.S.  We’re not close yet, but just put that in the back of your mind for now.

Precious Metals – I think it’s time for us to recognize that gold is really the only true precious metal (sorry, silver bugs). That doesn’t mean we forgo silver or platinum, but they shouldn’t be in the same breath.

Gold continues to trade well overseas when the physical markets are open but almost like clockwork, once those markets close, it gets hammered more often than not on the Comex. $700 is key support and $775 key resistance. I think it’s wise just to stand aside until one of these prices is taken out and then we can address it.

Base Metals – I’m still on the sidelines and with the world economy sinking further, I think it’s best to remain on the outside looking in until further notice.

Oil – The low 50s appears to be where it’s heading and would offer real value long term from there. Oil-related shares would likely become quite interesting to me if and when we get there.

U.S. Dollar Index – I believe it’s forming a significant top once again but could still manage to get to 90-91, which would be the ultimate shorting zone.

Mining Shares – Other than relief rallies, not much should happen to the upside until the New Year or a break above $800 on gold.

Please Note – I plan on doing an update on our companies in the coming days.

I’m back from beautiful but raining Vancouver. Was delighted to meet many readers at the conference.

Just some quick thoughts on the markets.

U.S. Stock Market - The election tomorrow is likely to be the main story for awhile going forward. Meanwhile, absolutely horrible economic numbers continue to pour out. This is no ordinary recession so talk that the market has already discounted it is IMHO wrong. We haven’t even begun to see unemployment pick up steam. Consumers will only be more afraid to spend as both their neighbors and themselves lose their jobs (It’s a recession when your neighbor losses their job and a depression when you do). The market is working off the worse oversold condition in years-nothing more. Hold your powder for the eventual re-test of the October lows.

Metals- The recession worldwide seems to be picking up steam so holding off any committments to base metals is suggested. I’m concern about gold for the short-term. Once again overseas was much higher only to see it sold off once the Comex opened. The shorts seem to be gunning for under $700. I think the best thing to do right now is sit and buy gold only on strength above $775.

U.S. Dollar - It can still pop to 90-91 on the U.S. Dollar Index but I believe you sell strength. It’s not a question of if but when the Loonie is worth more than the dollar again.

Oil - It looks like it wants to go into the $50s. Only an early below average tempature winter or trouble in the Middle East appears to be what could stop such a decline.

Mining and Exploration Shares - Heavy selling appears to have abated but I don’t think we’ve seen the bulk of public tax selling yet. I think Northern Dynasty is in play. Stay tuned (I own shares of NDM).

I have to come clean. I’ve been watching CNBC-TV with the sound “on” for a few weeks now (forgive me Father). Throughout the vicious sell-off, one perma-bull ( That’s someone you throw off the top of the Empire State Building and all the way down they say “so far so good”) after another says it’s a buying opportunity (Don’t believe me, just watch, they roll them out every few minutes). Now after all these “buying opportunities” I’m not sure what the average person would have left but just like a clock is right twice a day, so will these folks be one of these days.

As you know I’ve been waiting to see if the lows of October 10th could be tested and hold before considering some “trading” capital to the long side (remember, trading is really gambling, nothing more). The last couple of trading days, the U.S. market has fared better than overseas and looked like it may finally take a breather to the downside, but ends up selling off in the final hour. Make no mistake about it the final hour is the most important hour in the whole trading day. One of the reasons I believe this is occurring is if you want to buy or sell mutual funds, your order must be in before 3PM. It appears there are still net redemptions so funds sell what they need to in the final hour. Technically, this is also bearish. Today we fell like a rock in the final 30 minutes. Stay tuned.

U. S. Dollar - One day does not make a trend but we need to watch closely if today was a key reversal. The dollar is way off its highs of the day. I believe it has risen mostly because of various previous strategies of shorting it and going long foreign currencies and/or foreign stocks are being unwound. One never knows how long this can take but how could anyone think the U.S. Dollar is better off than the Euro, Yen or Loonie long term.

Gold - A significant drop in jewelry sales, hedgefund liquidations, a rising U.S. dollar, falling oil prices and the usual games played on the Crimenex (Comex) have brought gold to key support of $700-$725. I think we should hold, especially if we had a reversal in the dollar.

Base Metals - Still watching them from the sidelines but another 10% or so lower and I think I’ll fall in love with them again after two years of living apart.

Mining and Exploration Shares - I continue with daily prayer vigils.

Please note I will be travelling to Vancouver on Wednesday and be speaking at Michael Campbell’s conference on Saturday (www.moneytalks.net) I hope to be around the conference from noon to my speaking time at 3:30PM and hang around after it ends. I hope to see many of you there. Remember, no guns or knives.

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