“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 10th, 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.
.jpe)
