4 Recommendations to Defend Against a Financial Armageddon

Another week of all-time record high commodity prices and a fresh record low US dollar has had the expected result in US equity markets: the stocks of the commodity producers and export manufacturing sectors have led the way to a week over week gain in the broad indexes, but traders are focused on the macro picture and remain nervous.

Capital markets are operating in a stagflationary environment, similar to the 1970’s. The combined impact of slowing or receding economies and rising costs is that equity prices, which are based on inflation-adjusted corporate revenue, cash flow and earnings growth, are under pressure. Should inflation worsen, interest rates will rise, with further damage to economic growth and corporate earnings and net cash flow.

The problem has been caused by the massive increase in debt, on the one hand, without a counter-balance increase in economically-based sustainable asset prices. Phony asset prices, which had been used to support the debt bubble, were discovered as banks tried to rein in credit that had been expanding at rates that were out of control. In the typical credit contraction cycle, the parties that suffer most are business corporations and real estate developers that are over-leveraged, which did not happen in this cycle. This time, it was the banks and brokers that were over-leveraged on the basis of these phony assets they carried on their books.

A proper write-down of those assets to economic reality means that many of the financial institutions have capital reserves below the ratios permitted by regulators. In fact, there are concerns that should all banks write off these dubious assets, the result would be insolvency, which is to say a complete elimination of equity, and worse.

So, the big picture is looking bleak, and it is not one that can be fixed overnight or even in a month or a quarter. This problem will probably take a few years to resolve.

As the credit contraction cycle works itself through the economy, cash and unencumbered assets will continue to be king. Periodically, there are injections of liquidity by central bankers and by sovereign wealth funds, but these are mostly based on new debt, which is like pouring fuel onto the fire, stealing from the children and grandchildren of the future, and the elderly and others who are presently or soon to be in need of social assistance, all done with the intent that vested interests among bankers can be protected today.

At the heart of today’s economic and capital market woes is the unnecessary Iraq War. Nobel laureate economist Joseph Stiglitz and his associate sum up the issues in their book, The Three Trillion Dollar War. Others are saying this war will cost five trillion. The architects of this war attempted to pay for it, not in the normal course with an increase in taxes, but by a lowering of taxes and a huge push to base economic growth, and revenue from taxation from real estate construction, largely fueled by speculators and others who did not have the savings or incomes to afford it, and so who turned to easy credit that was made available by bankers who securitized these dubious loans.

As long as there was a conspiracy among bankers to price these real estate assets on fiction, backed by so-called insurance programs that work only as long as the credit ring remains intact, the beneficiaries of a strong US dollar, and low interest rates, such as the bankers, telcos and regulated utilities were able to lead equity market indexes higher. But as the real estate market peaked and headed south, and higher inflation set in, the US dollar started to plunge. Capital markets remained stable only as long as bankers could continue to sell their fiction-based assets, and the available excess capital went into bonds.

That process started to come to a conclusion in June 2007, and the big capital pools started to switch from equities to the most risk-free bonds, the US Treasuries.

Now, even that safety valve has come to the end as the yields have collapsed on short-dated US Treasuries to the point where in just four weeks, the yield on 2-year T-Notes has plunged from 1.90% to 1.48% and on the 3-month T-Bills from 2.17% to 1.06%. The excessive negativity moniker among bloggers doesn't hold water. The fact is that traders are simply prepared to earn little to nothing if their capital base is preserved at this point, and the T-Bill rate proves just how negative is the market reality.

These yields are massively under the inflation rate, so wealth is rapidly being destroyed. As soon as the commodity price bubble bursts (and it will since record high oil and precious metal prices are economically unsustainable and will crack, just like real estate prices cracked in the summer of 2005), a huge deflationary wave will engulf the world.

Writing his syndicated column Global Issues Sunday, David Crane points to the red flags waving when the International Monetary Fund warns that governments need to “think the unthinkable.” He opines, “Indeed, we could be headed for the worst financial crisis since the 1929 stock market crash and the Great Depression of the 1930’s.” Negative I might be, but not nearly that much so.

Where I see the credit crunch has hit home the most – the banks and telcos – traders have been selling to raise cash. In fact over the past six and twelve months the price performance in these sectors is the worst across the broad market: down over 3, 6 and 12 months -18.7%, -29.2%, and -31.3% for Financials (XLF) and -24.6%, -32.0%, and -26.6% for Telcos (IYZ), respectively. How can anybody be positive with such a disaster?

A week ago I asked rhetorically, “As a trader you have to ask yourself if conditions are likely to change in the next three to six months to where Mom & Pop start getting ahead financially, start spending again, and start saving and buying equities. You want to ask how the Telcos (and other financial income sources) are going to pay out high returns on capital without it being a return of capital. In addition, you want to know how the Banks can recapitalize their balance sheets without traders somewhere in the world taking on huge debt. Debt inspired by greed, after all, is the cause of the problems today.”

I am asked every day what my recommendation would be to defend against a financial Armageddon, and I will sum it up here:

(1) Go temporarily to a combination of cash, in the form of US Dollars held with the most secure financial institutions (preferably a Swiss bank outside UBS (UBS) and Credit Suisse (CS), which are international investment banks), and 3-month T-Bills, regardless of how low the yield is. (The minimum account size for private banking with Swiss banks is about $250,000 for those who are interested.) In the meantime, maintain small loans at various financial institutions -- if the interest rate is low -- because your continued payment of the principal and interest will put you into the most valued client category when the global financial crisis is ended and banks are seeking to issue new loans.
(2) Then wait for the crack in the precious metals market, which will come as most of these record high commodity prices are futures contracts based, which will fall apart when the credit ring snaps and counter-parties are unable to pay off. I’m now looking at $780-$800 gold, possibly lower, for example, in the months ahead. Yes, gold prices may go higher than Friday’s high of $1009 for $GOLD because the market is adrenalin driven at the moment, but if you are not a day-trader with your finger on the buy/sell button, it’s best you stay away.
(3) When precious metal prices, after the peak, spike down on the extreme sell-off days that I see upcoming, use that low price to buy physical bullion bars and coins for safekeeping, preferably in a private Swiss bank. For those who want the least exposure to the current financial crisis, I would not hesitate to put 90% of the cash into a variety of precious metals bullion holdings in safekeeping because even during the Depression era of the 1930’s, physical gold was the best performing asset class.
(4) After the global bankers appear to be resolving their crisis, and real estate prices and equity market prices have sunk to ultra long-term lows, which may take six months to two or three years to unfold, I would begin a program of selectively selling the precious metals and buying real property with rock-solid mortgages, probably in Emerging Markets, plus the stocks of Cara 100 companies that managed to survive the difficult economic period ahead. With that in mind, I would start to narrow the Cara Global 100 down to one in each sector, like: Exxon (XOM), Goldcorp (GG), ABB (ABB), Toyota (TM), Diageo (DEO), Glaxosmithkline (GSK), ICICI Bank (IBN), Google (GOOG), Nokia (NOK) and EXC, as examples. That list would give a global balance of very strong companies, and I would probably weight the holdings on average with the S&P Global 1200 sector weightings at the point of entry.

These are tough times. It will pay to keep cool. The publishing world today – both hardcopy and electronic – has stooped to a new low of vacillating from “cut and paste” to the shouting of idiots who managed to get themselves a piece of the entertainment media. There is very little rigorous analysis being done today. It’s mostly synthesis (i.e., storytelling) by people who really don’t know from nothing. The trouble is that transparency in the global financial system isn’t what those in control crack it up to be, and now that those persons are in deep financial trouble themselves, the public is being left even further in the dark.

As I wrote this week, the global liquidity crisis was brought on by bankers and the public ought to protect themselves by pulling their capital out of the market, which would send the system into crisis, forcing these bankers to sort out their various conflicts of interest and return us a legitimate capital market that is not controlled by debt market dependent financial services companies.

Comments

[Tony Soprano]

BUY TODAY!!! AND STAY LONG!!!

IT’S NOW THE FED AGAINST THE SHORTS. THE FED WILL WIN.

THE FED WILL KEEP THE ISLAND AFLOAT.

THIS IS CAPITULATION!!!

DON'T BUY INTO ALL THAT NEGATIVE THOUGHT ABOVE!

[phinsuntanning]

you reaaally trust in swiss banking eh? good luck to you, some yens can be helpfull too

[sammyg123]

Tony, put your entire savings in Dow Futures. I dare you.

[mmmparsley]

In many sectors, stocks are not subject to future writedowns, but many of these stocks are trading at or below book value. Although I am extremely bearish on financials in the short-term, I think many stocks, such as the companies more logically independent from consumer spending, with PEGs of .1-.2 are quite attractive.

I own a company right now with 24 million in assets which is trading for 14 million today. After writing off their unprofitable operations, they earned 800K after tax last quarter alone. With a real PE of 4 trading at 40% lower than book value, there is plenty of room to absorb an economic slowdown.

From a pure valuation standpoint, many companies are cheap right now. As more cash is injected into the system, that cash is likely to fall somewhere - and I doubt it will continue to be buying commodities unsustainably or a rush to lower 2-month treasury yields to under 1%.

Correct me where I fail in understanding...

[sammyg123]

The Fed won't win this. It's about the economy. It's going to take a long time.

[Albin]

@mmmparsley1 - which company do you refer to?

[sammyg123]

If the company that you own is a financial institution, then you may not know exactly what they have. You may think you do, but they still may have things off their balance sheets, and their valuations may be incorrect. So, you may not know what they have.

Also, commodities prices are up, and credit markets are frozen. This tends to put pressure on profit margins, since credit costs more and so do raw materials.

Further, the next shoe hasn't dropped yet. It's raining shoes nowadays. If they are that cheap, and you have a conviction about it, then go for it. Buy more.

And I do wish you luck.

[No Moss]

Well, we almost have a perfect storm. Falling home prices, unwillingness to lend or otherwise risk money, and unwinding leverage. The things we have going for us are good employment figures (sorry, is 5% unemployment that bad?), excess liquidity in money markets, stable inflation outside of oil, and rising exports because of the weak dollar.

The market savaged Bear Sterns in a way that indicates its extreme nervousness. The Fed has expressed at least a short-term protection policy for banks, including investment banks, by allowing them to borrow at the Fed window.

The only thing I'd say is that people will probably start moving back into the market as soon as we see sense a bottom. Then you may see some rapid movement up. A recession is already priced in. Hell, a depression is priced into the financials.

[Philly Jim]

Ever see the movie Idiocracy? I'm thinking gold could head towards 10k ounce as American prestige gets flushed down the toilet and our president trips over his shoe laces walking through the rose garden reading People magazine for "data." Mitt Romney was America's last hope to get the country back on track, too bad he wasn't dumb enough for this new American generation. Wait until Obama (Dr. Feel-good) gets in office, we will officially become a welfare co-op nation where an 8th grade education will get you a government job. If America doesn't get some intelligent, iron rod wielding leadership, the pot is gonna melt the stove.

[waking up]

Look at the movie ZEITGEIST...that explains exactly what is happening and who benefits and why they are doing it and have been for the last 80 years. Truely scary.
go to zeitgeistmovie.com
it is a free to all and beautifully made powerful movie

[gloria1234]

I had my English students in Shanghai read and write about F Scott Fitzgerald's "Babylon Revisited", in May 2007, commenting that I thought something like it [1929] could happen again. Most scoffed, as China's market was in the stratosphere then. One student told me privately that patriotic Chinese had been encouraged to invest in their stock market, so he had put in 1000 yuan, his allowance for half a year. He lost it all...The above comments notwithstanding, dare I say, I hate it when I'm right! Thank you, Mr. Cara, for your practical suggestions. I own FXF & will look into Swiss banks.

[keen]

I am not sure I understand how the war in Iraq caused the housing bubble.
How did it drive the prices of housing to all time highs and people to speculate and and creditors to give loans to people who could not afford them?

[soonindallas]

@9:20 I beg to differ. The only hope for USA was Representative Dr Ron Paul. Back Ron Paul for 2012.

[techzone]

Good article. But don't worry, the feds are going to push this crisis under the rug for until after November. The money being spent on the Iraq war is just paper, we can just keep printing..

[Bingo 2]

Vogel- the war caused this financial mess because we can not afford the 750 million dollars a month it is costing. Coupled with the morons in Washington who have no clue to stopping this landslide and a president who does not even understand the situation- this is why we are in limbo. As a Democrat I have to say- Ron Paul is the ONLY candidate who understands our financial situation. He is the only person who shows some financial common sense.

[john1]

Re: The Iraq war on “evil doers concept”. I think the point was that the “war on evilness” was funded with debt. As you Americans were already over your heads in debt when the “war” began, this method of war funding was – like everything else in your culture – optimist fantasy. Instead, your glorious draft dodging leader should have asking the American people to PAY for the “war on evilnessness” (pay, btw, means the odd concept of paying right now, with – like – taxes, deferred CURRENT spending; like the “worlds greatest generation” did for your glorious victory in WW2. I know, I know, a hard concept for normal Americans to comprehend now) .

Speaking of draft dodgers… Isn’t Romney the guy whose imaginary-friend likes America the best, who thinks the war is such a great idea but (amazingly) NONE of his children managed to enlist in the glorious fight against evilnessnessness, and made his money running some slime based consulting business? Sounds like the perfect American leader for this century, another BS spewing scam artists. I do admit that he looks presidential, however. And, I’m sure your peasant class would have been proud to continue sacrificing their own children for his continued glorious war on evilnessnessness, just as they do for their current leaders. Good thing so many of your peasants actually buy into the “survival of the fittest” philosophy and appear to enjoy getting screwed. We laugh at them continuously.

Speaking of fantasy... Would one of the Ron Paul cultists please explain to me WHO ELSE (meaning: other than himself) would help him run your federal government; one of the largest organizations on the planet? As Ron Paul is a Republican (or, what we’d call the Christian Fascist Party) wouldn’t most of the people chosen to run his administration come from the current pack of con-artists running things right NOW?

[notsosmart]

invest in ink &paper.also secure cash trucks to move the end product.

[keen]

aka_bozo : I'll bet "our peasant class" is better off than "your peasant class".

We get to vote and to choose between parties.

[john1]

Re: "choose between parties". It's even funnier as you actually mean it. Being "a peasant" means not knowing when you are one.

[WAKEUP]

This article is correct. The financial mess IS the fault of the financial institutions, and it IS correct to stop buying these companies' stocks. Cash IS king, and it is going to stay that way, for some time. Don't believe it? Fine. Go ahead, buy this slop. I hear Bear, Stearns is a good prospect... No, wait, that was LAST week.

[TAS]

Iraq causing the housing bubble, indeed.

Moveon.Cara

[Paulo]

The main point of the article is that the financial system is in crisis due to over-leverage based on phony assets.
At the macro level, that is true, but at the micro level as we look around what about Goldman Sachs shorting the paper it was selling its clients, what about Bank of Montreal losing hundreds of millions gambling on natural gas contracts, CIBC taking on as a counterparty what one commentator likened to having your 100 foot yacht insured by a middle class neighbour, Societe Generale losing 5 or 6 billion because of an improperly supervised trader, and so on. There is clearly a need for a secular Protestant Reformation here.

[poet1]

Go off the grid & be as self-sustaining as possible. Save your rubles now.

[keen]

aka_"bozo" , Your Pseudonym fits you better than you think.

[keen]

Paulo, you make some good points. Thanks for the input.

[Amidwesternneighbor]

"At the heart of today’s economic and capital market woes is the unnecessary Iraq War."

B.S.!! - the heart of today's economic woes is a huge bubble in housing prices (due to lax monetary policy, owners' buying beyond their means, and greedy/lax lenders). It's that simple. Leave your politics out of it...you're incorrect on them anyway.

[alltogethernow]

You forgot to remind us to stock up on the appropriate weapons to fend off our former neighbors and friends who may not have planned so well, and while starving through the future --you did call it Armageddon-- will no doubt seek our assistance. We wouldn't want to miss an opportunity to kill a friend to preserve our wealth, would we?

[gordon]

The Iraq OCCUPATION is $10 BILLION/ MONTH, that's $ 2.5 BILLION / WEEK . It is NOT a declared war, it was an invasion. Call it what it is.
This is "just paper" ?Those Marines who left here from San Diego for their 4th & 5th tours last weekend aren't!
If you don't get the author's point on Iraq, you are the Joe Six-pack, the kind the "GOP" depends on, I can assure you.

[pooramerican]

I like this article, and the author made an incredible call in the Dec. issue of business week so I tent to believe some of his predictions( I am rethinking re-entering gold) but I tent to agree with the comment that the government will consider and use all options, till Nov. at least.
The one thing I like to get others' opinions on is that one of the main factors that made the great depression the scary monster that it is is that the government did not step in to provide liquidity. The way I see things is that Bernanke did give it a try to see how "bad" the contraction expected would be and perhaps whether the system could adjust, that clearly failed and without the injections the threat of complete financial system collapse appeared eminent. There is alot at stake here and there are many scenarios but if we focus on 2 scenarios:
1-Let things deflate, let insolvent institutions go under. well that means A whole lot of wealth will be eroded. Wealth that will cost governments money. money they can easily print, but then we end up with a great depression followed by inflation?One of the most important things that will deflate here will be the american home , perhaps the only remaining source of wealth for the average american, causing massive demand on the government facilities to provide services.
2-Inject more debt into the system, keep things "rolling" and as the cycle of debt makes its way through, the average world citizen will feel the "recovery" and start feeling better. If you look at the bear cycles through out the last few decades, it looks like it keeps getting shorter because the government steps earlier.
I personally plan on riding the next wave up, then lighten up and either ride it down or wait for a support level to be reached. I think today we have seen the 11740 level hold up and it did last week too. if LEH does not report terrible news, we could see a mini rally for a few weeks.

[gordon]

I guess the previous poster meant $275 Million PER DAY, for Iraq, even that is now outdated, as a recent month was $12 BILLION for Iraq alone, and another $2-3 BILLION for Afganistan, not including Special Opps. here>
www.nationalpriorities...

[alltogethernow]

No, sorry, YOU did not get MY point. I was not referring to the Iraq war.

[Iraqvet]

I thopught long and hard about whether I should post this or not as I general stay out of politically crap like this, but it appears that way to much emphasis has been put on these war figures and, it was such a blantly cheap shot at the war by this author, for me to just sit and read as I usually do.
First off the war cost of $500B (which is actually on the low side, frankly) is inconsequencial when viewed relative to the economy, considering the Fed Res. is forking over $200B to inject liquidity over the next month, thats almost half the total cost of the war so far and there will be much more Gov. money than that comin in over the next year.
Second, what the author and this person above fail to realize the real cost of the war is not in dollars, its in human terms and more specifically, the cost will be so much more if individuals who have no idea what they are talking about continue to try to influence others with their mindless talk of the cost of the wars in dollars and cents. This type of reasoning, tryin to form policy based on popularity or MONEY, is what caused the Vietnam Conflict to fail and resulting in millions of people suffering AFTER the US pulled out. The ultimate cost of the wars in dollars is totally irrelevant and has no business being included in articles such as this, because A) it will pale in comparison to the economic cost the Fed will dole out after all is said and done with this crises. B) Funding the war had nothing to do with the mortgage bubble and C) becuase there is much more at stake than money.
Now can we get back to talking about the economy, housing and credit please?

[abcde_98]

Some of my comments respond to the author's article and some to other posters.

The US consumer is in for a reality shock to their standard of living and relativeness to consumers in other countries. I've said that back in 2006, but my point is: society and the US consumer wanting to have, have, have and so taking on debt, debt, debt.

US government is also not so fiscal minded. In layman's terms, the wars (Iraq, Afghan, and minor ones) have a cost, funded mostly by the USA. Who funds it? ultimately the US citizens, through taxes, reduced services, etc. The companies/citizens benfitting have been those in the defense sector...already the US was declining and one theory says wars create economic activity.

On the wars alone, the USA gov't has hurt its citizens for the next generation (starting say 2003, after not pulling out), through:
- worse standard of living
- paper ripped in half called the "dollar"
- protectionism and somewhat confinement/"jail... (how can you leave if your currency worth has been cut by 50%)
- social security system... it just keeps getting debated; no one in gov't wants to fess up and take the hit / pay up the money to fund the benefits that the US gov't promised

Having said that about the US gov't, China is getting lucky.
- Instead of psychologically warped teenage mids in the USA taking a gun to their school or local shopping mall, in China it is the gov't who takes guns on its people (this is not a religious point - rather sit down, talk it out, and be reasonable).
- China, being a communistic country takes care of its people, correct?? WRONG! Where is the healthcare for all? Where is the social security system? Come on China, you have a large surplus, why not provide for your people? By the way, many are at or near retirement age, oh why not keep the money in the country's coffers.


As for the Fed, and for companies who were greedy/lax, let the market decide. Should we all take our savings (or get that last minute loan) and buy shares in any XYZ company; and expect the Fed to bail us out? No.

The US peoples' standard of living has been pulled from underneath them. Carroll Quigley wrote "The Tradegy and the Hope" about the rise and fall of civilizations (money,power,etc) over time. The stock market may or mat not reflect it always, but when you have less than your previous generation, and want to take that trip to Europe or Asia and see that vendors don;t even want your currency anymore, those are telling signs. Hey, but you had it good when you living on someone else's money whilst borrowing..eventualy someone comes knocking to collect.

[SPDBRNR]

When he says commodities will crack and that 'bubble' will burst like the housing bubble, he fails to mention the fundamental forces that are pushing commodities higher. They are overdue for a correction, but I don't see gold going down to $800, unless the sh*t REALLY hits the fan economically...

History is full of empires that overextended themselves will expensive wars they couldn't finance, the U.S. is following that script. Our days as the pre-eminent world power are likely done - this financial meltdown is the start of a new world order.

[Rock NRoller]

His coment about Gold being the best performing asset class of the depression years contradicts the conspiracy theory in the movie Zeitgeist, where Gold was reclaimed by the central bank and thereby robbing many people of their Wealth. I understand that the US is printing money feverishly now to fund their wars and wars upcomming. All those billions are going to come back some day, the millionaire will become billionaires living in mobilehomes.

[Mr. G]

As a doom and gloom purveyor, your article overlooks the growth economies and how long these growth cycles wiill last. Putting your assets into cash is the weakest stodgy idea I have heard in todays market. The problem in the U.S. is not going to be shared by the BRIC nations and your ideas seem to be the product of a weakening faith in american financial institutions which I share, but I would never buy into your recomendations.

[Rick inSeattle]

Bill Cara has it pretty much figured out. The average citizen is tapped out, having borrowed so much against their homes and other credit. The banks overextended by lending 100% loans against assets (houses) that were due for a price adjustment, and loaning to people who just couldn't pay the payments. THIS CAN'T TURN AROUND in under a year because families are paying over $3,000 more a year on the average for extra interest, energy and fuel costs. That's how much less they have to pay for discretionary spending. Without equity in homes to borrow against, THEY CAN'T keep spending. Earnings in all discretionary sectors will drop and continue to drop for 1-3 years. Nothing outside of hyper-inflation will keep the S&P above 1000 in the next year. Hey, it hit 775 in 2003 and this is MUCH WORSE!!!

[slider]

i owned two homes in Denver during thier housing crisis in mid 80's and lost 40 to 50 percent on paper. It took 9 years before it begin to start turning around. Hang on for the ride!

[andrewpmk]

Yet another bear. Seriously, we have had 10 recessions since World War II and after every one, the economy has recovered and we have had sometimes quite spectacular bull markets. There's no reason that this won't happen this time as well, given that the Fed has been pretty aggressive with lowering interest rates and bailing out financial firms. As soon as the interest rate reductions which started in fall 2007 kick into full effect, which will take about a year, we will turn around and all will be forgotten. I bought some stocks in February, and I am planning on buying some more because P/E ratios are attractive right now and this talk of a Great Depression is simply absurd. Don't dump your money in gold or oil (which are bound to have a correction) or T-bills (because yields are less than inflation). If you have a reasonably long time horizon, this is a great time to load up on cheap stocks.

[zankaon]

The Fed has no authorization under law to open a window (line of credit) to any brokerage firm i.e. investment house. JP Morgan is a true bank of course. But not the brokerage firms. The Fed is providing a floor on downside risk for such extremely highly leveraged illiquid assets; then a victum of domino theory anxiety (remember Viet Nam and also the North Slope?).

[Augustus]

The reason Gold maintained value in the Great Depression is that the price was controlled by the US Govt. at a fixed rate. Look at silver prices - they crashed along with everything else. Cara is missing out there but the prediction of a metals and commodity price decline may come true. However, how can there be rampant inflation if commodity prices are declining? Beats me - Cara will have to explain it.

The amount spent on the war in Iraq is fairly small relative to the US economy. Claiming that a war on the other side of the planet caused someone here to refinance their home three times is pretty nutty. Making the claim that the war caused someone to sign up for a house payment that was greater than their gross income is also nutty. Feeding irrational thoughts to the followers only causes the less thoughtful ones to cheer. There must be enough of them to please Mr. Cara.

[88cupfan]

GIANT SUCKING SOUND! Remember who said it? The man tried to warn us where we were headed and noone would listen. I predicted that if we didnt finish off Sadahm in the 1st gulf war that we would be back in 10 yrs in a war we wouldnt be able to afford. Bingo! I was off by a year. There will be no gold at 800/oz as this author predicts because it will rise so high before it blows off that -right now-is the lowest it will be for a long time. The gold bull is still only in its initial stages and most investors still do not see it for what it is and that is currency. Currency when Fiat money becomes worthless and that is where the USDollar is headed. I predict that the US government will confiscate gold again as it did in the late 30s to back a new currency backed by gold again and call it the Amero. By then the spot price will be 3000-5000/oz. and certified numismatic gold coins that will escape the confiscation will rise toward the 5 figure level/oz. OUR FAKE MONEY WILL NOT WITHSTAND THIS CRISIS BEFORE IT TOTALLY COLAPSES! THE DOLLAR WILL SOON BE DEAD! GOT GOLD?

[88cupfan]

GIANT SUCKING SOUND! Remember who said it? The man tried to warn us where we were headed and noone would listen. I predicted that if we didnt finish off Sadahm in the 1st gulf war that we would be back in 10 yrs in a war we wouldnt be able to afford. Bingo! I was off by a year. There will be no gold at 800/oz as this author predicts because it will rise so high before it blows off that -right now-is the lowest it will be for a long time. The gold bull is still only in its initial stages and most investors still do not see it for what it is and that is currency. Currency when Fiat money becomes worthless and that is where the USDollar is headed. I predict that the US government will confiscate gold again as it did in the late 30s to back a new currency backed by gold again and call it the Amero. By then the spot price will be 3000-5000/oz. and certified numismatic gold coins that will escape the confiscation will rise toward the 5 figure level/oz. OUR FAKE MONEY WILL NOT WITHSTAND THIS CRISIS BEFORE IT TOTALLY COLAPSES! THE DOLLAR WILL SOON BE DEAD! GOT GOLD?

[abcde_98]

This comment for User_162919 and others who naively believe the Fed is the supreme solver of problems.

1. "The economy will recover in "12 months"". The ultra-wealthy will survive. The middle class? Some will make it, others will not. Standard of living has been chopped.

2. Consumers keep borrowing. You think you can live on someone else's finances all your life? AT some point the lenders smarten up.

3. USA vs other countries. "Oh, the economy will recover" Just wait until you go for that business trip or vacation abroad -- not just the higher cost, but some places "no want stinking dollar" (yes, a foreign vendor said those words!)

4. USA as powerhouse, world leader, etc. Too many nations (both eastern and western) do not agree with your policies. What is the USA going to do

...bomb them? first they will hide out and make you spend and spread your resources to come get them

...boycott their products? there are enough other nations that were savers vs debt holders that will buy from those nations. By the way, that family in a shack in central India has no debt, but some USA citizen living on debt for their life...is just that, in debt and has demonstrated they are no able to earn enough to pay off that debt (or just kept on spending)

... withhold goods? give some examples. clothes, cars, computers? you can buy those from a China

... withhold services? question is if they need the services.

... withhold commodities? what does the usa have? usa is an importer overall.

The standard of living in the usa is on the decline. (but let's talk about the economy, supported by a government that keeps borrowing, or when it feels the needs, prints its own money ... i guess the individual citizen would like to do that to maintain their prior standard of living).

[JJBlaze]

Way to blame the future for what has happened in the past. Anyone who is elected in the fall can not be blamed for blind eye this current administration has turned on its citizens. You voted for the GWB? If so, its YOUR FAULT!

[stockguy]

Buy currencies pegged to the dollar. The pegs will break. Buy Asian currencies. The dollar is crashing.

[O.W. JonesIII]

Iraqvet, If you are an Iraq vet as your pseudonym inplies the text below is for you or any other vet who might read this. What I've posted below is a copy of an email I sent this morning to a guy at work who has been called up and leaves for Afganistan next week. Leaving behind a wife and 2 daugthers in their early teens.

I wanted to drop you a brief note as it is unlikely I’ll make your send off Thursday. In several ways I was sorry to hear you have been called to duty, mostly because you will be missed by all. However, I can think of no better role model for your students and the others around you. While often thought but never stated nearly enough, you and all of those who serve do us all a great honor. I sincerely hope that you and all of your’ unit knows that. As you know some have misgivings as to why we have and are sending some of America’s finest into a conflict that is difficult at best to resolve. But never for a moment, allow this minority lead any of you to question the appreciation and pride we have for your sacrifice and actions.

You are all heroes in my book (and my families as well) and will be in my thoughts daily until everyone is home safely. May your tour be short and safe one.

To show that I’m not the only one that feels this way, the other night I was flipping TV channels on caught the last 10 minutes or so of Gene Simmons Family Jewels on A&E (I’m sure you have heard of the Kiss base player). He was walking his teenage daughter room by room through a VA hospital thanking the various patients/vets for their service and sacrifice. When asking by one vet what a rock star was doing there he replied “I’ve brought my daughter to see what a real heroes looks like”.

God’s speed

[eric hart]

Explain this to me: If "so much wealth is rapidly being destroyed. As soon as the commodity price bubble bursts (and it will since record high oil and precious metal prices are economically unsustainable and will crack, just like real estate prices cracked in the summer of 2005), a huge deflationary wave will engulf the world."
Then:
When will this happen, and why not posit that the world will be engulfed in a inflationary spiral?

Bernanke isn't called helicopter Ben for nothing. (he has written postion papers that state that rapid inflation is the way to avoid the Japanese style deflation). But I agree that the commodity super-cycle will end--but time frame is a critical component of your analysis.

Bull markets last around 17 years (aprox), and commodity supercycles last around 17 years plus or minus five years.

Mr. Cara, do you see a short term commodity spike, or a supercycle?

Your analysis is not clear on this point. And, where is you in depth analysis to back your claim that " a huge deflationary wave will engulf the world?" I can make an excellent argument that the opposite is the most likely outcome.

[azcaballero]

I've read many of these postings and one thing seems not to be considered. The oversupply of the US dollar through printing. The author suggests holding US dollars??? Why would I want to do that? The only thing keeping it from a Zimbabwe like collapse is that the Chinese & Saudis still trade their real goods for US confetti. In addition the Trillion or so dollars the Chinese hold in reserve and their USD linked RMB. The Chinese don't want to float because their trillion dollars will be worth more as paper fiber than as a currency if they do.

Oil has only increased in price since 2001 in Euro terms by a little over 200% yet in USD terms by 500%, and demand for oil has decreased in some reports by nearly 3%. What does the law of supply and demand tell us about this situationi?

I don't think people see the big picture, you know the old story forest for the trees.. The tree is the banking colapse the forest is the wortless reserve currency the USD. To back it up in 1933 1oz gold = US$20 and 2008 1oz gold = US$1000 a 5,000% reduction in value. For those who are just starting to see it have a look at the relationship between gold and oil and you see there is a direct correlation in price (more proof that gold is still real money).

What is really going on? Is it the war? Is it the lax and hopless monetary policy of the US? Is it the inept US governemnt, or the corrupt world bankers? Or all of the above? I think it is all these things egged on by eachother. The looser will be the urban poor, the winner is the guy that doesn't need government, but relies on themselves.

For the the author, #1 you said hold US dollars and in Swiss bank accounts no less. Is any one else out there asking as I am " Are you crazy?". What have you seen that I've missed to suggest that as a strategy. Buying gold sure, but with what, your wortless Federal Reserve Notes held in Switzerland?

My advice would be, to move your assets to something that will feed your family, like a farm you can't eat gold after all. Failing that, move to a country that is a producer like, Australia or Canada. (I prefer Australia with no winter to speak of). Now you need to act! I like electricity and beaches I moved to Australia, now what are you going to do?

[Ryan]

We are certainly approaching a financial Armageddon.

[keen]

Remember the post shown below. Thanks for the GOOD advice Tony.
It paid off.


Tony Soprano
Mar 17 06:48 AM
BUY TODAY!!! AND STAY LONG!!!

IT’S NOW THE FED AGAINST THE SHORTS. THE FED WILL WIN.

THE FED WILL KEEP THE ISLAND AFLOAT.

THIS IS CAPITULATION!!!

DON'T BUY INTO ALL THAT NEGATIVE THOUGHT ABOVE!

[High Yields]

Finally someone who can offer some real common sense tactics to survive the upcoming financial storm.

[tjschoenlein]

Sammy123.. the Fed always win, alway.. they got the bucks!

[jawz_2020]

"IT'S BUSH'S FAULT!"

{"At the heart of today’s economic and capital market woes is the unnecessary Iraq War. Nobel laureate economist Joseph Stiglitz and his associate sum up the issues in their book, The Three Trillion Dollar War. Others are saying this war will cost five trillion. The architects of this war attempted to pay for it, not in the normal course with an increase in taxes, but by a lowering of taxes and a huge push to base economic growth, and revenue from taxation from real estate construction, largely fueled by speculators and others who did not have the savings or incomes to afford it, and so who turned to easy credit that was made available by bankers who securitized these dubious loans."}

oh, PLEASE !! The current depression is all Bush's fault ?

R O T F L M A O

. . . stupid democrats !

AND WHAT WOULD THE CO$T OF LETTING THE HOLY WARRIOR JIHADISTS MELT DOWN OUR LARGEST CITIES AND FINANCIAL CENTERS BE ? ? ?

the fact that Warren Buffett supports the democrats proves that wealth is no shield aganist senile dementia, huh?

[retiredfemale]

It sounds like this guy is telling the truth. Everything I see on CNBC is buy, buy, buy, while the analysis articles I read say this crisis is far from over. I'm in cash and contra ETFs.

[johnthebear]

After a 420 up day and 300 down day, gold and oil dropping, it leaves one's head spinning. I think we are on the edge of depression, and I think the drop in gold is a "cleanser". I doubt that the price of oil will be down long enough to be felt at my gas station. Do you?

[User 166406]

The deal between JPM and BSC has not closed yet; the shareholders have not voted yet. Hence the firm is intact and open. So the firm and employees should deal with their liquidity problem by going to the Fed window like other brokerage firms have done. Kick out your alleged pseudo overseers, who are not the owners. If such moves are blocked, then go public big time. Are there any men left? Make it so.

[peon boy]

I thought when the war started our leaders said the Iraqi oil would pay for it. What happened to the oil?

As far as the economy is concerned I don't understand why people did not see it coming. Government takes your money and never gives it back. You have 28% of the adult US population who are Baby Boomers ready to retire. Thats 76 million American. They are expecting Social security and Medicare. The money is not there.

They were considered assets while they worked. When they retire they are considered "liabilities"... Now what does a business do with liabilities? It gets rid of them.

Boomers are marked for elimination. I mean if they have stocks in all these big corporations and start cashing them in then the big over priced and oversold corporations might feel the pinch. Can't have that.

They herded those people into the dot.com mania and busted it. Then they watched as the Boomers with any money left run to real estate and they busted that. Now where can they run? Where can they hide? Precious metals? Can they bust that? Not sure but their ace in the hole is to conficate the metals.

Yikes...what now? Go to the doctor and get drugged up and forget that anyone owes them anything. Yes the Baby Boomers have caused all this because they let government sell them on a dream that was never going to happen. They are being looted and have no power to stop it. Too bad the other generations have to go down with the boomers but we now live in an age where collateral damage is acceptable. But make no mistake about it, the war is not on terrorism.....the war is against the Baby Boomers.


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