At 54, I feel time is flying by and my mortality becomes more evident. They say that memory is the second thing to go. I feel like many things are going or already gone. Dizzy Dean once said, “I ain’t what I used to be, but who the hell is?” Amen, Dizzy!

One of the first things they teach you in driving school is never to go forward without first looking back. In order to “prophesy” (make a good guess), I’d like to first look back at what I’ve said and try to honestly self-evaluate my performance. No matter what grade I give myself, I put my pant legs on one leg at a time, too (and more slowly as each year passes).

As the year 2007 progressed, I continued to talk about how America was robbing Peter to pay Paul, but Peter was tapped out. I was waiting for the Fed to make one more easing move that I believed would be the last silver bullet in their arsenal to hold up a house of cards built on insane mortgage lending and borrowing beyond our means. I went so far as to point out that singer Shania Twain was bang on in her assessment made in her song “Ka-Ching.”

Finally, on October 14th, I issued a commentary entitled “Man Your Battle Stations.” I dare suggest just a couple of days after the U.S. Stock Market made an all-time high that one should sell everything except precious metals-related investments and even dared suggest shorting the stock market. I think it’s just as important to look at what was the general thinking at the time when such a forecast was made as to the actual forecast. The crisis about to unfold was not a widely-held belief nor was how close the world would come to find itself facing the abyss.

It wasn’t long before the house of cards came crumbling down. I didn’t completely escape, as I held junior resource stocks that got crushed and also suffered serious illness to the point it became truly life-threatening (we’ll discuss this in detail when I finish the book I’ve been writing).

By early 2009, the world seemed on the brink of economic Armageddon. Thankfully, my illness would leave me almost as quickly as it came. By early March, the stock market became so oversold that my technical work suggested we could see one of the biggest bear market rallies of all time. While I bid farewell to the bearish camp, I by no means was embracing the “Obama Mystique” that was engulfing the nation at the time. In fact, I openly stated (to much criticism via email and other means) he would prove to be the worst President ever. On March 6th, I left the bear camp. The market would end up bottoming just one day later.

As 2009 progressed and the market began to seriously rebound, I began to focus on a couple of numbers and time frame. I said my work suggested a run to 10,500 – 11,000 on the DJIA and both a market an economic peak by June/July 2010. Again, keep in mind what the current thinking was at the time.

Throughout the rally, I continued to say that while not in the bear camp (betting on a decline), I was in no way suggesting a new bull market was born such as the “Don’t Worry, Be Happy” crowd on Wall Street was peddling. My argument throughout 2009 and up until most recently was that we were in an eye of a storm, and at best that eye could last until June/July 2010 before the second part of the worst-ever economic, social, political and spiritual storm to hit America took hold again. It was my belief throughout this time period that the U.S. stock market was going to trade similar to that of the Japanese market from 1989 on.

As noted about a zillion times over the last couple of decades, I believe the vast majority of people who work in the financial industry are heavily tilted in their views to the “always positive” side of things. I truly believe you could toss them off the top of the Empire State Building and all the way down they would say the same thing: “so far so good!”

Per my June 29th commentary,whatever delusion of grandeur the “Happy” people had been able to muster to the sheep that always seem to follow them, died on this date. With that, my belief stated for months (if not a year or more) that the highs made earlier this year and the low made on March 9, 2009, could prove to be the top and bottom of the market for years to come (aka the Japanese market 20-year trading range).

Bottomline – It may seem too simple to some (and in this business many seem to need a long, drawn-out commentary in order for it to be a satisfactory conclusion), but at the end of the day America has lived way behind its means, has too much stuff and can never truly make any real headway until it comes to grip with this. The  fact that our problems have grown acute during a period when we moved away from who our forefathers placed their trust in is no coincidence.

The list of troubles is a mile long and while I will discuss some key factors in a moment, I once again state that we can’t and won’t solve decade’s worth of economic, social, political and spiritual problems in a week, month or year. There’s no quick fix (Obama’s misguided bailouts have and/or will prove that).

When it comes to the U.S. stock market, I feel pretty darn good about soothsaying its direction over the years and in particular the last two or three.

Go HERE and scroll down below the above to read Peter’s Rorecast on these specific Markets

U.S. Stock Market – U.S. Bonds – Metals – U.S. Dollar – Canadian Dollar – Oil & Gas – Model Portfolio

….no longer a financial event but rather an economic event.

Read full article HERE
Read summary  HERE

In this issue

• The U.S. is now 234 years old and yet over half the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago
• European bourses are slightly lower, ditto for most of Asia except in Japan and South Korea; bonds are rallying; economic data in Euroland and China coming in weaker than expected
• The week that was: the Dow is now down seven sessions in a row — a streak not seen since early October 2008; what we have on our hands is no longer a financial event but rather an economic event
• Hard landing risks in the U.S. rise further, according to the ECRI weekly leading index
• Where will the positive shock come from? Every single low in an equity market selloff occurred because of some major exogenous positive shock
• The Fed was pushing on a string, fiscal policy was pushing on a string, and now the bond market is pushing on a string too
• The problems with U.S. housing and mortgage market linger on
• A bullish Gene
• Do we have anything positive to say?

THE WEEK THAT WAS
The Dow is coming off seven losing sessions in a row, a streak not seen since
early October 2008 when we had a post-Lehman financial panic on our hands. 
What we have today is something completely different.  Rather than a series of cataclysmic declines, which one would like to see in order to hit a true capitulation bottom, what we have now is a slow bleed that must truly be painful for the bulls.  It’s almost like the sort of market we had coming off the peak in August 1987 that ultimately morphed into something big, and those that were prepared to take advantage of the eventual plunge profited handsomely.  Back then, of course, we had a ripping economy — the problem was one of Fed tightening and constricted liquidity conditions.  But when the plunge did come, the Fed had plenty of ammunition to kickstart the bull market.

What we have on our hands today is much more complicated.  This is not a financial event any longer.  It is an economic event.  The macro landscape is looking bleak and the leading economic indicators are rolling over, but this time around the Fed and the federal government have few options to restimulate the economy.  It’s not just equities but anything with a cyclical feel to it is sliding in price — oil fell 8.5% last week too and was down for five days running and is now bordering on $72/bbl.

The massive rally in the U.S. Treasury market is a signpost that bond investors see the prospect of another hard landing rising by the day, and at a time when underlying consumer price trends are already running below 1%.  The chance that we head into either outright deflation or a prolonged stretch of price stability is also very high right now.  And, deflation in a period of debt deleveraging is a disastrous development since it drives up defaults.  Indeed, solvency issues are a lingering concern, not so much with the financial or corporate sector, but at the State and local government sector — this is 13% of GDP and as such, the retrenchment to deal with the fiscal challenges is posing an ongoing drag on domestic demand.  All eyes are now on Jefferson County’s $3.2 billion in sewer debt — talk about a stinky situation — which is on the precipice of becoming the largest municipal default in U.S. history (see page B11 of the weekend WSJ).

Read full article HERE
Read summary  HERE

The Morning After: An Extreme New World

Right now, if you feel like you’ve awakened in a strange new world, you’re not alone.

The investment environment has changed over the past few years — and the change has been radical.

Today, we are in the midst of a massive global revolution — the East, reaping the benefits of its industry and thrift; the West, paying the price for its sloth and extravagance.

Former “Third World” countries are resource-rich, virtually debt-free and have vast cash reserves. And the so-called “advanced” nations — in Europe and the United States — are nearly bankrupt, drowning in debt; most available cash, borrowed or printed.

As happens every half-millennium or so, the economic sun is setting in the West and is rising in the East.

The New Reality

Moral lessons aside, the reality is that a revolution of this magnitude — the historic changing of the planet’s leadership — can be expected to impact the value of every conceivable store of wealth. And it’s only natural that these changes be as extreme as the events that drive them.

We’ve seen similar extremes in stocks as well:

Thirty-four months ago — in October of 2007 — the Dow was over 14,093. Just a year and a half later — by March of last year — it had plunged to 6,627, a 53% decline.

Then, in March of last year, the Dow changed course, ultimately rising to 11,019, posting a 66% gain in 13 months … only to change course AGAIN in April of this year, sinking to the 9,700 zone in just the last three months.

Moreover, judging from the rapidly deteriorating economic news, this is likely to be just the beginning of a far deeper decline — one that could take the Dow down all the way back to last year’s lows.

If that forecast proves to be correct, the Dow will have swung a total of more than 15,000 points since October of 2007.

And as you might expect, similar scenarios have been playing out in every other major investment market on the planet:

• The U.S. dollar crashed to all-time lows in 2008. Then, the European debt crisis took center stage. And for the past seven months or so, investors have been buying dollars and dragging the euro through the dirt. In the next phase, if those same investors realize that America’s sovereign debt crisis dwarfs that in Europe — and that the U.S. Fed has been counterfeiting dollars like there’s no tomorrow — it could be the dollar’s turn at the whipping post.
• The U.S. bond market is a huge bubble. Market interest rates — not just those dictated by the Fed but also those set in the bond market by real investors — have cratered as bond prices soared. But with our deficits bulging and our economy sinking, global investors may soon decide to flee from dollar-denominated bonds, much as they fled from European bonds this spring. If so, our bond bubble could also burst.

Why the Old Rules No Longer Apply

In this kind of environment, the old rules of investing are out the door.

Most buy-and-hold investors are subjected to the roller coaster rides of their lives; and, in the end, go nowhere (if they’re among the lucky ones who can avoid big losses.)

Look. After all the sleepless nights — and fanfare — of the past three years, the Dow is STILL down 32% from its October, 2007 highs.

After nearly three years of nail-biting volatility, most buy-and-hold investors have managed to wind up with far less money than they started with.

Worse: There’s no end in sight. Nothing on the horizon that even suggests a return to normalcy at any point in the foreseeable future.

Given these new facts of life, most inexperienced investors are frozen — unable to budge. And they often lose a lot of money.

Martin D. Weiss, Ph.D.

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