What’s Coming Shortly Is Bad, But…

Sure, you’ve got some things lining up for the second phase of the Meltdown. For your consideration:

1) FDIC has run out of money so they’ve stopped closing banks they’d otherwise have to bail out. Ominous, as this strategy is not sustainable. [link]

2) CITI bank has lost $8,000,000,000 in their credit card business this year and are on life support. They suddenly shut off a bunch of gas cards last week.

3) CIT is the major provider of financing for small/medium business in US. They’re on life support, too. When (not “if”) they go under they’ll take the major source of jobs in the US with them. B-A-D…

4) People taking delivery of gold futures contracts from Sept are now seeing 22K (.916 fine) bars delivered instead of the required 24K (.999 fine) bars. The gold ETF “GLD” is required to publish a list of all gold bar serial numbers each day. 85% of these bars have gone missing from the list. [link]

5) J.P.Morgan and Deutsche Bank have offered bribe money up to 125 percent of the quoted spot price to holders of Sept. long contracts if they would take settlement in paper, on condition that the embarrassing affair will be kept secret. [link] JPMorgan doesn’t have the gold they were selling short!

6) Jim Sinclair’s Dollar Death Countdown started at 150 days. It reaches zero in 3 weeks.

7) The VIX (aka “Fear Index”) is the lowest it’s been all year [link]. No one is expecting anything bad to happen.

8) In the last month guess who’s announced plans for replacement currencies for the US dollar? China, Saudi Arabia, France, Japan, Russia, Brazil, India. The latest is Bolivia, Venezuela, Cuba, Ecuador, Nicaragua. [link] 

9) George Ure and the Web Bot guys have been warning about a major event/turning point Oct. 25 +- 1 week with an 85/15 probability of being financial in nature.

The following snippet is from George Ure (one of the Web Bot guys). Note the mention of the “#1 market timer for 2008 by Hulbert’s Financial Digest.” Hulbert’s reviews hundreds of financial newsletters each year and is highly respected…

Coping:  With the Bad Part of 2010

Had a most interesting conversation with Arch Crawford last night about what’s ahead, not only for the ugly part of this year’s market (wait a week or two and you won’t be saying “huh?”) but also about the really ugly part of 2010; which is you want to mark it down should show up sometime between late July and Early August of next year by his work.

Crawford has been writing a financial newsletter for about 32 years and was “ranked #1 market timer for the 2008 calendar year” by Hulbert’s Financial Digest.  What’s interesting about Crawford’s work is that it’s an astrologically based report – although other cycles are considered, too – which makes it interesting when a person (like me) is trying to line up periods where multiple predictive systems are all pretty much saying the same thing.

Just as the predictive linguistics work is pointing to big market moves starting as early as late Sunday (Monday in Asian trading time) Crawford’s work shows there’s a rough patch there.

But more worrisome is his take on the mid-2010 period.  “It’s about the worst we’ve ever seen,” he told me.

How bad is bad?

“Well, when something is worse than the Revolutionary War, World War I, the Great Depression, and World War II, that’s bad – it’s the worst I’ve seen the charts in over 200-years.

As he explains it, there’s Mars conjunction Saturn which will be in opposition to Jupiter conjucting Uranus all squaring Pluto.

Not that it means a hill of beans to me – I’ll take a GPS reading, thanks –  but because of the Pluto is where it is mid summer of next year the biggie stuff out there is likely to be planetary in nature.

Interestingly, this also corresponds to the predictive linguistics work what has the big showdown basically between good guys and bad guys there; a time when the global mass of humans will be seeking revenge/change/retribution from the PTB.

If you were sketching out a kind of mid-range path between Crawford’s work, Cliff’s linguistics work, Robin Landry’s Elliott (and then some) and trying to sketch out a trading path, it might go something like this:

• From late October till early/mid December, a good-sized market decline, perhaps testing the March ’09 market lows around Dow 6,627.

• Right after the first of the year, I’d be expecting a whole new chorus of “Good times are just ahead” and the ‘gloves to come off’ in terms of government control, imposition of group-think, and once the mutated swine flu comes out of the Winter Games, then lots of clamping down of people’s freedom of movement.

• During this period, I’d be looking for energy to ‘shoot the moon’ along with the precious metals – oh boy!

• And then as the social order collides with the globalist agenda over July-August, I’d look for the markets to be as bad as at any time in 200-years.

Hard telling how it will all play out, but the predictive linguistics would seem to fit this pretty well (they tend to state the most dire of language) but when other systems of getting a bead on the future start to line up, as I explained to Peoplenomics subscribers last week, that’s when I start figuring out how to be as we say here in Texas ‘all in’.

18 Banks Inch Closer to the Precipice

Standard & Poor’s downgraded the creditworthiness of 22 18 banks [link] including:
Wells Fargo “AA-“,
US Bank “A-“,
Fifth Third Bank “BBB” [what the ratings mean]

“We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions,” said Standard & Poor’s credit analyst Rodrigo Quintanilla.

Oh, this is getting interesting! The Street, Jim Cramer’s former company, offers free online bank ratings. I’ve checked ’em for years now.

Well, for 15+ years I had banked with Wells Fargo. There the nation’s second-largest bank by market cap, in deposits, home mortgage servicing, and debit card. I left them in 2006 when I discovered their outrageous exposure to derivatives. [Is Your Bank a Casino?]

I warned about WF (and others in the spring in 5 Banks Are “Dead Men Walking”.

Well, look where Wells Fargo is today:

Full report is here.

Anyone taking bets on how long they’ll last? I put my money on them being dead/sold off by Nov 26, 2009.

And if you bank with them don’t worry, the FDIC insures your deposits up to 250,000 per account owner.*

*The FDIC may take up to 99 years to return your money. [link] They (not you) will decide the payout schedule based on what they perceive as your need. And, only 1/4 of 1% of your deposit is actually backed with payout reserves. [link]

Governator Squeezes Trigger for Crime-n-Riots

I admit I’ve been quiet for quite a while here, waiting for that thunk of the other shoe. Plus, the road ahead isn’t just filled with potholes, to me it’s looking downright cratered.

Seriously.

Seriously B-A-D. I am more worried now than I was last August, before everything tanked. And, it’s cost me a lot of my admittedly-diminished piece-of-mind. I’ve been nearly paralyzed with foreboding these last six weeks, andI haven’t been able to bring myself to spend much time on this site blogging the imminent (further) collapse.

And California, the world’s 7th largest economy, could be the first car in the jerking roller-coaster ride to the bottom. He warned they have until June 15 to make draconian cuts or face insolvency by the end of July. [link]

What Will Trigger The Coming Riots
What do you think will happen in Califonia when the Governator cuts off welfare as promised? [link] Do you think crime will go up or down as a result?

And what message is being sentto the judicial system for California’s 36,756,666 residents when Arnold is releasing prisoners EARLY cuz the state can’t afford the incarceration expense? [link]

Is it crazy to foresee an explosion in crime, some of it violent, that escalates once the disenfranchised realize they “ain’t gonna do time” over petty crime? And, is it really that much of a stretch to envision the crime turning ever more violent as the masses realize the cops can’t stop it?

We are months (not even a year) away from big-city riots in this country.

Gun Confiscation Won’t Make It Safer
The ripples of GM’s bankruptcy and California’s crash will be felt from shore to shore. It’s going to be hard to hide from it. If you currently live in (or within a day’s walk for a hungry male) a large population-concentration things will get “I-wish-I-bought-that-20-gauge-shotgun” ugly for you if you stay one day past the tipping point.

I’m not the only one thinking like this: legislators in the Great State of Tennessee just enacted a law PREVENTING gun confiscation in the event of martial law [link]. Yes, that’s supposed to be a constitutional right but Tennessee doesn’t trust the Feds after what they did during Katrina.

Care to jog your memory a bit?
-ABC News vid showing the gun confiscation by troops.
-Watch the CNN video of a 61-year-old lady tackled by cops in her home while taking her gun.

Is There A Chance I Could Be Right?
Hmmm… check my track record on big-picture stuff. Looks like I notch another win with the bankruptcy of GM and selling of bankrupt Chrysler to “Fix It Again, Tony.” (Worst car I ever had was a 1969 Fiat850 Spyder. 2ndworse car was a Plymouth Fury III land yacht. Shoulda been a crime to sell dogs like these to struggling teens.) [My Predictions from Feb 2008]

Protect Yourself.
Protect your family. If you live in a larger city move (I did in 2004, but I always seem to be too early  to the party). This is often impractical so at least phone up a friend/relative living in an area with a lower population density and “joke” about coming to visit if TSHTF. Seriously. Ask him what you can bring that would make him happy to see you. 

Get other ideas from Checking Off My “To Do” List. Also look at Warnings & Advice from a Saint, Part 3 for 6 things you can do starting today.

America By 2012: 10 Dire Predictions

If this doesn’t make you think–make you want to prepare–I don’t know what will. From “Big Jake” on SeekingAlpha, “The Worst Case Scenario (Someone Has to Say It)” [edited for length]

Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side.

As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession.

Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range. A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity.

In January, recovery projections were pushed forward to late 2009. Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year. What are the chances that they finally have it right this time?

In the interests of providing you with an alternate vision—something outside the mainstream—below are ten predictions for America through the year 2012. This is not boilerplate doom-saying. Rather, I am laying out in highly specific terms what will happen over the next three-odd years. Others have thrown around the term “Depression”, but I am going to tell you precisely what it means for you, your investments, and your community.

Prediction one.
The twenty-five-year equities bubble pops in 2009: the S&P 500 will sink below 500. In a bid to stem the panic, the government will enforce periodic “stock market holidays”, and will vastly expand the scope of its short-selling prohibitions—eventually banning short-selling altogether.

Prediction two.
With public pension systems and tens of millions of 401k holders virtually wiped out—and with the Baby Boomers retiring en masse—there will be tremendous pressure on the government to get into the stock market in order to bid up prices.

Therefore, sometime in 2010, the Federal Reserve will create and loan out hundreds of billions of fresh dollars to the usual well-connected suspects, instructing them to buy up stocks on the public’s behalf. This scheme will have a fancy but meaningless name—something like the “Taxpayer Assurance Equities Facility”. It will have no effect other than to serve as buyer of last resort for capitulating smart-money types who want to get out of stocks entirely.

Prediction three.
Millions of new retirees—including white-collar people with high expectations for a Golden Retirement—will be left virtually penniless. Thousands will starve or freeze to death in their own homes. Hundreds of thousands will find themselves evicted and homeless, or will have to move in with their less-than-enthusiastic children. Already strained by the rising tide of the working-age unemployed, state and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country.

Prediction four.
“Quantitative easing” will fail to restart previous patterns of lending and consumption. As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely. This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously.

Prediction five.
The government will stop pretending that it can finance continuous multi-trillion-dollar deficits on the private market. By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control. This may or may not lead to hyperinflation. (See prediction four).

Prediction six.
The government’s narrow unemployment figure (U3) will rise into the high teens by late 2010. The government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing. Ultimately, one in three work-eligible Americans will be unemployed, underemployed, or never-employed (e.g. college grads permanently unable to find suitable work).

Prediction seven.
With their pension dreams squashed, and their salaries frozen or cut, police and other local government workers will turn to wholesale corruption in order to survive. America’s ideal of honest, courteous, and impartial cops, teachers, and small-time local functionaries will have come to an end.

Prediction eight.
Commercial overcapacity will strike with a vengeance. By 2012, thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns. With no economic incentive for their maintenance or repair, they will crumble into overgrown, plywood-and-sheet-rock ruins.

Prediction nine.
By the end of 2010, tens of millions of households will have fallen behind on their mortgages or stopped paying altogether. Many banks will be unable to process the massive volume of foreclosure paperwork, much less actually seize and resell the homes.

Devaluation (as mentioned in prediction four) could ease the situation for those mortgage holders still afloat, but it would also eliminate any incentive for most banks to stay in the mortgage business. In any case, the housing market in many parts of the country will lock up completely—nothing bought or sold.

With virtually no loans being made, even the government will finally acknowledge that most banks are fundamentally insolvent. A general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.

Prediction ten.
As an economy is never independent of the society within which it functions, the next few paragraphs will focus on social and political factors. These factors will have as much of an impact on market and consumer confidence as any developments in the financial sector.

Whether rightly or not, President Obama, having come to power at the dawn of this crisis, will be blamed for it by over 50 percent of the population. He will be a one-term president. In response to his perceived socialization of America, there will be a swarm of secessionist and extremist activity, much of it violent. Militias and armed sects will be more prominent than in the early 1990s. Stand-off dramas, violent score-settlings, and going-out-with-a-bang attacks by laid-off workers and bankrupted investors—already a national plague—will become an everyday occurrence.

For both economic and social reasons, millions of immigrants and guest workers will return to their home countries, taking their assets and skills with them. The flow of skilled immigrants will slow to a trickle. Birth rates will plummet as families struggle with uncertainty and reduced (or no) income.

Property crime will explode as citizens bitter over their own shattered dreams attempt to comfort themselves by taking what is not theirs. Mutinies and desertions will proliferate in an increasingly demoralized, over-stretched military, especially when states can no longer provide the educational and other benefits promised to their National Guard troops.

There will be widespread tax collection issues, and a huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse. In short, the “Tea Parties” of tomorrow will likely not be so restrained.

Finally, between now and 2012, we are likely to see another earth-shaking national embarrassment on the scale of the 9/11 attacks or Hurricane Katrina and its aftermath. This will demonstrate conclusively to all Americans that their government, even under a savior-figure like Obama, cannot, in fact, save them.

By 2012, there will be a general feeling that the nation is in immediate danger of blowing up or coming apart at the seams. This fear will be justified, given that the U.S. has always been held together by the promise of a continuously rising material standard of living—the famous “pursuit of happiness”—rather than any ethnic or religious ties. If that goes, so could everything else. We were lucky in the 1930s—we may not be so lucky again.

A Sell Signal You Won’t Hear About Anywhere Else

A poignant story from investment guru Jeff Clark…

I ran into the taco yesterday during my afternoon jog. Actually, the taco high-fived me as I ran by.

Taco Bell just reopened a restaurant in the little shopping center of my small Northern California town. To draw attention to the Grand Reopening, the franchise owners hired someone to dress up as a taco, stand by the side of the road, and wave to the cars passing by.

Amused by the high-five, and needing a chance to catch my wind anyway, I doubled back and struck up a conversation with what I assumed was a teenager inside the taco costume.

“Dude,” I started off, “It looks like you’re having a pretty good time out here. I hope they’re paying you well.”

“It’s not bad,” the taco responded. “My son-in-law knows the manager here and he offered me $100 cash to stand out here for two days and wave at the cars.”

He didn’t sound like a teenager. Indeed, the man inside the costume wasn’t a high-school student looking to make a few bucks. He was a 72-year-old retiree named “Fran.” And the conversation we had will likely keep me up at night for a long, long time.

Fran spent 30 years as an airline mechanic for United Airlines. He retired 10 years ago when the airline offered him an early “buyout” package. Since then, however, the company went bankrupt. Fran lost his benefit package, which was mostly health care and dental. “But,” he says, “at least I was smart enough to take control of my own pension funds.”

If he hadn’t, then he would have lost most of his retirement fund when United declared bankruptcy a few years ago.

“I did okay for a few years trading stocks during the dot com phase,” Fran continued. “But I lost a bunch of money in 2000 when the market fell.

“So I moved most of what I had left into real estate. My friends were all making money and it was easier than picking stocks. I bought an apartment building and two rental homes. I had positive cash flow from rents, and I kept refinancing and pulling out the appreciation.

“Fortunately, I sold the apartments a couple years ago for a good profit. The homes, though, are empty. I’m not collecting any rent, and they’re worth less than the mortgages I have on them.”

So Fran is walking away. He’s giving up on the houses and letting them go into foreclosure.

“I don’t want to do it,” he said. “I believe in paying my debts and I hope I can make good on that promise later. For now, though, I have to take care of my wife.

“And that,” he continued, “is why I’m dressed like a taco for $100. My wife turns 70 years old this Saturday and I’m taking her to dinner to celebrate. She doesn’t know about our finances and she doesn’t know I’m doing this job. No one can see me in this costume and my son-in-law can keep a secret.

“Besides,” he said, “the stock market is doing better now. I sold most of what I had in November. That was bad timing as the market moved up afterwards. But I didn’t have to suffer through the decline earlier this year. I just put all of my retirement funds back into the market last week because it looks like we’re back on track and stocks should move higher the rest of this year. That’s a good idea don’t you think?”

Here was this man who had worked and saved his entire life. He bought stocks at the high in 2000 and suffered a big loss. He then bought real estate during the bubble of the past few years and is now facing foreclosure. He sold stocks near the bottom last November and is buying them now, after they’ve run up 25% in just over one month.

And he just asked for investment advice from an unknown jogger.

I was reluctant to comment because I didn’t want to deflate his optimism. At the same time, if my own grandfather were 100% invested in the stock market right now I would scream at him to get out.

“All I know, Fran,” I said to him, “is if I get into a taxicab and the driver tells me it’s time to buy stocks then I know it’s time to sell. If my mother calls me on a Saturday afternoon and asks if she should start buying into the market, then I’m selling first thing on Monday morning.”
 
Yesterday, a 72-year-old retiree with a dubious investment history put on a taco costume and stood by the side of the road in an effort to earn enough money to take his wife to a birthday dinner. He just put his entire retirement fund into the stock market, and then asked for advice from a stranger passing by.

“Fran,” I said, “I think I have to sell into that too.”

Beware the Dow’s Head-Fake

Eric Roseman shares his wisdom on the recent stock market rally. As I said a few weeks back [Bottom? NO Rally? YES] this is a head-fake rally: a chance to bail out of destroyed 401(k)s at an interim top. The markets haven’t really calmed down until the Fear Index (VIX) settles back to the 10 to 20 range.

There is so much you’re not being told about the economy. With the bailout at $7,224,000,000,000+ and GE technically bankrupt (YES, that GE) with their huge earnings bomb THINGS ARE NOT NORMAL. This is just a quiescent period before the “Summer From Hell” and a “Fall From Grace.”

Please consider this man’s words carefully.

Stock Market Rally for Suckers as Credit Destruction Lingers
Since March 9 stocks have been enjoying a period of strong gains, low relative downside volatility and rising inflows into stock mutual funds. From their lows four weeks ago, stocks are now up a cumulative 24.5%.

Indeed, the Volatility Index (VIX) continues to decline since hitting an all-time high last November.

The VIX, which measures options trading sentiment on the S&P 500 Index has crashed from a high of 80.86 to 38.85 ahead of today’s trading, a 52% decline. If the VIX closes today below 38.50 – highly probable — then I’d view that as a bullish signal for the short-term direction of the markets.

Stocks Still Propelling Higher?
The stock market is now crossing important territory this month as first quarter corporate earnings begin in earnest. With the FASB engineering a hocus-pocus act on bank earnings last week the market is expected to get a boost from the new trend in phony financial services accounting. This will give the market an additional boost this month.

Combined with better earnings guidance from companies, which I view as almost impossible in this environment, might be enough to propel stocks even higher.

A key index level to watch for a new break-out is Dow 9,015.10 and the Dow Transports at 3,717.26; if these indices break through these important resistance levels then my intermediate and long-term bearish view on stocks will be violated. Until we crack these thresholds, this is still a bear market rally.

This Is Not a “Normal” Cyclical Economic Recovery
The stock market is largely manipulated by sleuths whereas the bond market is largely dominated by the “smart” money. And the credit indicators tell me that we’re a long way from bottoming in this credit cycle – especially in several markets that are not currently assisted by the Fed and Treasury. Basically, high quality credit spreads have not narrowed since the commencement of this stock rally. This is bearish price action.

First Time In a Lifetime
I’ve never experienced a debt deflation. Nor have most people currently alive. It is unwise and foolish to treat this bear market like any other in the post-WW II period because it is totally unique; the scope and depth of the ongoing destruction of consumer and business credit, bank balance sheet compression and insolvency, consumer retrenchment and soaring unemployment should not be underestimated. The rare nature of this recession precludes a cyclically normal U.S. recovery.

This is a time for investors to largely preserve capital and wait for the market environment to improve as it pertains to government regulation and the future of our banking system. Many questions are still unanswered or unresolved. 

Gold To Regain Footing
But the bulk of your assets should be targeting high quality short-term investment grade debt, convertible bonds, TIPS, mortgage agency debt, senior Canadian bank debt and, once the dollar finally pops, foreign currency bonds. Also, I have no doubt that gold will eventually regain its footing and head through the roof once deflation is quashed. We’re all going to pay dearly for this monster-sized spending – clearly out of control at this point.

Drug Addict Needs Another Fix Soon
In the 1930s the Dow posted several major bear market rallies before finally bottoming in June 1932. The current rally – now the third such period of gains since early 2008 – has room to advance because of the massive amount of concerted global fiscal spending now hitting the financial system and eventually, the real economy. But like a drug addict that needs his fix this recovery will require another dose of spending in 2010 as government stimulus fails to supplant consumer spending indefinitely. The consumer will not save the day as he remains focused on balance sheet repair and cash savings.

In the absence of a global consumer now that the United States is raising its savings rate, there isn’t one nation that can supplement U.S. imports. This implies major hurdles for the global economy and therefore corporate earnings as we look beyond a blip in economic activity the second half of 2009.

This bear should not be underestimated. The destruction of credit and wealth has not passed its peak but rather is taking a time-out before feasting again on the financial system perhaps later this year or in 2010. [more]

More of interest:
Bottom? NO Rally? YES

California Foreclosures About To Double

Just found out my California cousin Felix just bought his first house: congrats! Is it shaping up to be a buyer’s market as foreclosures are starting to make headlines again? Is Felix on to something here?

Tyler Durden is predicting “Two months from now, the foreclosure crisis will be top of the news once again catching everyone off guard because of the past six months ‘intervention’. Thanks Washington.”

California just experienced their highest NOD (Notice of Default) on record. Mr. Durden continues,

The headlines in the near future will read:Circa April 12th – “March Foreclosures Drop Sharply but Foreclosure Starts at Record Highs”

 

Circa May 12th- “April Foreclosures Surge 200% and Foreclosure Starts Remain at Record Highs”

CA foreclosure background – in mid-2008 the foreclosure wave was artificially held back as a result of the CA law SB1137 enacted in Sept 2008. This also kept NOD’s and NTS’s at much lower levels than the actual defaults that were occurring. Other bubble states and several banks/servicers also went on random moratoria and the foreclosure wave was held back for the past six months. But just like so many other intervention and moratoria in the past, the problem just comes out the other side even more violent than if they would have done nothing. Adding insult to injury, the GSE’s announced this week that they were coming off moratorium, which could increase foreclosures by 20-25% alone. [more]

Richard Russell: Market To Get Tougher

You Don’t Know What’s Going on If You Don’t Read This
By Dr. Steve Sjuggerud

“People are absolutely not positioned for hard times,” Richard Russell told the crowd Saturday night. “The present bear market will get much tougher.”

Richard Russell famously called the bottom for stocks in December 1974. He told readers of his newsletter, Dow Theory Letters, to buy… after stocks had fallen roughly in half in the preceding two years. During those two terrible years, Richard recommended his readers hold 100% of their money outside of the stock market.

Honoring a Legend
On Saturday night, I attended a tribute dinner for Richard, who’s been writing his newsletter since 1958. I figured it’d be a small affair… an occasion for investment newsletter writers like me to acknowledge the guy who taught us all how to do it right. Turns out, over 400 people showed up. Newsletter writers came to California from as far as South Africa and Europe to show their respect. It was a “who’s who” of newsletter writers over the last 50 years.

Richard shined during a question-and-answer session. Famous newsletter writers quizzed him like star-struck kids. The 84-year-old showed he’s still at the top of his game in the investment world.

Market Psychology Today Is Totally Different
One writer asked how he “knew” we’d hit bottom in late 1974… even though everything looked terrible. And he asked how that time compared to today. Russell replied…

“The psychology was right… When I turned bullish, I got angry letters from people telling me I was wrong. The psychology today is totally different. People are very quick now to turn bullish, as we’ve seen lately. In a real bear market like ’74 or the Depression, people don’t think it can get better like they still think now.

“I lived through the Depression. You could not get a job no matter what you tried to do. Today it’s a lot easier. You can get a job. The last three generations haven’t seen hard times. They’re not prepared.
Richard remembers bread lines stretching for many blocks. He remembers the Empire State Building going bankrupt. He has good memories, too… seeing Babe Ruth hit a home run… and sneaking out to see now-legendary jazz musicians.”

What Would You Do To Fix It?
He got the biggest cheers with his answer to this question: “If you were in charge of the country, what are the top three things you’d do to turn this country around?”

Richard replied, “I wouldn’t do a thing. I’d let the bear market take its course. The fixes won’t work. They prolong and compound the problem. And they’re costing us trillions.”

The crowd went nuts. Russell and the newsletter crowd are strong believers in taking personal responsibility and in saving your money. Today’s government “fixes” go against both of those beliefs.

Bill Bonner is behind the world’s largest investment newsletter publishing business (including my publisher). Bill gave Russell the ultimate compliment… He told the crowd:

“I still read rich Richard every day. I feel like I don’t really know what’s going on in the financial world if I haven’t read him.”

No Bottom Yet
Richard Russell is a hero in our little business. In 1974, he called the bottom of the bear market. Here in 2009, we now have a bear market worse than 1974. Russell is not calling the bottom here yet.

Last month, I told you “permabear” Jeremy Grantham was turning bullish, calling for stocks to rise over the next seven years. He may be right… but it’s a bold call to go up against Richard’s 50 years of Wall Street experience.

Can You Count On Your Life Insurance?

Remember: for life insurance to serve its function it must be there when you need it. Consider these two things:

1) Your life insurance company must still be in business. (Sure, gov’t are supposed to guarantee payouts just like the FDIC is supposed to guarantee deposits. But, in reality, there are still IndyMac Bank depositors who are still waiting for their cash.) If your life insurance company fails you had better have already executed your backup plan. Just like a bank failure you’ve got to get your money out before everyone else does.

2) Your death benefit / cash value must not be stolen by inflation. When your dad was young he may have taken out a generous $50,000 policy. How far would that go in today’s dollars? You may have a $500,000 policy but if we face triple-digit inflation in the next three years [Wall St Journal Talks (hyper)Inflation] OR if the dollar is replaced with an alternative currency [WSJ Talks Amero] will you be left with anything of value?

The last time we had our money system changed (gold replaced by Federal Reserve Notes in 1933) it was devalued by 75% in 4 days. (FDR outlawed and confiscated gold in 1933. He declared a 4-day bank holiday and, when the banks reopened, all the gold that had been taken from the American people was revalued from $20 to $35 per ounce, a net 75% paper currency devaluation.) If the dollar is replaced with the Amero and the CONgress says you get one Amero for every two dollars what’ll that do to the value of your insurance?

Q. Guess what I did around the same time I cashed out my 401(k)s and put the proceeds into gold and silver?

A. I took out loans against a number of my life insurance policies and put that into gold and silver as well. The life insurance stays in force but if the company dies or inflation eats away the value much of my money’s already out and into assets that’ll INCREASE in value with inflation.

If you’re not sure your insurance company will survive the next few years you could always replace your existing policy with a term policy. It’ll be a lot less expensive and you can take the leftover cash value from the closed policy and buy gold, silver or other physical assets.

Sure, I’m Paranoid. What’s Your Point?
Mine was (is) still an “extreme” solution that only makes sense if you think things are going to get horrible. I just want to give you some ideas; you should always make your own informed decision.

BTW my policies are through Northwestern Mutual Life. I checked their S&P credit rating two weeks back, they’re still AAA “stable” (and have been since 1987). I went with the most conservative company I could find back in 1993 when I started with life insurance. So, yes, I’m being really paranoid here with my actions.

Please stay alert and protect yourself and your loved ones.

This sobering missive is from the excellent Daily Wealth newsletter. many of us count on our life insurance, either to support our family if we should die OR for emergency cash.

This Crisis Is Just Starting to Hit the Headlines
By Dan Ferris

Two recent headlines in the Wall Street Journal have confirmed my worst fears are coming true… much faster than I thought they would:

On Tuesday, the Journal ran a story called “Life Insurers Are Finding Their Fates Tied to Stocks.” Stock market losses might hit more than your equity portfolio…

Many life insurance companies sell variable annuities and other guaranteed return products. These products guarantee the investor will receive either a minimum return… or the gain in the S&P 500… whichever one is larger.

With the big stock indexes way down, losses have already piled up. The hedging that supports guaranteed investment products is too dense to get into here… But as the Journal pointed out on Tuesday, big life insurers like Lincoln National and Hartford have already suffered ratings downgrades due to investment losses and exposure to variable annuities. Moody’s also said there’s a risk of even greater losses.

But variable annuities aren’t even the biggest problem. No one has quite caught on to the real issue yet…

Last week, the Wall Street Journal ran a story called “Commercial Property Faces Crisis.” It reported default rates on $700 billion of commercial mortgage-backed securities could hit 30%, and noted that as many as 700 banks could fail as property loans go sour.

So what does all that have to do with life insurance companies?
The life insurance industry has put a lot of money into the commercial property market. Connecticut-based hedge fund Bridgewater Associates estimates 10% of the life insurance industry’s investments are direct commitments to commercial real estate projects.

Commercial real estate losses are rising rapidly. The delinquency rate on commercial mortgage-backed securities is already nearly as high as in the 1990s recession. Back then, the financial industry lost $48.5 billion on commercial real estate debt holdings.

The current commercial real estate crisis will certainly be much worse, due to the much larger real estate bubble this time around. The Journal reported U.S. banks could lose as much as $250 billion on commercial real estate. They’re not the only ones.

Life Insurance Companies Crippled?
As I explained last month, insurance companies are state regulated. Every state determines how much capital insurance companies have to keep on hand according to their financial strength and credit ratings.

As commercial real estate continues to collapse, life insurance companies won’t have enough capital on hand. That will cripple their business… and their shares.

Take MetLife for example. MetLife has $36 billion worth of direct exposure to commercial real estate… and less than $19 billion of tangible equity. A 25% drop in the value of its commercial real estate holdings would cut tangible equity in half. That would crush the stock.

MetLife isn’t alone. I’ve got my eye on 13 North American insurance companies. And all of them will take large writedowns due to commercial real estate and variable annuity exposures. At least one of them will fail over the next year.

I wish I were wrong about this. And I have nothing against any of the companies involved. Many are well run and, until now, had decent track records as good investors.

But they simply can’t get out of the way. They’re like giant hotels sitting on a sunny tropical shore… with an enormous tsunami headed straight for them.

Life insurance companies have even worse times ahead than what they’ve already endured.

Maybury Issues Inflation Alert

Richard Maybury describes himself as “The 2,500-year old man,” referring to his deep study of history (economic & otherwise) and how it repeats today.

Back in December Mr. Maybury warned the current deflationary environment would soon flip into a strongly inflationary one [Deflation Xforming to Inflation Soon]. At that time he said, “In any case, when I think the bottom has happened, I will let my subscribers know on the Subscriber Access part of our web site. No guarantees, but I’ll do my best to get it right.”

Yesterday he issued the alert. [Read full text here.]

He says, “The bottom of the deflationary stage of this crisis has arrived. However, it is not an unqualified call to buy every non-dollar asset you can get your hands on.

“As you know, US officials plan to force taxpayers who pay their debts to subsidize those who don’t. This is diverting flows of money, creating larger profits in some areas and larger risks in others. There are colossal opportunities now, but also traps.

“I believe it is highly likely the world is entering the worst economic crisis since the fall of the Roman Empire. Never before in 2,500 years of economic history have people gone through this kind of situation with a world reserve currency that was fiat paper, not gold. We’re trying to ride out an 8.0 earthquake in a house built on sand.”

Subscriber Only Details
As the details are only for subscribers of Mr. Maybury’s excellent Early Warning Report I’ll only summarize it here. Five specific events in March persuaded him to call the bottom. 

1) March 23, 2009. China’s central bank governor said the US dollar should be replaced as the world reserve currency. That was the most powerful attack yet on the dollar’s credibility. (China is the largest holder of US dollar assets.)

As foreign holders begin to question the dollar’s viability they will try to dump their greenbacks. Lots of things inside the US are at fire sale prices, so, as these foreign greenbacks are shaken loose, money will flow into the US to buy those bargains. This will increase the money supply in the US, adding to the Federal Reserve’s own inflation of the money supply.

2) Increased fear of the dollar will also contribute to a rise in velocity, both inside and outside the country.

3) March 20th, 2009. At the Independent Community Bankers meeting a Bernanke squeeze doll was handed out, and Bernanke was the target of ridicule. The only thing backing the fiat paper dollar is the credibility of the US central bank. When foreigners see the Fed’s own banking community jeering the Fed honcho, the loss of confidence in the dollar will worsen and contribute to a rise in velocity.

4) March 18th, 2009. The Fed announced it will purchase billions of dollars of mortgages and government bonds. This will inject more new dollars into the financial system, and direct hundreds of billions of them into real estate. The real estate bubble will be re-inflated. [See Dollar Death in May?]

5) Orders for big-ticket durable goods, new homes and existing homes have risen recently. This shows that money is on the move and flowing back into some of the largest sectors of the economy.”

Mr. Maybury thinks for several months we will experience more of a U-shaped bottom than a V-shaped bottom.

For a while, a lot of money may leave the more liquid financial investments such as stocks, bonds and CDs, and flow into real estate. The beginnings of the new real estate bubble could be accompanied by a further deflation of stocks, bonds and perhaps even commodities.

In short, the re-inflation of the housing bubble could be so intense that it will suck money out of the financial markets.

Mr. Maybury expects the first incident in the coming inflationary crisis will be a global monetary disaster, with the dollar plunging in international currency markets.

Conclusion
Mr. Maybury recommends an assertive strategy to take advantage of the opportunities the inflationary trouble generates.

He is currently buying gold, silver, platinum, specific silver mining stocks and a specific solar energy company that he pegs the risk at 2.0 or less – and the three-year profit potential of 1,500%. (Subscribe if you want more specifics.)

And I love the way Mr. Maybury closes his special alert, “You are on my mind constantly, and I am doing all I can to help you stay safe and prosperous.”

See also:
Inflation, Intervention & Velocity of Money