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Folks, I’ve been warning you repeatedly — for the last several months — to get defensive. I’ve urged you to sell most of your stocks, dump risky bonds, eliminate your real estate exposure, and even take offensive action, adding inverse ETFs that rise in value when stocks fall.
My reasons?
The economy is bad and getting worse.
The European sovereign debt crisis is bad and getting worse.
The credit markets are bad and getting worse.
And both fiscal and monetary policymakers are out of bullets! They’re unwilling — or simply unable — to beg, borrow, print, and spend hundreds of billions of funny money to prop up the markets artificially anymore!
Many Wall Street pundits took a different view in advance of this week’s Federal Reserve policy meeting. They figured Fed Chairman Ben Bernanke would pull some new “magic pony unicorn” out of his hat to save their bacon. But just as I predicted, all he did was serve up a “nothing sandwich.” And just as I predicted, the markets are falling apart!
The Dow Jones Industrial Average plunged 284 points on Wednesday in a couple short hours. Then we plunged another 391 points on Thursday.
Could this be the start of the march to Dow 7,000 that I’ve been forecasting? Darn right it could be … so I urge you not to wait any longer. You simply must take protective steps before it’s too late!
Why “Operation Twist II”
Is a Big Nothing Sandwich
So what exactly did the Fed do — and NOT do — at its two-day policy meeting this week?
==> First, the Fed admitted the economy stinks! The post-meeting statement warned of “continuing weakness in overall labor market conditions” … called the housing market “depressed” … and said there were “significant downside risks to the economic outlook.” Couldn’t have said it better myself!
==> Second, the Fed said it would “do the twist” — sell $400 billion of short-term Treasuries with maturities of three years or less and buy an equivalent amount of longer-term Treasuries that mature from between six years and 30 years. The “Operation Twist” reference is to a similar program the Fed implemented back in the 1960s.
==> Third, the Fed said it will continue to reinvest the proceeds of mortgage and Treasury securities that it already holds, and reiterated its pledge to keep rates low through 2013.
So why do I call these moves a bunch of “nothing sandwiches?” Well, short-term interest rates are already near zero percent, and long-term rates are the lowest they’ve ever been for key things like mortgages. Yet practically no one is building or buying homes! So why would even lower interest rates, maybe on the order of a quarter of a percentage point, make a difference? Answer: They won’t!
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| The Fed’s latest move won’t do diddly squat for the ailing housing sector. |
Then there’s the whole idea of flattening the yield curve — driving long-term rates down while keeping short-term rates steady. That’s the kiss of death for the banking sector, which relies on a STEEP yield curve to make money! No wonder three Fed policymakers dissented — again — over this ludicrous policy path.
And most importantly, the Fed is not printing fresh cash like it did with QE1 and QE2. It’s keeping the balance sheet steady. That means all those people buying tech stocks with 100 and 200 price-to-earnings ratios — using the 2010 “more liquidity lifts all boats” playbook — should get crushed!
Bottom line: The Fed is out of bullets, plain and simple!
What to Do if You
Haven’t Acted Yet
I trust that you’ve already taken my warnings to heart, and taken steps to protect your holdings against a renewed leg down in the markets. If not, I recommend you start doing so as soon as possible.
Sell your economically sensitive stocks, including transportation, retail, and materials shares. Sell any remaining banks, brokers, and builders, as well as riskier junk bonds and REITs. And get rid of any exposure you have to the European markets — stocks or currencies.
Then consider going on the offensive with inverse ETFs that target vulnerable asset classes and market sectors. My specific recommendations are contained in the Safe Money Report, and you can get all of them at a cost of just 13 cents per day. Click here for more details.
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 17 comments }
And gold fell the hardest. The things that Dr. Weiss has recommended have done the worst – Brazil, Gold…and what he warned about Treasuries and the USD have done the best. Any other ideas I can go contrary to?
Hey nay-sayer “Dave X”, keep holding your Treasuries & USD and when it the DOW hits 7K as Weiss and Crew predict, write me a letter because by then, I am sure you will have already pawned your computer to help make your ends meet.
The Fed is manipulating the gold and silver prices downward to push us into stocks. This can’t last very long. Hang on & ride it out. The dollar will crash and P.Ms will skyrocket
Love your comments, Dave. Mike, how’s that TBT you recommended at 50ish doing? I sold at SP1350 and I’m going to buy some EWZ soon.
Fear sells subscriptions.
Dave, What is it about short and long term strategies you don’t understand????
Instead of poo-pooing the Fed, how about figuring out what their plan is so that we’re not on the wrong side of the trade and fighting the Fed? Operation twist itself is not an expansion of money as the Fed sells 400b of lower duration bonds to buy 400b of higher duration bonds. It’s yield curve suppression, which should cause gold to explode (once people – like the author of this article – figure this out).
Why did the Fed decide to keep rates at zero for two years and why increase the duration on their balance sheet? It has to do with a monetary program that Obama has up his sleeve. The best theory that connects all the dots (that I’ve read, anyway) is here: http://brucekrasting.blogspot.com/2011/09/more-on-mega-refi.html
I hope the trick Obama has up his sleeve it to disappear. Worst POTUS ever
His predecessor was worse, how can you not know that?
….Whaa??..This is it??..this is the end of the US??..this is the end of the world??…the world ends at 10,800??…no recommendations for a quick buck on the bounce…
BY the way, could you be more specific and tell us “when”?………
Keep publishing…cause, you obviously “perished” in your past life…..
I’ve said it before and I’ll say it again. If you follow most of the advice from the Weiss pundits, you will lose money. These guys are right only 20% of the time with their perma-bear ideas and warnings about interest rates going higher.
Where is my free list of failing banks?
You always should look at it from all sides. I think the US dollar is in a bull market for the coming couple of quarters at least. The Weiss team is right in the sense that there are long term risks about the dollar and US treasuries, but at the moment, we are headed in a different direction (because the money printing was halted). Truth comes from the correct weighting of a multitude of voices.
It looks like war between Fed and Weiss. Who will win only be decided by time.
Yes I read the articles that contradict Fed’s decisions always! But bottom line I believe is: Weiss is looking for common man’s well being. [For information I am not a subscriber]
The DOW plummets up close to 1,000 points from the intraday low last week to intraday high today….
Market continues to plummet upward….from intraday low 3 days ago, the market has plummeted upward 700-plus points….over 425 in just one day….
Awesome trading days………over 300 % profit….when ya know…ya know…when ya don’t…ya publish….
Markets Mid-day today continue plummeting upward. Please keep holding your inverse ETF’s. After a few more days you will only need the market to turn in your direction 410 % to be neutral…