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The European sovereign debt crisis. The double-dip in the U.S. housing market. The resumption of the U.S. economic slump.
Policymakers certainly have their hands full right now. Hardly a day goes by without some new proposal to “solve” these problems — from academia, from the major global financial centers, and from politicians on both sides of the pond.
But folks, I’m going to let you in on a little secret nobody in Washington or on Wall Street will speak out loud: There is NO EASY FIX! Nothing can be done to eliminate the multiple threats facing us right now. They’re the result of years and years of failed policies, out-to-lunch regulators, too much easy money, and more.
The only “cure” is a long, drawn-out period of paying the piper. Or as Treasury Secretary Timothy Geithner finally came clean about in an interview with NBC’s Meet the Press a few days ago:
“It’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for a long time to come.”
So the only sensible strategy you can pursue as a prudent investor is to avoid getting sucked in by rallies like we had earlier this month. Instead, take immediate steps to protect your hard-earned capital!
I’m going to tell you how in this issue. First let’s address …
Main Street’s Key Question:
Did the Great Recession
Ever REALLY End?
If you ask the Ivory Tower economists, they’ll tell you the Great Recession in this country ended in June 2009 after 18 long, grueling months. But if you ask many people on the street, they’ll say it seems like the recession NEVER ended for them. And no wonder!
Wall Street brokers, big multinational banks and other politically connected institutions and individuals got hundreds of billions of dollars of bailout money through TARP and other government programs.
Large investors were able to take the hundreds of billions of dollars printed by the Federal Reserve and speculate in commodities, junk bonds, and stocks.
But the average guy in the street? He just got stuck with a higher grocery and gas bill. And he got virtually no help on the most important front of all … jobs!
Case in point: We were told the massive $800-billion-plus economic stimulus program would create a veritable job boom. That it would shrink unemployment dramatically.
But just look at this chart and you can see that the unemployment rate is far, far above where it was supposed to be as a result of the stimulus. Heck, it’s higher than where it was supposed to be WITHOUT the stimulus!
Source: Heritage.org
We never got anywhere near the boost we were supposed to get from the almost one trillion dollars in Washington spending. And the latest jobs figures prove that we’re sliding back down a slippery slope!
Our economy created a pathetic 18,000 jobs in June, the worst level in nine months. Private hiring fell to the lowest level in 13 months, while the “all in” unemployment rate that includes discouraged workers, those who want full time work but can only find part time employment, and so on surged to 16.2 percent.
Finally, the participation rate that measures the percentage of Americans 16 years or older working or seeking work dropped to 64.1 percent. That’s the lowest percentage in a stunning 27 years!
I’m an equal opportunity analyst by the way. It’s not just the Democrats, the Obama administration, and the Fed whose stimulus plans have failed miserably. The Republicans haven’t managed to get job growth going either. And the policies pursued by former President George Bush left Obama saddled with hundreds of billions of dollars in crushing debts in the first place.
Why the Economic and Credit Market Problems
Are So Intractable — and Immune to Easy “Fixes”
So why didn’t the economic stimulus program work? Why didn’t the Fed’s QE1 and QE2 programs boost the real economy, rather than just fuel more reckless asset speculation?
Why are the repeated bailout and stop-gap measures in Europe failing to cap European yields? Or prevent governments in the PIIGS countries from tumbling toward default?
Because policymakers are still … STILL … failing to grasp the simple, undeniable nature of this crisis. It was one created by too much leverage, too much borrowing, and too much debt. We borrowed and spent far beyond our means — for many years, not just a few quarters. A collapse was inevitable.
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| Those in charge burned through too much money, for way too long. Now it’s payback time. |
Sure enough, the housing and mortgage bubble started popping in 2005. Then the crisis migrated to the entire credit market in 2007-2009. But rather than let the cleansing process play out, governments decided to stand in the way!
Result?
Excess debts were never written off as aggressively as they should have been …
Many of the banks that should have failed weren’t allowed to …
And many countries are now so indebted that the only way out is default and restructuring. But the politicians keep trying to prop them up with short-term, flawed bail outs.
Indeed, while trying soooooo hard to “avoid another Lehman Brothers at all costs” policymakers are just prolonging and dragging out the crisis. They’re just delaying the inevitable, and running up hundreds of billions of dollars in costs in the process!
So folks, here’s what you need to do:
Stop listening to the happy talk that’s being spewed in the mainstream media. Instead, take immediate steps to protect yourself — not just against stock market losses, but losses on risky bonds, real estate, some commodities, and even currencies. You can buy inverse ETFs that hedge against declines in all of those asset classes, and I believe you need to own them!
I’ve been sharing specific names with my Safe Money subscribers, and I’m happy to report that some of those recommendations are already heading nicely higher.
If you’d like to get the full details, just click here or call our customer service team at 800-236-0407. You can join us for just 13 cents per day.
Remember: The time for aggressive risk-taking is over. The time to hunker down is now.
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.
{ 19 comments }
Dear Mike,
As is well informed and in right direction. I could not sense when the bad thing are going to surface. may be duration like 2012 Second quarter to 2014 first quarter. Any expert advice?
Hi Mike
The government are in charge of the peoples credit card. Unless they cut their spending the people, all the people are going to be worse off. The longer they leave this the worse it will get. I’m just a little investor and I can see this. All they can see is the next election and I don’t trust lousy decisions.
Hi Mike,
I’m in the UK and hold sterling (35%) , dollars (50%) inverse etfs (5%) and gold (10%). My rational is to hold dollars as a hedge against sterling weakness … I believe when the market finally rolls over, a flight to the dollar will ensue.
Am I correct in this analysis – is there something I need to reconsider about this position?
You are absolutely correct. The US Dollar will soon soar as Europe runs from the Euro into the dollar.
When election time comes we need a leader with PROVEN BUSINESS EXPERIENCE who doesn’t owe any favors to special interest groups like GS etc and no BS yes we can speeches. We do not need a politician. Please, please give us all a break and get out of our lives.
Sim… Emi evouliu. Daquela menina que não ria (q depois eu descobri q devia ser por conta do aparelho nos dentes), muito magrela, mas q nem por isso deixava de ser linda, até a maturidade q se vê agora bem diferente daquela de há tempos atrás. Gostei muito do novo layout como gosto de todo seu trabalho seja nas imagens, nas cores e nas palavras. De seu sempre fã, feliz por estar na lista das pessoas q cruzaram seu caminho… Geraldo…Beijos!
“Large investors were able to take the hundreds of billions of dollars printed by the Federal Reserve and speculate in commodities, junk bonds, and stocks. But the average guy in the street? He just got stuck with a higher grocery and gas bill. And he got virtually no help on the most important front of all … jobs! ”
Mike, Are you allowed to say that? I mean, it is on par with “the sun rises in the east” – but I thought there was a law against making this observation. As far as I can tell, no one has pointed this out in the MSM, the alternative media, and only one of your competitors has made this point.
Infuriating and incredible that populists, (and I am not a populist) fail to see this. As a small business, I explain the SGD2 – “stealth Great Depression 2” this way: Print mountains of money and inject it at the top, and then be surprised when none of it trickles down. Worse than the injustice, the market distortion prevents people like me from “free-market” participation.
e.g. My business is doing ok because my major client is rolling in cash (he’s one degree away from having the Fed deliver money to his door). But I am not hiring or expanding or anything…. I am just hanging on while my client expands overseas. I have no access to capital, and the economic crisis left my business with debt – much of it not even deductible.
And I am one of the lucky ones (to channel Long John Silver). Many of my colleagues are taking work anywhere – Walmart, e.g.
As for your zings at Republicans – Go For It! I can’t stand inaccurate comments, but when the shoe fits make ’em wear it.
Thanks btw – always enjoy your columns.
Mike:
You advise inverse ETFs as hedge. What about the derivative exposure??? When it hit’s the fan I am very concerned with clearing of derivatives. Please advise.
Mike
Your traditional approach to equate the economy with the markets is way off base today. There was a day when this was true , but since those days things have changed a lot and these relationships between the economy and stock markets are not as valid as they once were. Once again you are falling into the buy inverse ETF’s trap that has already cost your readers (like me) tons of losses. and will prove to be a suckers bet again in the future.
Today most investors, and advisors, do not see the reality of the overriding current market mover – A CURRENCY CRISIS! Sure there is a debt crisis pushing deflation, but the worst asset to hold, that is depreciating faster than anything else, is fiat currencies. When investors, big and small, want out of paper money (just an asset today and not really money) they seek hard assets and stocks and even bonds. They do not panic and sell hard assets and stocks to accumulate more depreciating dollars!
So I must heartily disagree with your advice and tell people to beware of false prophets that always see markets crashing when instead banksters, with piles of “worthless†cash, want to dispose of it profitably and will race to buy most anything in large volumes, rather than hold an obviously depreciating asset . Holding precious metals, hard assets and blue chip stocks makes much more sense than betting against them – especially with inverse ETF’s that “lose” just on the basis of inflating stock values and currency debasement..
Yours is one of the more sensible comments I’ve read in a while. I realized a while ago that what is presented for public consumption at Weiss Research is meant to sell subscriptions. Much of the advice given for free is contrary to what shows up in the actual subscription monthly. I find the rhetoric useful in a contrarian way.
The Euro has been beat to hell lately yet the dollar hasn’t emerged as the safe haven. Cash-rich dividend stocks and natural resources are more attractive than dollars. Just sit on them at least until the 2012 election.
Mike is way too optimistic in this article.The U.S. is a country with a huge,wasteful govt run by idiots,the voters.I don’t know how you get to a better country,when the people in charge,the American voters,are so ignorant of what is needed.As far as holding U.S. Dollars.The Dollar is a totally fiat currency.It is nothing more than the common stock of the U.S. Govt,which is bankrupt.Would you feel safe holding shares in a company that had an equivalent balance sheet as the U.S. govt and was managed by American voters?The U.S. Dollar is NOT A SAFE HAVEN!!!!
That is not axactly true just yet. The US Dollar is going to rise sharply when Europe unwinds. Long term, yes, you may be correct. Our falling real estate and falling job market will bring in a terrible Deflationary Depression that could last ten years. Then, after that, inflation will return just as it did in the 1980’s through 2008. There is no more steam left in the engine to create anymore inflation. The Country is out of gas. Deflation is all but assured. Watch real estate drop another 50% and unemployment soar above 25%. It’s going to get ugly.
If the Euro “unwinds”, what makes you think it’s ugly sister is going to be any more attractive? One word for ya … contagion.
Mike, Coming from Europe in the hope of that America would have been a society with less entitlements the journey has been a disappointment. At least I’m happy that you paint a picture of the future built on facts and not illusions.
Mike,
The reverse ETFs recommended thus far aren’t working out so well and your over-cautious take on solid stocks has resulted in opportunity costs. So far, the monthly subscription has been helpful by doing the opposite as advised.
So interesting – It has been good to take Weiss subscription and trade on the opposite side of there trade – don’t think it will last much longer but i have said that before – could be time to sell the market but think there is one last big pop up for the market to sell into –
But don’t think the big correction is coming – one reason – the FED is the buyer in the market – indirectly through Broker dealers. Ron Paul is correct we have to audit the FED so everyone can see how much daily liquidity is provide in order to keep the bottom from falling out. Could be the main reason why BEN doesn’t want to be audit – We already finding out how much more Money Goldman got from the FED –
Technically speaking if the market doesn’t take a leg down in the next 45 days then we will definitely be going back up to 1515 all time high – with the help of the FED.
Have fun trade – and do take WEISS advice as just that Advice.
Mike.
You and Martin continually inform us as to how bad things are getting. I think most of us realize this. However, your fear approach to the markets is costing many people the opportunity to make large gains in other areas of the market. Why is it that you didn’t recomend a buy on Google? The stock dropped to $477.00 a few short weeks ago. Now it stands at $593.00. Instead of constantly looking at a downward trend and the negative side of things you could have given a buy signal for August calls which would have benefited many with a fantastic return.
I understand that you are focused on the downside of what may be coming our way but your negative assesment is costing those of us who follow you and Martin large returns. I personally have become so negative based on following your services that I missed out on buying Ford at $1.37 – high $18.00, B of A at $3.75 – high $18.00, Bidu (10 for 1 split) share vale $66.00 now sitting at $145.00, Apple, JPM and many other companies who were able to recover their stock prices either due to better earnings or the aid of QE 1 and QE 2. Google made 2.8 billion in a twelve week period. Where ws your assesment of this stock?
I am now trying to evalute the aid of your articles including safe money report because of your negative outlook. Yes, I do understand that our current administration doesn’t have a clue as tohow to fix the current problems and that housing is still distressed but you need to look for the positve even in the negative.
Ray so well said – i fall it to that category – Made so much money on the correction (Crash) of 2008 and haven’t been able to trade on the long for the last 14 months – and getting killed on the shorts specially the Short EFT and will have to cut this position if there is a break out to upside as this market could go to 1515 again.
The bulls are calling much higher price’s due to the amount of money printing and low valuation – which is crazy as it’s obvious that this is due to 0 % interest RATE or should i say negative interest rate from the FED. So how long can we go with all this printing with no consequences to the Stock Market – Ask Zimbabwe that – Market went up until they pull the print press away form the Finance Minister.
So the Bulls on the Stock market could be right or are right but the Economy will be destroyed.
Trader hermes
Have no fear that they will shut down the printing press. That is game over and the markets will be shut down so how would anyone collect on all of their inverse ETF’s even if they did guess right. The US $ is worth less than toilet paper so take your choice on which you want to hold.