History shows us that the masses often get led astray by herd mentality and their counterparts in the mainstream media.  The current crisis will likely get far worse than the herd could possibly imagine.  The mainstream media and government continue to work overtime to keep confidence in check within illusionary standards. In the end however, it will be reality that determines the outcome and fate of the herd’s survival.  Investors who look to reality will benefit greatly as the mainstream herd is taken to the slaughterhouse over the next several years. 

   
We are unfortunately witnessing the worst crisis the world has seen since The Great Depression.  As we have only witnessed the initial stages of the crisis, mainstream media is already proclaiming that the worst is behind us.  They continue to call a bottom in stocks, proclaim that the United States will remain a world power, and that the dollar will exist for the foreseeable future.  The herd continues to have faith in the government induced toxic programs that are destined to failure time and time again.  Although they are starting to show some signs of uncertainty, they continue to think that everything will be OK as they buy and hold stocks, bonds, and cash for the long haul.

In the 70’s gold prices began at a fixed price of $35 and soared to a peak of $850 only a decade later.  At the same time stocks, bonds and the dollar yielded negative returns. This is similar to what is likely to happen over the next several years.  The 80’s and 90’s were a massive credit creation period.  Over this same time period we witnessed a severe bear markets in commodities and roaring bull market in both stocks and bonds. Now the tide has changed, we are currently witnessing a depression or deleveraging process.  The abusive excess credit that was built up over decades is beginning to work its way out of the markets.

SOURCE: QST Charts

Retirement Generation Selling Out

The retirement generation is another serious threat to the stock and bond markets.  With the baby boomer generation now beginning to cash in, this could put further downward pressure on stock prices. Here is what professor Andrew Abel at the Wharton School of Business had to say about it nearly 10 years ago, predicting that it would begin to happen around 2010.

“Stock market observers have long debated the issue. There’s little argument that as boomers became more affluent in their 30s and 40s, they poured money into stocks and other investments. Indeed, mutual fund assets in the U.S. soared from less than $48 billion in 1970 to $6.9 trillion at the end of 2000, according to the Investment Company Institute, the funds’ trade group. Heightened demand, as any first-semester economics student knows, tends to push prices up. From 1980 through 2000, total return for the Standard & Poor’s 500 exceeded 2,000%, or more than 16% per year, well above the long-term average of 9 or 10% a year.

About 35% of mutual fund assets are held in retirement accounts such as 401(k)s and IRAs, the ICI says, and investors are sure to view much of their other holdings as retirement savings as well. In addition, trillions of dollars worth of stocks are owned by pension funds, annuities and investment-type life insurance policies.

But 10 to 15 years from now, millions of boomers will retire. Instead of putting money aside for their old age, they will begin cashing in. It stands to reason that this will reduce the demand for stocks. As any beginning economics student knows, lower demand means lower prices.”

Financial Crisis Far From Over

So far we have seen some of the world’s largest institutions collapse.  These bank failures are only beginning.  The commercial real estate and consumer credit are currently in the process of going bust. Now, the global government will work to enslave the people by keeping the insolvent financial institutions afloat.  We are beginning to see the United States merge into extreme socialism.

Safe Haven

Since the mid 90’s the Working Group on Financial Markets, allegedly concluded that the suppression of the gold price may keep interest rates low.  If this theory, called the Gibson’s Paradox is correct, then the cost of lending will go way up, right along with gold.  Given the probability of rising interest rates and the government’s deteriorating credit, one might consider shorting government Treasuries as a way to protect against the crisis.  Investors should use caution when selling Treasuries as major panic selling in the equity markets may cause prices to spike in the short run.  An optimal time to consider selling Treasuries would likely be in the midst of panic and a parabolic move higher.

Advice being given by the mainstream media is a means to play the confidence game. The government numbers are just another part of the confidence game.  Questionable earnings, accounting standards, questionable government numbers, including unemployment and inflation are all a means to achieve a higher level of confidence on the part of the public.  You should never base your actions on untrustworthy information. Watch what they do, not what they say.  IMF and Central Bank talk of gold sales can lead to short term swings in the market.  Using these types of misleading practices while fading  the herd mentality creates a potential  opportunity to establish positions at favorable prices.

If you are interested in taking advantage of some of the up and coming opportunities that the financial crisis will provide, feel free to call me at 312-479-2077 or email me at jared.irish@archerfinancials.com .

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.