Is It Time To Leave The Stock Market?

I wanted to write this post earlier this summer, but had a health incident and surgery last month. I'm doing well and finally getting back in the swing of things.

I realize a good number of folks have already asked this question and answered it in the affirmative. They saw two major crashes in 2000 and 2008... hated to look at their 401(k) statements month after month with no hope of improvement... and just couldn't stomach the volatility and uncertainty of the Wall Street Casino. There are still some stock market true believers who are staying in the game; probably from their loyalty to a brokerage firm, or believing the old myth that "nothing beats the market in the long run."

Long term buy-and-hold investing has been debunked since 2000. Nimble swing traders can still scalp short-term profits, but it's getting more difficult for amateurs to win on Wall Street. That's because a majority of the daily trading volume comes from computers - not from individual traders or fund managers. This High-Frequency Trading (mainly from the large investment banks and brokerage firms) has made stock trading the equivalent of a rigged carnival game, and not a free, fair or honest market.

The recent increase in stock market and real estate values was fueled by ultra-low interest rates, "Helicopter Ben" Bernanke debasing the currency even more, and probably intervention by the Federal Reserve, the federal government and/or the big investment banks. It's given unsuspecting Americans the illusion that the economy is coming back, and happy days are here again. But nothing could be further from the truth.

Government bailouts of the big banks never solved the causes of our financial problems, which were (and still are) excessive money-printing and credit creation - mixed with a lot of good stories and short-term speculation. This financial leverage kept the economic good times going, and helped avoid normal economic downturns. But just like an alcoholic who keeps drinking to avoid the hangover, eventually he will have to deal with it - just like the United States will have to deal with the biggest financial "hangover" in the history of the world.

And this hangover will affect US citizens and markets for many years to come. Hoping and waiting for the economy to "get better" so your stocks or mutual funds will come back is a bad investment strategy. If you haven't done so, sell your stocks, ETFs and mutual funds and convert a good portion of your cash into physical gold, silver, food and commodities you can barter with.

If you (or someone you know) can profitably and safely trade stocks, futures or other markets on a short-term basis, that's fine. As I said before, long-term "buy and hold" investing isn't a wise strategy. Economies, markets and currencies are more volatile than ever before - and I don't see that trend changing any time soon. Because of these reasons, it's time for average Americans to get their money out of the stock market.

Time to Bail On Gold & Silver? Not So Fast...

Friday and Monday were one of the worst trading days for gold and silver in many years. You've probably heard and read from mainstream financial media that gold's best days are behind it. I don't quite agree with that notion, even though major technical damage has been done.

As I've said before, I don't claim to be a great short-term trader. However... I've called long-term trends months (and even years) before they came to pass. In early 2008 I bought put options on Fannie Mae and Freddie Mac, because I didn't see any financial statements for the past three quarters. My options expired worthless in February and April, but my long-term hunch was proven correct when both entities went into federal receivership (bankruptcy) in September 2008.

I also wrote a Guest Commentary for PrudentBear.com in 2004 calling the residential real estate bust 3-4 years early. I'm not saying this to brag or pat myself on the back - only as proof that I know what I'm talking about.

Why do I believe that gold and silver still have a bright future? The fundamentals that carried both metals higher the past 12 years are still in play - and have deteriorated further in that time frame. The Eurozone is proven to be an economic disaster with several member nations effectively bankrupt. The United States government is also bankrupt, but the Federal Reserve has kicked the printing presses into overdrive to try to keep the economic party going.

Throughout history, all government-sponsored fiat currencies have failed - while gold has remained a store of value for thousands of years. All currencies around the world are the fiat variety, and China has accumulated several thousand TONS of the "barbarous relic" (while selling out of its dollar holdings) to make the Yuan at least partially gold-backed - and have it be the world's future reserve currency in the future.

The Chinese (and most Asians) are long-term thinkers, and they want to make sure the Yuan remains the world's new reserve currency for as long as possible. Shanghai and Dubai have gold exchanges, and China encourages their citizens to buy as much gold as possible. Russia has also bought thousands of tons of gold for its reserves.

I don't know how long it'll take gold and silver to reach their 2011 highs, and frankly I don't care. They're tangible assets that will always have some value in both inflationary and deflationary times. They're an insurance policy against government and central bank stupidity. I trust the metals more than I trust bankers, bureaucrats or Wall Street stock jockeys pimping annuities, stocks or mutual funds.

Will The Economy Improve If Romney Gets Elected?

That's the implied promise from the Romney campaign (and supporters) - or at least the hope - if the Mittster gets elected on November 6. However... hope can be a dangerous thing. Just look back four years, as Obama promised Americans "Hope and Change" if he was elected.

He got the "change" part right - federal debt, deficits and unemployment all changed for the worse. Ditto for individual liberties and freedoms. And there's no doubt that this administration is one of (if not the most) power-hungry and corrupt in American history. However... what is America being offered as the alternative?

A big-government, Rockefeller Republican who seems to be in almost perfect agreement with President Obama on a majority of issues - including the economic ones. He was in favor of TARP, the President's stimulus package... thinks Ben Bernanke is doing a great job as Fed Chairman... and doesn't think we should cut that much in defense or other spending.

If this is the case, then I don't think we have much "hope" of a better economy if Romney is elected. The problem with our economy is too much borrowing, spending and money creation by the Fed. The solution (albeit a painful one) will be to balance the budget as quickly as possible... stop expanding the money supply... and stop creating excess credit.

The 1000-pound elephant in the room that neither party wants to acknowledge is this: We can't continue borrowing and spending in excess like the "good old days" of decades past.

There will be short-term economic pain before we can see honest and sustainable economic growth again. Even if Romney gets elected and stays true (as much as a flip-flopper from Massachsetts can) to his principles of the past, I don't believe a Romney administration will make the tough economic choices - until we hit one or more "crisis walls" in America.

Does a 2nd Obama term concern me? Absolutely. Especially when it comes to individual liberties and freedoms - not to mention the economy. However... I'm not sold that the Republican alternative will be much better.

Watch what Alan Keyes says in just four minutes about Obama and Mitt Romney. He acknowledges the danger of Obama... but also of the possibility of Romney being elected, and implementing the very same policies as Obama - but getting a free pass from conservative Republicans because he's "our guy."

Or read Chuck Baldwin's column on Insanity - lot of good food for thought as well.

And to all the Romney supporters out there: Yes, for the 4,373,672 nd time - I know that Obama is a Socialist/Marxist and his Administration has been a disaster. However, I'm not sold that Mitt Romney is a true "limited-government" alternative. I'm not asking for an ideological purity test or the "perfect" candidate. I realize that in the world of politics, compromises have to be made and you won't get everything you want.

Having said that, the GOP Establishment didn't listen to the limited-government grass roots at all... and instead of a nominee that believes in less government, we got the corporatist, Rockefeller nominee - whether the grass roots liked it or not. It was the same story in 2008 with John McCain, even though the Republican nominee had a snowball's chance in hell of winning right after a real estate and stock market crash.

To answer the question I posed in my title: No, I don't believe the US economy will significantly improve if Romney is elected.

Based upon the massive amount of debt and money supply - and if our leaders do the right thing and balance the federal budget (which is highly unlikely) - it would still be at least several years in a best-case scenario before we would see a healthier economy.

Bureaucrats and politicians have promoted this myth that the Fed and government can "manage" the economy like a mechanic manages a car. Pull this lever... push that button... jigger that switch, and voila! These adjustments will have Ol' Betsy running as good as new. Unfortunately, economies are more like living organisms - not machines.

You can't keep giving them big doses of economic steroids without consequences. It's great in the short-term, but there are major longer-term "side effects." Namely - devaluation of your nation's currency, with a loss of purchasing power and wealth for its citizens. It's impossible to always have economic growth in any country or economy - no matter how "exceptional" it's been sold to be (i.e., America).

The laws of economics and finance still apply to the good ol' US of A. The consequences of decades of bad economic policies are showing up - and will continue to show up - in the economy, regardless of who is elected President on November 6.

German Court Kicks The Euro-Can Down The Road

Germany's Constitutional Court ruled in favor of the Eurozone bailout fund today, further delaying the inevitable demise of the Euro currency. It gives EU central bankers more time to extend the day of reckoning, when there isn't any more money to finance the staggering debts of southern European countries.

German citizens (who still remember hyperinflationary holocaust 90 years ago in the Weimar Republic) are probably pissed off - and rightfully so. The average German knows that printing more of your country's currency doesn't do a damn thing to improve your economy, and it destroy's your wealthy and purchasing power.

More Americans are waking up to the damage that Ben Bernanke and the Federal Reserve hase done, are doing and will continue to do to the value of the US Dollar. But not to the extent of our German cousins, who are a lot more economically literate than Boobus Americanus (aka the average American).

I also wonder how much pressure the US government and the Obama Administration put on the EU and the Germans behind the scenes. Having an EU currency - and global financial system - meltdown less than two months before your election would pretty much tank Obama's chances for four more years. Remember John McCain's campaign back in 2008 when Lehman went out of business and the stock market crashed?

I don't know how much longer Europe will be able to use financial, economic and political duct tape and baling wire to maintain what little confidence there is in the Euro. My short-term trading and prediction record isn't that great... but my longer-term fundamental picks are pretty darn good. I don't know if it'll take several more weeks, months or years for this utopian fantasy to come crashing down... but inevitably it will.

Don't invest in European-related securities unless you really know what you're doing, and you're trading for quick, short-term profits. Get in, get your profits, and get the hell out before one or more of these European markets come crashing down - with the US stock market not far behind.

Great Buying Opportunity in the Metals

No two ways about it - gold and silver got smoked today, along with the SLV calls I bought this morning. The barbarous relic was down about $100, silver lost over 6% in today's trading. I still believe the longer-term trend is up - way up. That's because the Federal Reserve and federal government (not the same entities) have told us with interest rates near zero until mid-2013, their only solution is to try and inflate their way out of the debt mess we're in.

It's possible we could see a further correction in silver and gold, but today gives investors a great opportunity to buy the physical metal at a discount... and maybe an entry point for gold and silver stocks/ETFs. Tray tables and seats in the locked and upright position, folks; this is gonna be a really bumpy ride for the foreseeable future.

Diary of a Monetary Madman

That's what I would call "Helicopter Ben" Bernanke's latest ramblings from this week's Federal Reserve meeting. The 2nd round of Quantitative Easing (or money-printing on steroids) is supposed to kick start the economy back to health.

The only problem is that excessive money creation and debt is what caused our current recession/depression. Both Republicans and Democrats around the country seem to be debt junkies who don't want to go "cold turkey," and start the process of the long financial hangover - which will be the start of a true economic recovery.

Many Americans still believe that the Fed and the federal government have the power to bring the economy back to health. In reality, the best thing they can do is quit trying to "help," and get the heck out of the way so the real recovery can begin.

Peter Schiff Was Right, Ben Bernanke Was Wrong

This should be obvious by now, but this video and this video on YouTube proves the point beyond a shadow of a doubt. Now, Schiff hasn't been perfect on the timing of some of his investment recs; however, on the fundamentals he's been rock solid.

In contrast, "Helicopter Commander" Ben Bernanke has looked like a total shill and a fool. He studied the Great Depression in detail while he was at Princeton, and unfortunately, he got the cause and effect totally wrong. The Federal Reserve helped cause the 20th Century's greatest economic downturn - and it didn't help the economy recover. Expanding the money supply by printing more dollars doesn't increase prosperity, it increases inflation - and acts as a hidden tax on an individual's wealth.

Our country desperately needs to have our currency backed by gold, instead of the "full faith and credit" of the federal government - which is rapidly declining around the world. Until that time, you should avoid most financial paper assets (stocks, bonds, mutual funds, etc.) - UNLESS you understand the companies and trends well, and know how to swing trade stocks in the short-term. And save your money in gold or silver bullion.

Deflation... Sort Of - Stagflation, Yes

Bloggers and columnists have different takes on whether the economy is in an in-flationary or de-flationary cycle. In most parts of the country, real estate is in a deflationary cycle.

US stock markets (the Dow, S&P 500 and Nasdaq indices) are going sideways to slightly lower. Incomes of Americans seem to be stagnant.

But the prices of food, energy and just about everything else are going through the roof. In Idaho Springs, Colorado last Saturday, I bought my first gallon of 87 octane gasoline for $4.00/gallon ($3.999 to be exact). Wasn't happy or proud of that to say the least. Especially after losing $100 at poker in a Blackhawk casino earlier that day.

I know the government says that inflation is still low or "manageable" (depending on which parallel universe you live in where you don't eat or drive your car), but Gary Dorsch confirms the fact that inflation levels are vastly understated by Uncle Sam.

This adds up to the economic condition known as stag-inflation (or stagflation), which was last seen in the US in the late 1970s. Fortunately, we had a Fed Chairman with the cajones to put the kibosh on inflation through higher interest rates.

Unfortunately, today we have "Helicopter Commander" Ben Bernanke instead of Paul Volcker as Chairman of the Fed. And Ben Bernanke is darn sure no inflation hawk. For all the talk from Hank Paulson about a supposed "strong dollar policy" (yeah, right), what the Fed is doing is a totally different story. More of the same stuff that got us into this mess - low interest rates and an increased money supply - is being done to hold off the inevitable recession (at least in the short term).

What should you do to prepare for the upcoming economic mess? Invest in tangible (non real-estate) assets, such as physical gold and silver. For more complete recommendations, read Chapters 8-10 of Peter Schiff's book, Crashproof. It's well-thought out, and clearly explains where and why you should invest in certain asset classes to protect yourself against stagflation.

More Stupid Government Tricks

Mike Shedlock hits it on the head - again. The latest call from FDIC chair Sheila Bair to prevent more foreclosures from occuring is just more of the same government intervention that got us into this mess.

If the Fed and Alan Greenspan hadn't lowered interest rates to rock-bottom lows, juiced the money supply, and encouraged everyone with a job and a pulse to get a mortgage and buy a house, we wouldn't have this gross misallocation of resources, and this mess in the first place.

Ron Paul took Bernanke to school (again) about the dangers of government intervention in the financial markets, and loss of civil liberties during the Fed Chair's latest testimony to Congress. This unholy association of business and government isn't just the wrong prescription for America's economic woes, but is an increase of the Fed's power - which is virtually unchecked by our Constitution.

The Declaration of Independence says Americans have the right to 'life, liberty and the pursuit of happiness,' not a guarantee for 'price stability and maximum employment,' which is what the Federal Reserve is supposed to do. But that's not the role of government as defined by our Founders. Government can't (and shouldn't) try to promote an 'Ownership Society' or any other guarantee of financial or other security. Whatever the government can give, the government can also take away - too many Americans have forgotten this important point.

When you listen to what Congressman Paul says about our economy, monetary policy and the role of government today, he makes more sense than any other politician in Washington today. It's an absolute travesty that the so-called 'conservative' Republican party tried to ignore, mock and railroad his candidacy for President. The GOP is like a headless chicken running around in circles, and the Democratic party isn't much better.

As John Loeffler from Steel on Steel says, it's Socialist Party (D) and Socialist Party (R), with very little difference between them. Ronald Reagan said it best: "Government is the problem, not the solution." Americans need to remember that the government that caused our financial and economic mess isn't the best entity to try and solve it.

Only time, the free market, and getting government out of the mix are the best solutions for our economic and financial woes.

Ben Bernanke is the Fall Guy

Growing up in the 1970s, I watched a TV show that starred Lee Majors - and Heather Thomas - called the Fall Guy. It was about a Hollywood stuntman who moonlighted as a bounty hunter. Stuntmen are called 'fall guys' because they take the punishment so the star of the show doesn't have to.

Why am I talking about a 70s TV show on a financial blog? I think about the current situation with Ben Bernanke at the helm of the Federal Reserve. Financial commentators on TV, radio and the Internet are criticizing Bernanke for not 'doing enough' to make the sub-prime mortgage/real estate bubble go away. The problem is that Bernanke isn't the one who caused this problem, but he's supposed to fix it.

The "Maestro" himself (aka Bubbles and Mr. Magoo), Alan Greenspan, was the one who caused this money creation and easy credit bubble - first in stocks, then in real estate - during his term as Federal Reserve chair. Ben Bernanke is now the 2000s version of the Fall Guy to blame for when these problems hit the proverbial fan.

I don't think "Helicopter Ben" is the best guy for the job because he's an Ivy League academic (who usually have the least amount of common or financial sense), and because he's hell-bent on avoiding another deep recession or repeat of the Great Depression. His solution is to crank up the printing presses, and flood the system with fiat currency. The only problem is that this will cause a hyper-inflationary (then deflationary) recession/depression, because the purchasing power of the currency will have been deeply eroded.

While it may prop the financial markets up in the short term, there's nothing the Fed can do to avoid a recession in the long-term. As Paul Farrell of CBS Marketwatch says, "Recessions are natural, positive, healthy... and inevitable." Because politicians have a low tolerance for seeing a recession on their watch (to preserve their incumbancy and legacy), the Fed has done the bidding of incumbents to ward off a recession at all possible costs.

The recent Bush/Paulson mortgage bailout is a prime example. This will only delay the inevitable correction in over-valued real estate prices, and the needed correction in the economy. I've noticed a lot of stupidity in the real estate and financial planning business, maybe a good recession is what's needed to re-inject a much-needed dose of common sense back into our markets and society.