Wednesday, January 23, 2008

Stocks Continue Fall; Bonds Rise.

Dow Down 200 Points At Opening
Broader Market Also Declined

Yesterday's Fed rate cute cut of 3/4 points held off the bears for one day, and then the selling resumed.

In Europe, the Central Banks refused to join the Fed in cutting rates, and markets continue to fall.

AP News via MyWay

NEW YORK (AP) - Stocks fell in another rocky opening Wednesday, with investors uneasy about the health of the economy and corporate earnings after disappointing reports from big names like Apple Inc. (AAPL) and Motorola Inc. (MOT) In the first minutes of trading, the Dow Jones industrial average fell 261.10, or 2.18 percent, to 11,710.09.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 28.97, or 2.21 percent, to 1,281.53, and the Nasdaq composite index slid 53.19, or 2.32 percent, to 2,239.08.

Bond prices rose sharply as investors sought the safety of government-backed debt.

Wall Street also fell in tandem with markets in Europe, which pulled back after European Central Bank President Jean-Claude Trichet indicated that the ECB would not follow the Federal Reserve's lead and cut interest rates, according to Dow Jones Newswires. The Fed's decision Tuesday to cut its federal funds rate by 0.75 basis points to 3.5 percent eventually helped calm U.S. markets, but it was already clear that investors had doubts about the potency of the Fed action. Rate cuts typically take months to work their way into the economy.

Bond prices rose sharply, the beneficiary of investors' search for safer places for their moeny. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.41 percent late Tuesday. The dollar was mixed against other major currencies.

In afternoon trading in Europe, stocks dropped sharply. Britain's FTSE 100 fell 3.44 percent, Germany's DAX index fell 4.76 percent, and France's CAC-40 fell 4.02 percent.

TREASURIES-Bonds rise as stocks fall on recession fears

NEW YORK, Jan 23 (Reuters) - U.S. Treasuries rose on Wednesday, with the benchmark yield briefly touching its lowest since June 2003, as fears of a global slowdown and more write-downs at European banks spurred a flight into bonds from stocks.

Global equity markets resumed their sell-off, adding to the appeal of ultra-safe Treasuries, as the positive jolt from the Federal Reserve's surprisingly bold 75-basis-point rate cut on Tuesday faded. Attention again turned to worries about a U.S. recession and its global repercussions, plus banks' exposure to subprime mortgages, traders said.

"When the Fed cuts 75 basis points, stocks are supposed to go up. That's not happening. There's a lot of dread out there," said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.

The stock market pared its losses because financial shares rose after their initial plunge, in which the Nasdaq .IXIC opened down 2.4 percent into bear market territory.

"Any support stocks show, long-end (yields) will come back off their lows," said Mary Beth Fisher, director of interest rate strategy at UBS Securities in Stamford, Connecticut.

The price on the benchmark 10-year note was up 19/32 at 107-22/32 after an earlier high of 108-1/32. The 10-year yield, which moves inversely with its price, was last at 3.35 percent, down 7 basis points from late Tuesday.

There's more...
I'm fully out of the market, as of the end of trading yesterday.

Everything is liquid, cash, money-market accounts, certificates of deposit. All backed up with the full faith and force of the U.S. Government. Could I get hurt? Yeah. Inflation could hurt. I might move 10-15% to physical gold, but I should have done that two years ago. I knew it then too, when I saw this coming. I just didn't have the cash then to buy gold in any real volume. I still don't, actually.

Here's what I predict. TAKE THIS AT YOUR OWN RISK. I am not a broker or a licensed professional of any kind. It's your money, not mine.

Oh... and if you are going to read one person, read this guy, The Bonddad Blog, who not only has his own blog but publishes at Huffington Post as well. Bonddad isn't saying what I am saying. (I am responsible for my analysis.) But I like his thinking.

I believe China is way over-extended. They have been keeping their economy over-heated and will try to keep it up and looking good through the Olympics. At some point, for sure after the Summer 2008 Olympic games, possibly before, China's economy is going to melt down. When that happens, they won't be positioned to keep loaning the United States $2 billion dollars a day in the bond market.

China will go into their equivalent of the U.S. Great Depression, and take the rest of the world with it, including the U.S. I believe this will happen about mid-2009, roughly 18 months from now. Lots of people will be out of work, everywhere. Could it happen sooner? Sure. Later? Yep. Could I be wrong? You bet.

Do I think I'm wrong? No. And I'm putting my money and actions behind what I'm telling you. But take my analysis at YOUR OWN RISK. I don't back anything I'm telling you up with a damn thing. It's all on you to check this out for yourself, and make up your own mind what to do.

The most important thing will be to have a six-month supply of food and clean water (or better, a good water filter) stocked up. I'm not kidding. Then have gold and silver, which have real value which will hold, even as paper money inflates away. Physical tools of good value. A good bicycle you can get to work on. An adequate supply of medicines. If your home mortgage is underwater, make sure you've sold it before spring a year from now. Hard times are a-coming. Prepare for them. If you're going to ride things out where you're currently living, a wood stove to heat the place wouldn't be a bad idea, and make sure it had enough room on top for you to cook, maybe even including an oven.

Do I know this is going to happen. Of course not. No one knows the future to a certainty. But just as we can be sure that earthquakes will happen along known fault-lines at some point in the future, I look at what the Fed is doing, the over-heated economy in China, the defaulting mortgages all across the land, and even someone as ignorant about money as I am, can say, hard times they are a coming. We've been living in a bubble for a while, and it's going to burst in a big way.

If I'm wrong, well, you'll miss out on some upside appreciation in the market. Oh well. If I'm right, you just saved yourself possibly losing a third or more of your life savings which you have in the market, plus made sure your family has enough to eat, tools to make a living with, and a warm house during the cold months, a year or two from now when it gets tough.

That's what I'm doing. And that's what I'm advising those close to me to do.

Historical note of interest: Three years ago I got pretty crazy for about six weeks. This is back when I wasn't myself due to the pain meds. During that time, I predicted we'd have $100 oil by the end of 2006. Turns out "I" was wrong. It was two days into 2008. I was off by a year and 2 days.

Historical note #2. About two-three years ago, I purchased gold for the first time in my life. It was around $220, 230 bucks an ounce. I took home one ounce, all I could afford. Stuck it in a glass jar. I predicted -- just as I'm predicting now about the future world economy -- that gold was going to go up. Some months later, I was broke one month, so I marched right back down to the same store, and sold it off. Made a $30 dollar profit, even with the spread. Gold now is something like $800+ an ounce. And going up. I think it will top well over $1k, maybe as high as $1.5k if China goes into a full-blown depression as big as what the U.S. had in the 1930s.

Finally, here is this to think about. In the 1930s, the United States had FDR. He led us through the Great Depression, and brought us into the Great Society, and then took us through World War II. At the end of which the United States was the undisputed leader of the world, the USSR not withstanding. We did that with much less than our current 300 million people. We did that with our brains and our technology and our vast natural resources.

China has 1 Billion people. They have brains, they are rapidly gaining technology to knock everyone's socks off, and they have vast, vast natural resources. If they do indeed go through a great depression, look for them to emerge after 10-15 years, as the leader of the world, while the United States sinks back after 10-15 years of being in a serious depression and the U.S. dollar no longer being the reserve currency, as being a respected leader, but no longer the leader. Like Great Britain before World War II.