THE STOCK MARKET, STORAGE, ETF’S & WORLD RISKS

by Michael Pennington

WHERE  WILL THE STOCK MARKET  BE IN 2012?Attempting to answer this question in the short term is a slippery slope. What makes this even more hazardous than normal is the widespread doom and gloom surrounding Wall Street. There is the housing crisis, the credit crisis, the banking crisis etc, etc. I never thought in my lifetime I would see Ford stock selling at $4 per share or General Motors selling for $10. The old “rules of investing”, like Buy and Hold, don’t seem to be working anymore. Anyone who bought General Motors in 1952 and held until today lost money, excluding dividends.Today’s financial crisis has no practical solution. There are only acts of desperation in reaction to each crisis further corrupting an already weak dollar. Just this week the IMF said there is no end in sight to the U.S. housing market and that losses on bad mortgages could exceed $1 trillion dollars. The only tool the FED possesses now is to inflate and that is what they are doing. The FED is in no position to fight inflation by raising interest rates. Higher rates would simply bury the economy, so we will have to live with global hyperinflation. This week, several major corporations, like Sara Lee, Colgate, US Steel and Hasbro just to name a few, have announced their intentions to raise prices. This is the first of many, many more to come. It is likely at some point in the future we will see the highest interest rates in the history of the U.S. We are already hearing references to the Weimar Republic following WW I.In 2009 the new President will be under tremendous pressure to appoint a new FED Chairman, who would be Volker-like in aggressively fighting inflation. This means higher FED Funds rates in the 12% range. Then we will witness the worst recession the U.S. has seen and it will last until 2012 when economic recovery appears and interest rates are eased. The biggest loser during this downturn will be stocks. In my opinion it looks very possible that the Dow could reach its 1996 lows of 4,000. By 2012 then stocks will be the place to be as stocks bottom and hard commodities top. In the meantime, preservation of capital is the most important goal. I continue to recommend moving funds out of stocks and bonds into hard assets, notably gold and silver.THE STORAGE PROBLEM SOLVEDStorage is always a consideration in contemplating the purchase of precious metals. By far, the most preferable means is to take personal possession. You can then either store them with a separate, private security company near where you live (if available) or store them on your personal premises. If have money to buy them, then you have the money to provide a secure sight somewhere on your personal property. Build a hidden room, complete with a fireproof safe, and don’t tell anyone but a close family member where the safe with “valuables” is located.  A house burglar is normally a cheap crook looking for a quick, easy “hit”. As a result, you are always close to your metals and can easily access them in case of need.ELECTRONIC TRADED FUNDSHopefully, I have harped on this enough during the past year. Regardless of whether it might be SLV or GLD I highly recommend you sell these funds and buy physical metal instead. If you haven’t read any of my articles on this, I encourage you to do so. Look in the archives under “SLEEPING WITH THE ENEMY”. The trustees for these funds are selling the metals short into the market and potentially creating a situation where your portion of the metal owned is not really there for you. Please do your homework. If you need additional information on this, let me know, and I will send you plenty.GEOPOLITICAL RISKS ARE ENORMOUS AND MOUNTINGAs if the global financial risks aren’t great enough, the world’s geopolitical risks are deteriorating. We all know about the problems in Iraq and Iran, but the problems in Afghanistan is re-emerging and what’s worse is what’s happening now in Pakistan. It appears our presence in the ME will take many years to police the situation. The smallest blowup could easily escalate into a full scale war among the various factions. The price of oil and other commodities needed around the globe could double in a week. The chances of such an event occurring with a New President is higher as these people will want to test a new Administration. 

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