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Finding the Upside of the Approaching Down Markets


What will you hold? What will you short?

As you spend this holiday season with loved ones, take a moment to reflect back on your life and on ALL that you're thankful for. Also, consider where this great country has been to the many serious financial challenges Americans are facing today. If you're not one of the 20 million households struggling to put food on the table this holiday season, and not one of the millions that are behind on their mortgage payments and facing foreclosure, give special thanks.

When living in a prosperous country that's going through extremely tough economic times, it's especially important to be really thankful for all the blessings in your life. I believe there's an "upside of down" in nearly everything in life, but sometimes you must search long and hard to find it in challenging times. There's also an upside of down in markets and now's the time to prepare for a downside reversal. While there have been many months of an upside market, soon, everyone will need an investment strategy to be successful for the next big leg down.

Friends, there's a huge disconnect between Main Street and Wall Street, as the Fed frantically pumps liquidity into the system and props up increasingly overvalued markets. The Federal Reserve's efforts to "paper over" the troubles in America are simply another "short-term gain for long-term pain" monetary strategy. We need to get some perspective here to understand where things are now, and how we should prepare for what could be coming once the Fed's monetary juice is removed.

The Lava Flow of Deflation Met With a Tidal Wave of Liquidity

The volcanic market eruption in 2008 was a slow-motion repeat of 1929 and the giant multi-month rally in 2009 is closely repeating the powerful rally of 1929-1930. These famous crashes both resulted in a lava flow of deflation. The Fed in 2009 has tried to overcome this deflation by flooding it with monetary liquidity. This is creating an economy that's quickly moving into classic stagflation. Gold is erupting as the dollar is weakening, bringing inflationary pressures to a stagnant global economy. The Fed has once again followed the Greenspan playbook: inflate stocks by cutting rates and flooding money into the system. The same predictable play, just a different day.

The deflation side of the stagflation equation is very evident. Witness the real estate depression our country now finds itself in. Even with massive stimulus by the Fed and the Obama administration, real estate woes continue. A record 10.9% of housing units sit empty as multitudes across America are forced to move in with friends or other family members. Just like in the 1930s, waves of foreclosures are intensifying this lava flow of deflation. Yet all you hear about is how much real estate and the US economy is improving. If this is so then it's time to prepare for the markets' anticipation of the Fed's inevitable removal of excess liquidity. A meteoric rise in gold might be the catalyst for a surprising Fed move to prevent the inflation gold is now anticipating.

Is the New Great Global Depression of the Twenty-First Century Coming?

Right now, even with massive government stimulus efforts, the official unemployment rate has erupted to over 10%. A broader and more accurate measurement of unemployment, the U6, shows a depression-era level of 17.5%. States all over the nation are seeing the steepest declines in tax collections since the 1930s. Because of the real estate depression, suicides are rising, and are getting closer and closer to levels seen after the famous 1929 stock market crash.

Sadly, I have witnessed this first hand. A friend of mine, a doctor-turned-real estate speculator, took his life due to losing his entire fortune in the real estate crash. If real estate prices have another leg down, we'll face a new wave of suicides likely from a derivatives collapse of monumental proportions and the very real possibility of a new great global depression.
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