Hello — this is Martin Weiss with an important strategy update.
It's only fair to acknowledge that the economic depression I foresaw in my book and in my reports is unfolding more slowly than I had expected.
For reasons I'll explain in a moment, the next phase of the crisis we've been warning you about has been delayed, and this change demands a parallel change in our short- and medium-term investment outlook.
The real estate bust we forecast four years ago has happened, but right now, the housing market appears to be stabilizing.
The depression I've written about extensively is here, but it's not as deep as I expected it would be by this time.
The first phase of the banking collapse I alerted you to has struck, but the second phase has been delayed.
The stock market has plunged, but this bear market rally has lasted longer than I believed it would.
My long-term outlook has not changed by one iota! All of this simply means that the calm before the next phase of this financial storm may be prolonged. And at a time like this, it is absolutely essential that intelligent and prudent investors adjust with the times — in our case, to adjust our shorter-term outlook, strategy and recommendations.
But before we talk about the forces that have prolonged this crisis, let's take a look at what has not changed:
First and foremost, the federal government is deeper in debt than ever. Washington now owes $15 trillion. Worse, it's adding as much as $2 trillion to the national debt this year alone and pushing new spending bills that, if passed, will make these record-shattering deficits even worse.
Second, toxic assets are still piling up in the U.S. banking system. Three new waves of defaults in adjustable-rate mortgages — each larger than the previous one — are still bearing down on us.
Third, unemployment is approaching depression-era levels and still rising.
Fourth, corporate and personal bankruptcies are off the charts and also still rising.
Fifth, the finances of our state and local governments are still a mess. Their tax revenues are plunging. Their costs to fund social safety nets are surging. Their deficits are exploding.
All of these very dangerous fundamentals are still in place, just as we've told you. But two forces have been introduced into the mix.
Force#1 is a short-term shift in investor psychology: Washington has been able to temporarily tamp down the FEAR on Wall Street.
It took a heck of a lot more money than they had imagined would ever be needed — trillions in spending and lending, trillions more in guarantees. And while none of this does a single thing to correct the nation's underlying problems with excess debt, they have had a positive impact on investor confidence — for now.
For now at least, they have been able to smother the fires that just a few months ago were burning out of control.
At the same time, they have convinced many investors to resume taking RISK. And in the case of some major investors, like big investment banks, we see more risk-taking now than at any time in history.
Goldman Sachs is a prime example. Emboldened by the belief that big banks are "too big to fail" — Goldman is now taking double the risk it was taking before this crisis began.
In short, although our leaders have done virtually nothing to solve the fundamental problems that caused this crisis, Washington does seem to have bought some time.
How much time? That remains to be seen.
But for some clues, we've taken a closer look at Japan's "lost decade" of the 1990s.
Before their lost decade, Japan experienced a massive bubble economy, which included many of the same elements we saw in our own bubble — massive speculation in real estate, huge risks taken by banks and a great gambling fever in stocks.
But beginning in early 1990, that bubble burst. Much like we've seen here today, their stock averages plunged, with the Nikkei Index crashing 62 percent. Much like in our crisis, real estate prices collapsed, brokerage firms failed, and big banks were buried in a morass of toxic paper.
And just like Washington today, their government threw everything, including the kitchen sink, at the crisis.
They slashed official interest rates to zero — just like Washington has.
They introduced a major stimulus package — just like Washington has.
They kept zombie banks alive — just like Washington is doing right now.
They tamped down the fear. They bought time. They attacked the symptoms of their economic disease. But they never addressed the causes.
Their massive bailouts and handouts postponed the day of reckoning. But then months later, the next major decline began. And this cycle repeated itself — not just once, but several times during their lost decade.
Even after prolonged bear market rallies, the Nikkei made new lows, again and again.
So the lesson from Japan is clear: It is possible that the U.S. economy and the U.S. markets will muddle through and even recover for months at a time.
We may see the economy stabilize for several quarters.
We may see this bear market rally prolonged as investors continue to take more and more risk.
And you will certainly hear more voices proclaiming that "the crisis is over," and "the recession is behind us" ...
... until, that is, the next wave of bad news crushes the economy and the next phase of this deep, long-term bear market begins, when stocks plunge again, busting through their lows.
In Japan, the Nikkei ultimately fell more than 80 percent from its peak. Don't be surprised to see the same happen here.
It's no coincidence that this change we're making now puts our outlook in closer alignment with the outlook of the Foundation for the Study of Cycles, whom we've partnered with in recent months. That partnership was a major evolution for my company, helping us to significantly enhance a key aspect of our research.
As everyone knows, it's one thing to see the direction of change. And if the last few years have proven anything, it's that we have foreseen those changes well ahead of time: The housing bust, the mortgage mess, the banking crisis, the stock market crash and the economic disaster.
But it's another thing to spot the precise timing of major turning points in the economy and the markets — and that's what this 75-year-old Foundation is helping us do more effectively.
Looking ahead, the Foundation sees the same perfect storm we see. They see the next phase of this great bear market starting to strike again next year.
So that's the first change in our outlook: It now seems likely that the next major downward phase of this crisis could be postponed for several months, perhaps even until next year.
Force #2 is the fact that the economies and stock markets in Brazil, India, China and other key countries have entered an important bullish phase, giving us many opportunities to go for substantial profits overseas.
Plus, now that Washington has bought some time for the U.S. economy, the path is clearer to pursue opportunities in U.S. stocks that derive a big portion of their revenues from the most promising regions overseas.
I am ready; indeed, eager to harness this medium-term profit potential and I hope you are too.
I was brought up in Latin America and I have lived in East Asia. I have studied every major world language except Arabic. I have been to every continent except Antarctica.
More important, I've assembled an international team of experts with decades of experience overseas and global investments. We know where the opportunities are — and where the pitfalls lie.
Beware, though: The U.S.-led debt crisis will return, and when it does, it will do so with a vengeance. Knowing when the next phase of this crisis is most likely to unfold will be crucial to protecting your capital.
So my message to you today is clear:
This crisis is not over. Do not let down your guard. Do not plunge headlong into risk. But at the same time, do not ignore the short- and medium-term opportunities to grow your wealth.
Invest moderately, use prudent downside protection and cash management strategies and always have a clear exit plan.
Please be assured that, as always, you are our first priority. We are absolutely dedicated to helping you not only preserve your capital but also grow your wealth no matter how long the next phase of this crisis is delayed or how suddenly it strikes.
My staff and I are working diligently to improve every aspect of our service to you. And now that we have exclusive rights to the time-honored research of the Foundation for the Study of Cycles, we feel we're even better equipped to help you time your investment decisions in virtually every market environment. We here to help you cautiously harness the profit opportunities — both as foreign economies grow stronger and when the bear returns to the U.S.
Good luck and God bless!
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