Market Update - April 5, 2010

Marc's Notes:

Treasury 10-year note yields rose above 4 percent for the first time since June as evidence the economic recovery is gaining traction added to concern debt sales will overwhelm demand as the U.S. funds record deficits. Ten-year yields touched the highest level in 18 months as a gauge of service industries and pending sales of U.S. homes rose more than forecast. A report on April 2 showed the U.S. added the most jobs in three years last month. Further gains in 10- year yields, the benchmark for everything from mortgages to corporate bonds, may dampen the recovery if higher borrowing costs for the government are passed on to consumers.
What this means is for the US to continue to fund itself, it has to issue more and more IOU’s and as it does, the world is getting more and more nervous about the US ability to pay off on all this debt. Remember, the Federal Reserve might set interest rates here in the US but the world sets interest rates on US debt and right now the world is raising the stakes and demanding more interest. As the interest rate for US debt rises, it costs the government more and more money to pay the servicing of this debt. This is the issue I have been warning about all along. With these massive bailout programs and social costs that Obama and Congress are authorizing, the risk is rising interest rates, and they are rising as we speak. Should they continue to rise, it means the US dollar is falling in value, which spells INFLATION. This is the end result of massive money creation and deficit spending. We will keep an eye on this materializing event as this current rise in rates, should it continue, will put a halt to further spending plans, and could be the start of a US dollar crash. Rising interest rates will HALT any economic recovery as we simply have too much debt.
Meanwhile the Dow seems to want to go over 11,000 but is being repelled at every attempt. This is about the 5th time it has tried to climb into the next level. Will it finally make it? We will wait and see. Here’s what to look for.
A rising Dow will also give false hopes that this recovery is real. It is not. It is a government driven rally but investors are believing it is real. Should the Dow continue to rise, investors will also drive oil, gold and interest rates higher as well. This will halt the recovery as it was $150.00  a barrel oil that stopped the economy in its tracks the last time around. Should oil continue higher, and it will with recovery hopes, it will drive everything else to go up in price, which will cause inflation, higher prices and therefore put more pressure on consumer spending.
As you can see, there is no way out. Recovery means higher oil, which means higher prices, which stops the recovery. Higher interest rates will also occur, also halting the recovery. Higher gold prices are the canary of investors sensing inflation.
Inflation IS the poisonous gas in the mine, and it will permeate and terminate any recovery hopes. The FEDS are boxed in. This is the rock and the hard place we have been warning about. The FEDS have spent themselves into a box. Stop the stimulus and the recovery falters. Keep up the stimulus spending and inflation takes holds and interest rates rise. Not a pretty place to be in. In saving a few hundred thousand home owners and a dozen big banks and companies, they have doomed the rest of us to inflation or worse. They have saved a few and put the entire country now at risk.
Greece’s deficit problems are a microcosm of what is coming. First homeowners were bailed out, then large companies were bailed out, then our banking system was bailed out, now entire countries are in need of bail outs. Who will bail out those countries? The IMF probably. Then the question becomes who bails out the IMF?
No one, they are the last one in line. That spells an entire paper money system at risk. After all, everyone is printing money to bail out everyone. So the end result is that the paper money system is rotten and at risk of a final and catastrophic collapse. Not a pretty thought, but that is what the symptoms are telling us.
These paper money cartels of the world are now on a one way road to ruin and with them goes the rest of us. You don’t have to be wiped out however. We can prepare the best we know how and we do have a plan to protect investors by diversifying into things that should profit from the decline. Make sure you follow this newsletter and tell your friends and family to do the same. What will probably follow is two fold. The recovery (which it isn’t) may run a bit longer but will either end in one of two ways. If the Dow continues up, you will see inflation in oil causing inflation in everything. Interest rates will rise putting pressure on the FEDS to do something to stop rising rates and a falling dollar. In a bizarre twist, they will raise domestic rates just a tad to try and defend the US DOLLAR. This will put pressure on all this debt we have and the markets will stall and probably start down again. They may “monetize” the US debt; buy debt with more printed dollars. This will cause foreigners to become even more nervous and interest rates will first stall, and then eventually begin their ascent again, forcing more monetization by the FEDS and a vicious circle begins. Inflation then grips the economy and all hell will probably break loose. Or it may go the other way. The stimulus will take on our original forecast and “Not be enough”. The “recovery” stalls on its own as investors begin to see through the hype. Employment never does improve much, company profits never materialize and housing continues down. Retail stores continue to fail and the markets start hard down again. In this scenario oil and gold fall with the markets. Interest rates will start DOWN again and the dollar rises, reflecting a “flight to safety” as, incredibly as it may seem, the world will still see the US dollar as the “safest” investment in a world caught in a deflationary spiral. (Crashing prices). The US will then attempt more stimulus, and may even try repeated stimulus programs, until such a time where scenario #1 materializes. The result in either case? Scenario #1. The FEDS print and monetize everything in an attempt to “stimulate” a recovery and pay off mounting debt. They will end up stimulating nothing except more debt, and more inflation. Again, not a pretty picture, but don’t shoot me, I am just the messenger.


Now on to our holdings.

Gold and Silver- No change since previous recommendations. ADD physical metals in your possesion at any time, and continue to hold your gold stocks and funds- Do not add stocks or funds at this time until we get a signal on gold movement one way or another. You should already be holding UNWPX anywhere from 11 to 14 and we are looking for a double long term. Same with USERX or TGLDX or any of the others mentioned over the past 5 years.
Oil- You should already have a lot of oil type plays round about on the Super Dividend Payers List (See moneymanagementradio.com). Because I fear a market crash, I do NOT recommend adding any oil stocks other then your dividend payers.
Interest Rate Funds- RRPIX is rising with interest rates. Some of you may hold TBT, a more leveraged play. Hold RRPIX and you may even add some here. Do NOT add TBT yet as this fund moves twice as fast as it is a leveraged instrument. Because I fear a market crash as mentioned above, I want to wait for the final US dollar rally until we add this fund.
Dividend Payers- Those that met with me for a consult should be adding in thirds as detailed in our meeting. All others should be holding these with a 20 % or so stop- sell order IN PLACE in case of a market turndown. (Place a STOP order, NOT a STOP LIMIT order, with your broker at a price 20 % or so below today’s prices.) I would not add any new positions at this time except the consultees I met with. (To schedule a consult, go to the website).
Contrary Funds- These funds go UP if the market goes down and are going down as the market goes up. These are insurance for your dividend payers and other stocks you may own and do not want to sell. Add amounts within your budget. BEARX holders should continue to hold. New buyers should NOT add BEARX as it is now a loaded fund. DOG or SKK are funds you can consider.
Foreign Currencies- Still no word from EVERBANK on a new risk free CD so we wait. Those following our recommendations should be holding FXC, FXF, and FXA. FXC, the Canadian Fund is up HUGE in the last month. FXF and FXA are also performing nicely. ADD these at any time as insurance to your US DOLLAR HOLDINGS. You should NOT be holding any FXE (Euro) or FXY (Yen) per our past newsletters.
Safe Money Funds- As always, most of your money should be here. Bank Savings Accounts, or our “Safe Money Funds” on our Dream Portfolio. Anything that is short term (under one or two years) and insured by the US GOVERNMENT.
(See Website for a list of funds you can choose from in the Dream Portfolio). Hedge these with the interest rate funds and foreign currencies listed above.  NOTE: Money Market funds for the most part are NOT insured and I do not recommend MONEY MARKET FUNDS. They also added a new stipulation that they can HOLD YOUR MONEY in market disruptions. In other words, if things get dicey again, and you need your money, they DO NOT HAVE TO GIVE IT TO YOU. Need I say more?

Swiss Annuities- Don’t confuse these with American Annuities offered here. THEY ARE NOT. I do NOT recommend American Annuities, whole life or anything resembling them. Swiss Annuities ARE what I DO recommend you consider and you can get a booklet on the website by clicking on the Swiss Advantage Banner on the right side banner area.

Gamblers Play on Natural Gas- Blood in the streets. It may now finally be over. It is rising nicely now. Lets hope it continues. It is rising because oil is. It also is rising because of inflation.  I sold my options on a stop out but still hold a ton of it for 2011 and beyond.

Considerations- Make as much money in your job as you can NOW. If the markets turn down again, employment and customers will be harder to find. WORK HARD NOW as the going is good and squirrel it away.
Real Estate- Don’t be fooled by the numbers coming out in recent days about real estate recovering. A “hard down” is coming. What you are seeing is the markets’ “Hope Wave”. Those buying now are being suckered. It’s the markets way of getting the very last available housing dollars before it starts its slow, miserable grind down for the next 2 to 3 years or more. Just GOOGLE up a chart of Japanese Markets or Japanese Real Estate Prices to see what is in our future.  Here is a link to a chart.

http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e070220

That’s all for now.
Good trading and Good Luck, and remember, Good Luck is a result of good planning, so plan!

Marc