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Bombs Away
by Rick Gagliano and Don Bravo | August 3, 2006
Our strategy is now clear. With the Nasdaq already at depressed levels from earlier in the year and the Dow looking like it's about to roll earnestly over, now is the time to go completely out of US stocks and into a position of 50% cash, 30% gold and/or silver and 20% other tangible assets (art, collectibles, vintage autos, etc.).
In case you haven't sufficiently trimmed your losses and taken whatever profits have been available, you've got a little more time before the proverbial flotsam bumps the bulwark. The approaching next few weeks of August have the potential to be the ugliest on Wall Street this year and the carnage will almost certainly continue through the next two months.
Our rationale is based on a variety of factors, not the least of which is the current turmoil (some dare call it war) in the Middle East, which has spread out from Iraq to Israel and Lebanon and like the tinderbox it is, could easily envelop Syria, Iran, and possibly Egypt, Turkey and a number of heretofore moderate EU nations.
The situations in Iraq and Lebanon are untenable and unacceptable. Not only are the peoples of those countries being decimated daily, world opinion is decidedly negative toward the United States and now, our main ally in the region, Israel. Condoleeza Rice's failed mission in the Israel-Lebanon conflagration only served to exacerbate the negativity and fuel the feeling that the US actually is encouraging Israel on its purported mission to eliminate the terrorist threat from Hezbollah in Lebanon.
Equally, our failure to secure any kind of peace in Iraq is and has been a severe drain on the consciousness of the world, our military readiness and the federal budget. While the average American citizen sits comfortably - for now - in his or her living room, the internal damage to our nation's credibility and finances has crept up to alarming levels.
What does all of this have to do with US stocks? Simply put, the markets don't like uncertainty and unless the level of outright aggression and militant rhetoric doesn't subside soon, the damage will be felt across all segments of investments. The US economy cannot sustain continued deficits and improper foreign strategy indefinitely and after nearly six years of excess, dishonesty and foolhardy foreign exploits, we're on the verge of a sea change.
What the politics of neocon-fascism (close contact between big business, the military and government) in America has produced is a select class of over-earners who have benefited grandly from inside information, price manipulation and slanted deals. The overt gouging by the oil companies is only the most blaring manifestation of the insider culture. The oil barons got richer while the citizen paid at the pump and it's all due to pseudo-price hikes on the oil futures market, tied to perceived instability in a few oil-rich nations and outright price manipulation and collusion by Exxon-Mobil, Chevron-Texaco, Royal Dutch Shell and British Petroleum and their consorts inside the government - both in the administration and the congress.
The price of oil and gas - to say nothing of natural gas, electricity, home heating oil - has pushed the US economy into a position that energy sector profits are in an inverse ratio to all other sectors. Yes, they've cornered the market so spectacularly that their gains are at the expense of the rest of the country, and to some extent, the world. The one sector possibly not being so affected is the financial, as the carnage is encouraging trades and money exchanges. Our incipient recommendation will only fuel this toxic relationship further.
While could advise buying the energy and financial sector stocks, our social consciousness and alacrity to not be in an untenable position when the sea change occurs - about and around the first week of November, if not sooner - precludes such recommendation.
There's a genuine shift occurring in America which will either metastasize into an outright change in politics on November 7, or, if we're wrong, will plunge the economy into a long and ruinous recession. Either way, it's going to be somewhat of an unpleasant and uneven ride for stocks and fixed investment instruments.
Our advice is, if possible, to shift away from all equities until the waters calm. Gold, silver and to some extent, all commodities are the safest bets right now. A recession is almost a certainty as home values are dropping like bricks off a facade, stocks are not yet reasonably valued and the level of incompetence and intransigence in the government, banking, and military are particularly indefensible.
Other wise uses for your money might include paying down credit card, mortgage and other debt, buying useful tangible assets (any device which reduces dependence on established energy supplies is a good investment), and shoring up, restoring or completing any collections or heirlooms. The collectibles market is still suffering from the splintering effect of the internet, so bargains are still available.
On gold and silver, we ardently advise buying and holding physical metal bullion or coins, without speculating too much on rarity. The metals have recently been in a trough, but silver and gold are poised for another run to and beyond 20+ year highs.
Regarding your retirement fund, 401k or other investment which may carry penalty for early withdrawal, the choice is yours. Either hedge, if you cannot get out of stocks with less than a 15% penalty, or take the plunge and move your money into a more controllable area. You can ride the coming downturn down, but you do so, as always, at your own peril, and you absolutely must consider present and future tax considerations no matter if you decide to move money or stand pat.
Our bottom line is that there are times to buy, times to sell and times to just sit by and watch. We're moving rapidly from the sellers' camp to the relative safety and security of the watch and wait coalition.
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