The Truth Resonates

Hello from Paradise! I'm in the Dom Republic at WMI's Private Wealth Group and this place is beyond gorgeous. What's even more incredible than the scenery however are the WMI Members in attendance. Yes, our WMI family rocks...

The title...The Truth Resonates...comes from something that I saw VP Joe Biden say today. He said "we underestimated how bad the economy was". You think?

Trust me Joe, that's the kind of BS that does NOT resonate with people. Yes, we saw your year long forecast of 8% unemployment....of just five months ago. I'd say it's safe to say that they were just a BIT off, since unemployment is already at 9.5%. What I would love to know is exactly how much we are paying all of those Princeton economists in the Obama camp. Looks to me like these are the folks that should be unemployed....

Look, the bear market rally is over. I wished I would have officially recommended the short sells before I left, but even with a big drop on Thursday, and the sharply lower open that I expect we will see tomorrow morning, we may still see a bounce off of the S&P 500's 200 day moving average. If the market can't hold that level then look out below, the Obama bounce is offically over.

Here's the real truth, and I expect this part will resonate with almost all VRA subscribers: the reality is that the rally we've seen over the last 3-4 months has been phony...driven by short covering and government funded manipulation. These kinds of bear market rallies last only as long as investors ignore the cold hard facts of a very weak economy. CNBC might try and continue to spin things as being bullish, but once the heavy selling begins, and the professional short sellers return, the lows of 6400 on the Dow will be right back in our sights again.

For me, it's back to the best line-up of world class experts to be assembled in one place. I'll return with a portfolio update and new recommendations that will keep us positioned to profit big time, while others continue to listen to the Bidens and Obamas.

From Paradise,

Kip

THE NEW NORMAL - WHY ANY RECOVERY WILL BE PAINFULLY SLOW

THE NEW NORMAL - WHY ANY RECOVERY WILL BE PAINFULLY SLOW

Think for a second about where our economic growth came from over the last 10 years or so. We know that consumers have been the primary drivers for the US economy. Because we now manufacture and export little of anything (and far less going forward with the implosion of the auto industry), the only reason our economy has been able to grow has been tied to consumerism....the things that we buy on a daily basis. In fact, government statistics tell us that over 70% of our gross domestic product (DGP) now comes from our own purchases. You don't have to be an economist to figure out that this is not a sustainable trend. A country that continues to produce smaller and smaller amounts of exportable products is doomed in the long run, and in the short run can only expect sluggish growth at best. On top of this, consumers are now turning into savers, something that is a big positive long term, but also something that the Obama people must hate in the short term. Without consumers driving our economic engine, where will the growth come from? And, we are seeing the same thing play out throughout Europe and other Westernized countries. Increased savings equals slow to no growth.

Now consider this. Over the last decade, approximately 60% of all corporate profits have come from the financial services industry...Wall Street, banks, insurance, servicing of mortgages, auto's, etc. And we all know the shape that this industry is in today.

Hence, all of those jobs, earnings and corporate profits will take a huge hit that we will likely never see a full recovery in, and certainly not for at least a decade to come.

Incredibly, we would have actually had little to NO economic growth had it not been for mortgage equity withdrawals (MEW's) during this decade. Home owners used their equity like a piggy bank, and the record levels of MEW's were THE primary reason for our positive GDP over the last decade. Think about this for a second....without MEW's we would have been in a recession for the entire decade! And of course we know that MEW's are now essentially a thing of the past. Few people have positive equity, and those that do are either leaving it alone or could not get a loan even if they wanted to. Quick question: what percentage of people in the US have a credit score of 750 + ? Answer:less than 5%. Why is 750 significant? Because that is basically what it takes to get a bank loan these days.

The bottom line is that without the consumer driving economic growth, and with our most profitable industry becoming a thing of the past, where will the recovery come from? Where will the millions of jobs promised from Obama miraculously appear from? Green jobs? Give me a break!

This is why I continue to see this 40% stock market rally as nothing more than a bear market rally with very limited upside from here. The S&P 500 is now trading with a forward P/E (price to earnings multiple) of over 18. This kind of P/E is associated with market tops rather than market bottoms! And, lets not forget that the average bear market ends with a P/E of 7, indicating that we have lots more room on the downside before we can even begin thinking about the next bull market.

 Folks, this is why any recovery that we will see going forward is going to be so painfully slow....there are just no real drivers for growth. To compound matters, terrible decisions have been made at the governmental level and the trillions that are being pumped down the drain will simply become an albatross around our kids and their kids necks for a generation to come. We are already seeing higher interest rates and increased inflation, and they will only get worse from here. 

There are lots and lots of ways to become wealthy now, and in the years to come. Betting on a strong recovery in the overall US economy and stock market is just not going to be one of them.

Kip

WMI on Radio...

Wayne Allyn Root, WMI’s Senior Economic Advisor, the 2008 Libertarian Party Vice Presidential nominee, and a regular personality on FOX News and FOX Business, is declaring “W.A.R” on big government beginning June 6, when “W.A.R: The Wayne Allyn Root Show” debuts in the three largest U.S. radio markets.

Root hosts a star-studded lineup on these stations with the biggest names in conservative talk radio- Sean Hannity (KABC), Mark Levin (KABC), Michael Savage (WIND), Bill Bennett (WNYM), Dennis Miller (WNYM), Dennis Prager (WNYM), Michael Medved (WIND), Mike Gallagher (WNYM) and Joe Scarborough (KABC). 

*Our very own CEO and Co-Founder, Kip Herriage, will be appearing as a featured guest on each show, so make sure to block your calendars each week and tune into your local radio station.* 

The weekly, one-hour syndicated talk show will be broadcast on conservative political talk format radio stations on Saturdays. The program airs at noon on AM 970 The Apple WNYM in New Jersey/New York; 8 a.m. on Talk Radio 790 KABC in Los Angeles; and 9 a.m. on News Talk 560 WIND in Chicago. Additional markets are expected to be added in the coming weeks.

Stay tuned to your WMI emails as we will be updating you on Wealth Masters International’s exciting public appearances in the near future!

I will be on the Jerry Doyle show today

May 29, 2009

Hello from New York, where I will be joining guest host Wayne Allyn Root on the Jerry Doyle radio show today. The show is nationally syndicated and is one of the highest rated radio talk shows in America with millions of listeners each day. The show runs from 3-6pm est, and I will be on at approximately5 pm est.

Wayne has assembled a powerful lineup today....guests includeRon Paul, Mark Skousen,Rita Cosby...and of course me. I'll have lots to talk about with the big move up in gold and silver this week, along with the huge drop in the dollar and sharp increases in interest rates.

http://www.jerrydoyle.com/

When the FED chose the "nuclear option" otherwise known as quantitative easing, the die was cast with respect to inflation, interest rates, and precious metals. I'll also discuss the "Armageddon Trade" that we have in place in the VRA. I fully expect our profits from this trade to surpass 1000% in the next 5 years.

Kip

Is the Recession Over?

April unemployment showed the U.S. losing 539,000 jobs, versus the 600,000 estimate, bringing the unemployment rate to 8.9%. U4, the unemployment rate that includes those that have stopped looking for work and those that are working just part time, now stands at 16%.

8.9% is the worst number in over 25 years, and the only good news is that the rate of decline in unemployment is declining...if only by a very small amount.

I guess its possible to spin this report into some kind of good news, but as far as I'm concerned this is just more terrible economic news. Not a day goes by that I don't see at least 5 market gurus come out and say that the recession is over, but what they don't say is exactly what the recovery is going to look like. Folks, this will not be a V shaped recovery, meaning that the economy will snap back just as quickly as it dropped. We've had those kinds of recessions in my lifetime, but this isn't going to be one of them. If we're lucky, this will be an L shaped recovery....meaning that things stop getting worse and simply stay incredibly slow for a long while. Then, after a year or two, the year over year comparisons begin to compare favorably. The alternative is a Depression, so even an L shaped recovery is good news.

I continue to forecast unemployment will break 10% this year.

Obama's multi-trillion dollar taxpayer funded bailout program will begin flooding the economy with money in the second half of the year, with even more in 2010/11, so the danger is that any recovery could be a phony one...and once the government funny money is gone we could begin seeing unemployment rise sharply once more. Then, in 2011 we could see the "real" economic hardships start. Our national debt levels will be so high that interest rates begin to skyrocket, yet the economy will be so slow that little business will be taking place.

Stagflation would lead to a repeat of the 1970's, with interest rates and inflation at 15-20%. Obviously, this means the worst could be in front of us, rather than in our rearview mirror.

MARKET UPDATE

Lots to cover, but I'll do my best to cover the most important facts. Yesterday was a traders delight. The big jump in banks gave us an opportunity to take strong profits. Then, we nailed the move into the short side and within 4 hours had another 20% gain. Folks, it rarely gets better than this. Having said that, the encouraging news from the bank stress tests, along with the positive spin they are putting on the unemployment numbers, have the futures trading higher by 80-100 points on the Dow.

Here's my take: I'm seeing something very interesting starting to happen. We rally (very briefly) on good news and then sell-off almost immediately. We've seen this exact thing happen several times this week with the ADP jobs number, retail sales, and then again after the stress test news yesterday. This is the exact opposite of the "wall of worry" move higher we've seen over the last 8 weeks and may well mean that the bear market rally is over. I will be watching this closely.

Also, beginning today, just about every large bank in the country will be announcing that they will soon issue massive numbers of new shares in order to stay in the governments good graces. This huge increase in supply cannot be good news for bank stocks. Again, I think we are most likely at a significant top, but I learned long ago that the market could care less what I think.

Kip