"Kip's VRA financial newsletter is a MUST read for every saavy investor in this country. Disregard it at your own peril. His mantra is my mantra. Kip Herriage's newsletter is my financial Bible."

--Wayne Allyn Root
2008 Libertarian Vice Presidential candidate
Author, "The Conscience of a Libertarian"

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Twitter: @kherriage

Tuesday
Oct282008

IMPORTANT: Blog Email Verification Needed and Market Update

In order to ensure that you receive an email the moment I post a new blog update, make sure and "verify" your email address via the Aweber email verification process. Everyone that has signed up previously should have gotten this request today. If not, you should simply sign up again.

MARKET UPDATE: This morning (and yesterday) I said that a major bear market rally was coming and I guess a near 900 point move higher in the Dow qualifies. Look, I've been in this game since 1985 and if I've learned one thing in those 23 years its this: you only get these kinds of massive one day moves during a bear market rally. I would be VERY surprised if we look back on this move and said "wow, so that 900 point move up was the sign that the market had bottomed, and that I should have gotten back into stocks". It just doesnt work like this (remember the 900 point move higher of a couple of weeks ago?)...I believe that we will (soon) be going back down and testing the lows.

It's still likely that we have a ways to go on this rally, and my best guess is that we open sharply higher again tomorrow into the announcement by the FED that they are dropping interest rates at least a 1/2 point, along with global coordinated rate cuts that I expect as well.

IMPORTANT: Buy The Rumor and Sell the News! Smart investors LIVE by this axiom, and novice investors make decisions just the opposite way. Make sure you are the "smart money" if you are in fact trading this market at all. Personally, I will be selling into the afternoon rally...assuming it even lasts that long. Once the market starts to reverse (after the rate cut is announced) the sell-off could be fast and brutal.

Finally, if you have been looking for an opportunity to sell some stocks and raise some case, tomorrow (or possibly the next few days) will be that opportunity. Ideally, you will then be sitting pretty when the market comes back down. Not a day goes by that I don't read horror story after horror story about people/and or their company's blowing up because of major debt issues or margin calls. Unfortunately, this is just beginning of the recession, so if you decide to listen to the CNBC pollyannas telling you to buy, buy, buy....just remember that there's still lots of bad news on the way, and that this bad news will make it very tough for most stocks to go higher.

I could well be wrong....this could be the market bottom. I'm just not going to be a hero and try to pick the bottom. Knife catching has never been very much fun for me.

Kip

www.wmitoday.com

www.vraletter.com

www.kipherriage.com

 

              

            

Tuesday
Oct282008

Bear Market Rally

The stock markets around the globe have been absolutely battered. While the US is down over 43%, most foreign markets are off over 50-80% from their highs….just brutal…and amazingly fast. We’re looking at something like $10 trillion in global market losses in just the last couple of months. As I’ve been saying…this is once in a lifetime stuff…and it’s not nearly over yet. 

However, we are about to get what could be a significant and sharp bear market rally. This move higher could even take us back to 9500-10,000 on the Dow Jones, so if you are playing the market on the short side be careful for a while.  

The FED will reduce rates to 1% tomorrow, and there is a coordinated global rate cut coming along with it. In addition, the TARP is beginning to fund banks now so there will be plenty of short term positives for the talking heads on CNBC. 

Here’s the medium term problem: This recession is just getting started and has at least another year to go. Once defaults begin in the corporate debt and commercial properties markets, the banks will need another bail-out package just to stay afloat. This is the big reason that they are not lending any of their newfound money from the TARP….they know that they will need this capital in the coming months just to remain solvent. 

Now, here’s the longer term problem: ENTITLEMENTS (social security, medicare and medicaid)! If you have not seen the excellent movie I.O.U.S.A., make sure you do so if it’s playing in a theatre near you. Here’s the bottom line. The US has over 90 trillion in debt and just about 40 trillion in assets. In the next 10-20 years, our taxes will have to increase to 70-80% just to pay the interest on our massive debt and to pay for entitlement programs!!  

This is why I have a real issue with Warren Buffets advice to buy stocks for the long term. Can you see stock prices going up in the future with taxes at 80%?? I’m struggling with this one, and with another Buffet issue as well. While the NY Times gladly ran his puff piece on the stock market, they conveniently left out the fact that he has over $3 billion in stock market “derivatives losses” tied to S&P futures, and if the market continues to drop, his derivatives losses will only increase. Somehow, I think that people should have been informed of this. I’ve even read serious articles that push for an SEC investigation into Buffet over this. Likely won’t happen, but if it were you and me….? 

Final thought on social security…and it’s a real shocker in case you’ve never heard this. In 1935, when Social Security began, there were about 40 workers for every retiree.

Now? The number is just 3.5 to 1, and in 10 years or so it will be 2 to 1. 

Happy Halloween huh…. 

 

Kip Herriage

CEO, Wealth Masters International

www.wmitoday.com

www.vraletter.com

www.kipherriage.com

 

Monday
Oct272008

Short Term Rally Coming

Just a follow-up to this mornings update. Beginning tomorrow we will begin to see coordinated rate cuts globally, and the US FED will aggressively drop lending rates to approximately 1%....or an all-time low.

For those that are traders, you can go long the market. Again, this is not for everyone, but I do expect the markets to rally sharply in the short term. 

However, if the markets cannot hold these gains then it means that all bets are off and that the next leg down in this bear market will be quick and severe. 

I only put this note out to provide an accurate strategy for those that are more trading oriented. 

Kip

Monday
Oct272008

Where We Are Right Now...

Right in front of our eyes we are witnessing the most serious threat to our financial system in 70 years, and anyone that tells you that it’s almost over is either guessing or just hoping. I’ll go so far as to say that I believe CNBC will face a huge class action lawsuit in the coming days and weeks, and that they stand a very good chance of losing this landmark case. So, what’s the case? For those that watch the network you likely already know where I’m going with this. For those that don’t watch CNBC….don’t use this as an excuse to begin doing so now. So here’s the deal: Every day during this 40% decline CNBC has had their cheerleaders on TV pumping the markets up. Seemingly every single guest they bring on says something like “there are incredible values in the stock market”, or “those that are buying now will wind up with huge bargains”. I believe they are very, very wrong, and that they contributing to the massive losses that investors are chalking up. Sure, every now and then they will bring a guest on to talk about the potential for even deeper stock market losses, but they are outnumbered by at least 5 to 1.

So, where are we right now? 

The good news is that this is not the 1930’s all over again. It is very unlikely that our banking system will collapse, or that there will be a run on the banks. The government has made it very clear that they will do whatever it takes to ensure this never happens, even if it means that we only wind up with just a few major banks. Unfortunately, this is just about the only good news. 

The bad news got worse this past week as global stock markets hit new lots on Friday, with many dropping over 10% in just one day. It looked very much like the US market would follow when we opened up, but a 1000 point loss was averted when the FED injected over $150 billion in the opening hour. Amazingly, US banks borrowed another $450 billion from the government last week alone simply to remain solvent, and the worst has yet to even hit them.

How can it get worse than what we’ve already seen? Here’s how: So far the vast majority of the losses that banks have suffered have come from the US housing market, and of course the derivatives tied to same. So far both corporate debt and commercial real estate debt have managed to remain somewhat steady. 

This is about to change….

This is simply not going to be just an average recession, and in fact we have only just begun to see the effects of it. Once the recession begins to catch up with corporate America, we will start to see the cracks in those loans as well as in commercial real estate. There is simply no way to avoid this. Unfortunately, the talking heads on CNBC choose not to discuss this possibility much, but once it becomes reality it will be interesting to see how they sugar coat it. 

Going forward, as things begin to get really tough on not only the banking industry, but on the real economy as well, the FED will “really” begin to get aggressive with their printing presses, which is when we will see the US dollar resume its bear market. Recently there has been a “flight to safety” in the markets, which explains why the US $ and US Treasury bonds have been going up by leaps and bounds. This also explains why gold dropped to just under $700/ounce on Friday (as of this writing gold has spiked back up to $735/ounce).

 We are witnessing a global deleveraging of never before seen proportion, which can only end one way. Eventually every fiat currency will begin to go down in value as each country does the only thing they know how to do….print more money! 

Case in point: Michael Maloney is the hand picked hard money expert of Robert Kiyosaki and the author of “Guide to Investing in Gold and Silver” (he will also be presenting at the upcoming WMI m2 Wealth Conference in Marco Island, Florida, Nov. 21-24). In his excellent book, Maloney provides an excellent review of past currency crisis dating back to the 1500’s. One such case study is the German currency crisis of the 1920’s. Following World War I, Germany was deep in debt and owed war reparations that they could not pay. Once they had used all of their gold to pay France’s reparations, they had no other option but to begin printing money as fast as they could to make additional payments. 

According to the front page of the New York Times, February 9, 1923, “Germany had 33 printing presses that were belching out 45 billion marks every day! By November it was 500 quadrillion a day (yes, that’s a real number).” The end result was a complete collapse of their currency, and an all time historic move in the price of gold and silver. The price of gold rose from 100 marks to 87 trillion marks/ounce, an 87 trillion percent increase in price! 

Folks, this is why everyone that I trust is saying that the safest place to be right now is in cash and gold and silver. At some point the fear will shift from deflation to the coming monetary inflation, which will send gold well past $1000….then $2000….and likely even higher. Many of these trusted experts believe that silver will fair even better, and I am seeing forecasts of $50 to $100/ounce. 

Regardless, this is no time to be a hero or to try and catch a falling knife. There will be a time in the not too distant future where we will be buying common stocks again, and I will have that buy list ready for you when the time comes. For now, continue to make smart decisions for yourself, for your family, and for your business. Very unfortunately, the worst is yet to come.

Kip

 

 

Friday
Oct242008

Limit Down!

So...will this finally be the blow off? The 1000 point down Friday, followed by another black Monday?

It sure looks like it and as I've been writing, this will get very ugly before its all over. I would not be surprised to see some real panic finally start to set in. So far the average person has taken this all in stride, and has not sold their mutual funds or liquidated their 401ks. Once that finally happens we can  start talking about a short term bottom being in place.

This is the deleveraging process that had to happen at some point, and my friends, its here with a bang. In the days to come there will be serious discussion about a global depression, and all the while global governments will be dropping interest rates and throwing as much money at the problem as they can.  

This will only add to the coming precious metals bull market.  

This is no time to be a hero, so don't try to find the bottom and buy stocks here. If you have not sold by now then its really too late. That day will come, and when it does, we will be ready.

Good luck!

Kip