"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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Journal Archive
Twitter: @kherriage


Our Financial Engine...

Its common knowledge of course that the US no longer makes anything...not really anyway.We import all of that "stuff" now. Soon, we will have the Big 2 instead of the Big 3, and you can pretty much write-off anything that is manufacturing related...

So, what's been driving our economy for the last 10 years? Well, approx. 38% of our domestic GDP comes from the financial industry, and while I don't know exactly what percentage is pure profit/earnings related, it’s safe to say that this represents at least 50% of all corporate profits. So, Wall Street, banks, hedge funds, insurance and credit card co's, etc., have been the life-blood of our economy for at least a decade.

I think you can see where I am going with this. Because derivatives turned out to in fact be "weapons of mass financial destruction (just as Mr. Buffet predicted in 2004), we've now lost our engine of growth. We've lost Lehman, Merrill, AIG, Bear, Fannie, Freddie, Countrywide, WAMU, and 90% of all mortgage co's...all in less than 9 months...it’s still hard to believe this has actually happened. In fact, it's clear that most people are still in denial about what this is going to mean long term. TheWall Street Journal polls economists each quarter about the economy, and as a group they are looking for mildly negative growth this year and a positive GDP in 2009.....say what?? Folks, what's going to happen when these same economists realize that 2009 will bring a negative GDP of at least 3%, and possibly 5%? And that 2010 might not be any better?

This short term, bear market rally will fade soon, and next to feel the pain of this massive deleveraging process will be hedge funds, insurance co's, credit card issuers, commercial real estate and corporate debt. If you think I'm being too bearish, tell that to the 700,000 or so that have already been laid off...and this is before we have even officially entered the recession. Stay smart…stay prepared.




The Perp Walk!

This bear market has lots of people scratching their heads, especially the so-called gurus of capitalism and self-proclaimed Masters of the Universe (by the way, this is a great time to go back and read Tom Wolf's classic from the 1980's, The Bonfire of the Vanities, Wolf's semi-fictional work on the lives and mindset of Wall Streets super elite). 

I speak with a diverse group of people on a daily basis about the shenanigans that allowed this derivatives and leverage implosion to take place; the very wealthy to the not yet wealthy, the well-educated book smart types to the cleverly street smart, and the optimists to the pessimists. One of the comments/belief systems that seems to unite all is: "These guys are getting what they had coming to them for a long while, but why aren't any of them going to jail?"  

And here's the rub. There have been no indictments, no charges filed, no serious investigation, and most importantly.....no "perp walk"!  

I believe that complete confidence in the system has been lost, and that until we see the perpetrators in handcuffs and sent to long prison sentences, along with significant changes in the way the game is allowed to be played by the "elites", that investors (globally as well) will simply put their hard-earned money somewhere else....some place that they can actually see it grow and have faith that it won't be robbed in the middle of the night.

Market Update: As predicted, the FED cut rates by 1/2 point yesterday, and global rate cuts will be next. We likely have some more room to run on this bear market rally, but as I said yesterday, if you have some positions you want to unload you may want to use this rally to take some money off the table. 

For the last 4-5 years I have been saying the following: "80% of the country is upside down financially. This means that if 80% had to either pay off their debts or file for bankruptcy tomorrow, they would be forced to file for bankruptcy". This is not the definition of a strong middle class, and without a strong middle class, a country cannot prosper in the long-term.

Kip Herriage





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.









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






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.