Question Of The Week - 12/17/2008

In this economic climate of late 2008, you've asked an EXTREMELY important question that does not have a lot of great answers. To understand my perspective, we must first recap past, current and emerging trends from a NEoWave perspective.

1. My Gold subscribers know, 4-days after cash Gold topped at $1032.80 in March 2008, I proclaimed Gold's bull market was over (that is what NEoWave told me to say)! Based on prior wave structure and its implications for the future, NEoWave tells me Gold's bear market MUST consume 4-6 years and will drop below $500. Around the time of Gold's high, when INFLATION fears were rampant, I warned (for the first time ever) of a coming economic DEFLATION. My warning was the direct result of a bearish, long-term NEoWave count for Gold. I didn't know how or why Gold would drop so much for so long, but I speculated it could be the result of a world-wise credit implosion (virtually no one was talking about that in early 2008). Now, ten (10) months later, it is becoming increasingly obvious (despite concerns the U.S. government is "printing money" and providing "easy credit") that DEFLATION is the new reality. In every market we can observe, prices are declining, not just slightly, but substantially. The stock market has dropped in half this year, Gold by more than 30% (from high to low), Oil by about 60%, real estate is well on its way to a 50% decline off its 2006 highs in many areas! The only thing I know of that is increasing in value is the U.S. dollar. Such an environment is the very definition of DEFLATION. Based on Gold's long-term wave count (not based on my emotional assumptions of what it means when our government is willing to bail out every major industry in America), this deflationary environment should continue for another 2-4 years!

2. In mid January of 2008, right at the beginning of the decline, NEoWave told me a 4+ year bear market was underway. I released a public notice stating that "NEoWave fact" and I warned the S&P (for the first time in 6 years) was vulnerable to breaking 2002's low! After dropping 835 points off its 2007 high, the S&P broke 2002's low last month! Unfortunately, wave structure indicates this decline is not over, but has another 300-400 points on the downside before bottoming in 2009-2010! That means ALL world equity markets are at risk, along with financial institutions in each country, of an additional 40-50% decline from current levels!

Based on the above information, the following is obvious. Equity investments are NOT likely to be safe until the S&P drops below 600. As deflation rages on, "investments" in real estate, art, or even other currencies, is NOT likely to pay off. Why? In dollar terms, their values will be declining. Gold wave structure tells us the precious metal will be declining for years, so there is no reason to buy Gold. So, what do we do?

Taking into account implications of a world-wide credit implosion, equity collapse, deepening recession and continuing deflation, the ONLY place to "hide" (for now) is cash. Merely having cash in hand, with little to no debt, will put you in a position of strength the next few years. The bargains that will eventually emerge (once this credit, financial, real estate and equity crisis is over) will be astounding, but patience is required. For safety of capital, you may want to put a majority of your money in very safe, local, non-leveraged, non-nationalized banks. I live in California and New York, and the two best, safest banks in those states are Farmers & Merchants and Mespath (respectively). You should look online for the safest banks in your state or country. Recently, I opened a savings account with Farmers & Merchants just to preserve capital. I'm not trying to "make money," I just want to keep what I have. Before things get worse in early or mid 2009, you might consider making a similar move. In addition, putting aside 1-2 months of expenses (in cash) at home (or in a safe place) is a good idea in case a cash shortage materializes in 2009 (which is likely as more bank runs occur).