Letter Re: Stock Market Turmoil – Time To Make an Exit

Jim –
I’ve been reading SurvivalBlog for a little over a year now and I enjoy the commentary immensely.

As a long-time investor and at the risk of a “pile-on” situation, I’ve got to echo the sentiments of yourself and your pundits recommending exiting the markets now and the foreseeable future. I have sold my entire portfolio in the last week or so into a down market, which I normally would never do, due to a number of significant factors – first and foremost being the fragility of the derivatives market, second being the cryptic, embedded and out-of-control debt market crisis. We all know that markets are cyclical and if you’re a chart watcher you might see the first of several “shoulders” on the bottom of the sell-off in the next week or two. We shouldn’t be fooled. In fact, we will probably see a fairly good rally in the market in the next few weeks, with or without Fed action. But, I’d caution anyone that downward pressure from inflation/debt and given that any anticipated Fed action up to a percentage point or so is probably already programmed into markets, we could well see a lonnnggg bear market, at least up until the November elections or after. The bottom line is that we are like a snake eating our own tail – if new money rushes in to a rally it is eventually consumed by artificial manipulation (inflation), loss of confidence in the dollar (unprecedented in the previous two major “corrections”), and the fall-out/bail-out from predatory lending practices that we’ll all pay for (and that we haven’t seen the end of). It is a wildly gesticulating, downward spiral echoed somewhat in the 1920s overheated/overbought markets, except for the fact that our currency isn’t buoyed by a gold standard any more. Fiat currencies inevitably crash and fail, as proven time and again by history.

My actions (in order of priority) have been to eliminate all debt about a year ago (we sold off a tremendous amount of personal assets to accomplish this, but we endured the pain and got it done), recently sold completely out of the market (except for precious metals funds and a gold IRA–which we may get out of completely in the near future if institutional/government gold has indications of getting sold), and sold our primary residence when the market plateaued last summer. Now we’ll sit on the sidelines and watch, continuing to prepare for tough times in the future. That said, as in any bear market there are buying opportunities. We will buy into a distressed real estate market by the end of the year or early next, and pay cash for the transaction. It’s not so much that we are timing a buy into real estate, but that dollar buying power will continue to erode as inflation increases – both issues combine to create a significant opportunity to buy in the next year or so.

I also think it is the time to invest in “black” rifles, any handguns, and hi-cap magazines for all. The writing is on the wall on all these commodities – strange to call them that, but that’s the world we’re in – unless a miracle happens we’ll have both an Executive and Legislative Branch controlled by Western European-style Socialists come next January. All the other “tangibles” are probably a good bet, my only problem is that they don’t provide current income at a steady rate. We all have to become good at eBay, Craigslist and in-person selling, if we are not already.

My last two cents: I would recommend that anyone invested in precious metals watch the markets very carefully – there seems to be top-out sentiment at around $1,000 USD per ounce, or so. Big government or institution sales into the market could result in a very steep decline indeed. Keep up your good works. – Jeff K. in Singapore.