Premarket July 24th, 2009

I believe we are still in the 7,800 to 9,300 range in the market and will have that major pullback I have been waiting for in the Fall. I expect the market to go down and retest the lows sometime by Options expiration in October. My reasoning is that business is not good anywhere and that any surprise profits are coming from cutting costs, not an increase in revenues. Unemployment is still rising and without that abating it's hard to see a true recovery taking place. While traveling in remote areas of upstate NY between Buffalo and the lower tier near Amish country, my wife and I saw many homes and farms for sale, one after another. The only place having any customers was WalMart and Dollar General, where everything is a dollar.

In the chart below from Chart of the Day, it shows expectations of the lowest earnings for companies since before 1929. That is not good at all.



And yes we will be in a period of inflation where whatever money we have will be worth far less 10 years from now, than we can today. Owning hard assets is the only protection against inflation, as cash will be worthless. So owning property, income generating property, Gold, Silver and anything that will appreciate as inflation increases, is the play for the future.

The next big crisis: Retirement Funds! UPDATE #1 &2

I had several friends tell me I scared them on this story 2 posts below. I didn't mean to do that but realized I had not provided any answers to the question, So what do I do about it? The answer to me is to consider investing in more hard assets than paper products such as money, stocks or other derivatives. Consider buying things like Gold and Silver physically, not the paper stocks which trade it. Also consider buying rental income properties, which can generate cash flow positive returns, especially with the prices down so much and mortgage interest rates at the lowest level in years. If you can get these properties, they are hard assets. People can live in them and you can own something which will rise in value, as inflation rises. Inevitably it will, because of the massive amounts of dollars and Euro's in the world being printed out of thin air.

Most have their current retirement funds in accounts they have little or no control over. They are suppose to be protected not just by "promises" like IOU's, but physically there for when you retire and start to draw the funds out. Most of my retirement funds are in my own accounts, as I am self employed and set up a Defined Benefit Plan in which I am able to manage my own investments. (The average person does not have this luxury. And I am at an age where in a few years I can start to draw it out.)

The government stands behind the Pension Benefit Guaranty Corp. so I am not worried they can't print the paper and do what's necessary to help it should it need it. The overarching problem, in my view, is that it makes money appear to be worthless, as the government can print all they want to solve almost any problem. Here from the Pension Benefit Guaranty Corp.'s 2008 Strategic Plan is what they say can be a key issue:

Key Factors Affecting Achievement of PBGC Goals
Plan Underfunding
-Financial and operational risks facing the pension insurance system continue to fluctuate significantly because of the sensitivity of underfunded pension plans to changes in economic conditions. The necessary monitoring of these plans and their sponsors strains PBGC resources.

Plan Terminations
-Continued growth in the number and magnitude of pension plan terminations and the number of participants in trusteed plans increases the PBGC’s workload and the need for supporting infrastructure. This larger workload and increasing customer expectations challenge the agency’s ability to deliver quality customer service.

Complexity of Assets in Terminated Plans
-When an underfunded pension plan terminates, the plan’s existing investment portfolio is absorbed by the PBGC, which commingles the assets with its own assets under management. Assets from recent large plan terminations have included complex investment mixes that the agency manages until the assets can be liquidated. The handling of complex assets in the PBGC’s portfolio, and particularly assets that it would otherwise not hold, increases the PBGC’s investment management costs.

It is this last statement, which is the most troubling, as sure as you can count to ten, you know these are probably troubled assets or "toxic assets" on their books too.


Money will always be here, as long as it can be printed. You need to know when to hold it and when to invest it, when to invest it in soft versus hard assets. Right now inflation is all but non existent, but that will change over the next few years.

UPDATE #2 May 6th 7:30am PST

Surprising employees, today Wells fargo announced they will no longer be contributing to its traditional Employee Pension plan, cutting the total compensation of its workers only 2 weeks after announcing record first-quarter profits!