Martin Weiss, president of Weiss Research and editor of the Safe Money Report, has some simple advice for anyone waiting to get into this stock market.
His new book is called “The Ultimate Depression Survival Guide,” and in an interview with Moneynews.com, he pulls no punches. A depression is “inevitable” and the really smart money will stay out of stocks until things settle down, way down, as in Dow 1,500.
The government-inspired rally of late is a trap, Weiss warns, one investors should avoid by holding on to their cash for now.
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The government’s “position is that we can repeal the law of gravity and prevent investors from selling or markets from going down. That is not the case,” Weiss warns. “Right now there is a very powerful vicious cycle that’s operating and accelerating. That cycle is collapsing credit which depresses revenues.”
Those falling revenues make it very difficult for people and businesses to get credit.
”There is very little, next to nothing, that the government can do to prevent that. We have seen already the greatest financial failures in the history of this country,” Weiss says.
So far, the government has committed $14 trillion — a sum greater than the entire U.S. economy’s output in one year — to fixing the problem. And it won’t be enough, Weiss says.
“What this all boils down to is that the debt crisis is much too big for the government to handle and at the same time what they are already doing is much too big for those who are going to have to finance it,” Weiss says.
Interest-bearing debt, not counting leveraged toxic assets in the banks, is now “approximately double the level that it was before the 1929 crash and the 1930s depression,” Weiss warns.
Add in the leverage, which in the case of some major banks is $4 of credit exposure for every $1 of capital, and the risk now is huge to investors — one that implies a potential decline for stocks of 40 percent from current levels.
“Let’s assume that because of other offsetting problems that the crisis today, the depth of the depression, is only equal what happened in the early 1930s — not worse, just the same,” Weiss explains.
“In that scenario, if the same pattern plays out in the stock market then you would see the Dow Jones Industrials falling from its peak in 2007 around 89 percent to 90 percent to a low of 1,500.”
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The right strategy now, he explains, and details in his new book, is to simply wait for assets to get cheap. And they will, Weiss says.
“You will be able to buy twice, three, four times as many times in your favorite stocks. So the value of your money in terms of how many shares of stock it can buy or how much it can buy in other assets is going up,” he says.
Weiss says that the investment instruments available today make a lot of what used to be “exotic” trading safe and predictable for even small investors, including:
• Inverse exchange-trade funds (ETFs), which act like stock shorts by rising when particular sectors decline, but without the same level of risk as from traditional shorting.
• Currency ETFs, too, which make it possible to ride the ups and downs of foreign currencies yet invest in stable and predictable ways.
• Recognizing opportunities in dividend stocks, once prices are realistic.
• When and why to buy gold, and how much is prudent.
• How to buy physical assets, like homes and luxury watercraft, once prices hit “rock bottom.”
• How to recognize the signs of a real bottom. Hint: The government will throw in the towel and admit it cannot fix the economy when the real bottom is here. So far, they continue to claim the situation is under control, which only prolongs the pain, Weiss says.
It’s not as bad a picture as the title of the book suggests, says Weiss. We will recover as an economy and as a country.
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“A depression doesn’t necessarily mean the end of the world. There is a recovery that will ultimately come out of this and perhaps a very strong one,” he says.
Trick is, being in the position to invest at all once prices finally reset to reality.
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