|August 11, 2009|
The consumer-based U.S. economy is trapped in a dangerous catch-22…
Two thirds of the U.S. economy is based on consumer spending. So, if we want to boost the economy, consumers must spend money. But spending is not a solution. The long-term solution is to save and invest.
The problem is that 66% of our economy is driven by consumer spending. And you can't save money, reduce your debt, borrow less and spend more all at the same time.
The absence of the big spending we're used to has to affect the stock market at some point. This will be the stopper to any real growth.
This rally to the mid 9,000s has been a welcome relief for investors. But for the run to continue much longer, there will need to be some real revenue growth -- not just the cost-cutting that has gotten us to this point.
Yesterday, we pointed out that a correction is imminent after such a strong run. But we don't expect the market to challenge the March lows anytime soon.Now is the time to be cautious in stocks. The markets have run up 50% in a matter of months. And the sentiment among individual and institutional investors is decidedly bullish – circumstances that are begging for a correction.
We are not prepared to call an end to this bear just yet, but neither are we oblivious to the trillions of dollars that the Fed and the Treasury have pumped into the system. There is really no debate between inflation and deflation. Inflation will always win when the political will is great enough to break deflation. With no fiscal restraint, there is a potentially infinite supply of dollars, compared to a finite supply of goods and services.
Has the Great Re-Inflation arrived? It is too soon to say. But we suspect it is close at hand. And the beneficiaries will be stocks and commodities.
The gleam of gold lures the "Masters of the Universe"
Gold used to serve as little more than a trading vehicle for hedge funds and institutional investors. But as our natural resources expert, Russell McDougal, points out in this report, gold is moving toward the mainstream.
The "mania phase" of the gold bull market is still ahead…
We are a little wary of all the attention gold is getting. But keep in mind, this is still the smart money taking a position. Mom & Pop America are still woefully ignorant of the dangers posed to their currency. Most people still hold no investment position in precious metals. Make sure you are not one of them.
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