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3 Reasons Not To Speculate in Stocks …
… if the U.S. is headed for a deflationary depression
Treasury Secretary Henry Paulson may believe that "we are closer to the end of the market turmoil than the beginning," as he said in a speech today. But most people have begun to accept that the U.S. economy is in recession even if the National Bureau of Economic Research has yet to apply the recession label. With house prices depressed, people being laid off from their jobs and paying more for food and gas, consumers are feeling gloomy about their prospects. The Reuters/University of Michigan consumer survey recorded those feelings in its preliminary survey released today. As a Bloomberg report puts it, "U.S. consumer confidence was the weakest this month since Jimmy Carter was president."
If you, too, think that the economy is headed for hard times, the next question is, how do you prepare for it? Bob Prechter answered this question in his business best-selling book, called
Conquer the Crash. One of the first topics he addresses is, Should you speculate in stocks if you think a crash is coming? Read the excerpt below to get his answer.
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Should You Speculate in Stocks?
Perhaps the number one precaution to take at the start of a deflationary crash is to make sure that your investment capital is not invested “long” in stocks, stock mutual funds, stock index futures, stock options or any other equity-based investment or speculation. That advice alone should be worth the time you spent to read this book.
1. Stocks May Go to Near Zero
In 2000 and 2001, countless Internet stocks fell from $50 or $100 a share to near zero in a matter of months. In 2001, Enron went from $85 to pennies a share in less than a year. These are the early casualties of debt, leverage and incautious speculation. Countless investors, including the managers of insurance companies, pension funds and mutual funds, express great confidence that their “diverse holdings” will keep major portfolio risk at bay. Aside from piles of questionable debt, what are those diverse holdings? Stocks, stocks and more stocks. Despite current optimism that the bull market is back, there will be many more casualties to come when stock prices turn back down again.
3 Long-Term Forecasts for Stocks, Metals, & Even the Presidency
Bob Prechter has just released his latest Elliott Wave Theorist. Be the first to read about (1) his evidence for the direction of the Dow, based on cycles and the Elliott Wave Principle, (2) the possible non-confirmation between silver and gold that points to an important insight, and (3) why you might want to root for the U.S. presidential candidate you like the least. Read all about it in May issue of The Elliott Wave Theorist.
2. Stock Mutual Funds Will Fall, Too
Not only will many stocks fall 90 to 100 percent, but so will a substantial number of stock mutual funds, which cannot exit large equity positions without depressing prices and which have the added burden to you of one percent (or more) annual management fees. The good news is that we will finally find out who the few truly good fund managers are and which ones were heroes by virtue of being around for a bull market.
3. The Fed Won't Be Able To Save the Stock Market
Don’t presume that the Fed will rescue the stock market, either. In theory, the Fed could declare a support price for certain stocks, but which ones? And how much money would it commit to buying them? If the Fed were actually to buy equities or stock-index futures, the temporary result might be a brief rally, but the ultimate result would be a collapse in the value of the Fed’s own assets when the market turned back down, making the Fed look foolish and compromising its primary goals, as cited in Chapter 13. It wouldn’t want to keep repeating that experience. The bankers’ pools of 1929 gave up on this strategy, and so will the Fed if it tries it.
3 Long-Term Forecasts for Stocks, Metals, & Even the Presidency
Bob Prechter has just released his latest Elliott Wave Theorist. Be the first to read about (1) his evidence for the direction of the Dow, based on cycles and the Elliott Wave Principle, (2) the possible non-confirmation between silver and gold that points to an important insight, and (3) why you might want to root for the U.S. presidential candidate you like the least. Read all about it in May issue of The Elliott Wave Theorist.