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The Last Thread Holding Up The US Economy
-- September 17, 2001
On September 11, a handful of fanatic terrorists broke America's heart.
We watched in horror as thousands of lives were forever shattered. We wept with those who lost mothers, fathers, sisters, brothers, and children in the terrible carnage. And we mourned the loss of a symbol of America's pride, power, and prestige.
But now, even as we continue to grieve for our fallen countrymen and women, the second devastating impact of that contemptible deed is about to be felt -- on the US economy.
Today, the stock market began to reflect that new reality. Despite the Fed's half-point rate cut, the Dow was down nearly 700 points, close to the 800 - 900 point decline I told you about in my email last week.
But there was virtually no rally. This doesn't mean a rally will not materialize. Stocks rarely fall straight down, and I don't think this time is an exception.
After all, the most powerful institutions and central banks on the planet are doing everything in their power to prop up the world's stock markets and economies.
The US Congress is giving piles of money to the Pentagon and White House for defense. The Fed is pumping money into the economy faster than any time in history. And scores of US companies are trying to keep their stocks from crashing by promising to buy every share they possibly can. So a rally is still possible at almost any time.
But these efforts to support the market are artificial, short-term fixes. They're a drop in the bucket compared to the trillions that have been lost in stocks in the last 18 months ... and small in comparison to the huge downward adjustment analysts now will have to make in their earnings projections for the year.
What our leaders now realize -- and what investors must acknowledge to preserve their wealth -- is that the events of September 11 have virtually guaranteed that the economic decline will come sooner and more swiftly than most people dreamed possible.
The US economy was hanging by one slender thread. And at 8:48 am on the morning of September 11, 2001, that thread was irreversibly CUT!
Until September 11, consumers were still throwing their money around like crazy, despite the bad economic news. Home sales were flying high. Retail sales were still strong. And consumer debt was still piling up like there was no tomorrow. But all that ended -- irretrievably -- when the Twin Towers collapsed:
In a poll taken mere days after the attacks, CNN asked consumers how their future buying plans would be affected by the events. For every person who said they would buy more, FOUR said they would hold off on major purchases.
Consumers have been reminded that our country is NOT bullet-proof. Neither is their financial security. And you can almost hear the sound of 300 million American consumers slamming their wallets shut.
Yes, Americans will unite behind the President and rally for our country. But buying a new gas-guzzling SUV every year? Taking luxury fly-away vacations every summer? Going into deeper and deeper debt? It looks to me like those days are gone. I believe it could be many, many long years before we see another orgy of consumer spending like the one that energized this economy for the past few years. That was the last thread holding up the economy. Now, it's been severed.
My advice is the same ...
FIRST, if you haven't done so already, move now from stocks to US Treasury bills.
Investing in Treasury bills is good for you, because it keeps you and your family safe. And it's good for the country, helping to finance everything the US government needs to do in order to protect our safety -- within our borders and overseas. Sell your stocks in two phases:
* Sell 50% immediately. But set a target price. The target price can be very near the current market level. But do not use "market orders" in the midst of these volatile conditions.
* Then, wait for a rally before selling the balance. That rally may begin now or it may begin from lower levels. In either case, wait. I will let you know to the best of my ability.
SECOND, continue to hold the contrarian positions I have recommended in the Safe Money Report that will continue to appreciate as the market declines. You took one round of windfall profits already. I will let you know when it's time to take further action.
THIRD, hold your gold mining shares. This is one of the few sectors that should move contrary to the overall market trend. Even if the world's central banks can temporarily hold down the price of bullion, it will not prevent investors from rushing into gold shares, driving their prices higher.
Best wishes and God bless,