The financial markets appear to have reversed last week and begun what is almost surely to become the worst bear (down) market since the Great Depression.
This is a strong statement to make after the crash we experienced in 2008. It is important to know, however, that the crash of 2008 was followed by a rally that was the strongest since the Great Depression.
A brief, intense rally is exactly what followed the historic crash of 1929. What most people don’t realize is that it was the second crash from 1930-32 that delivered the most devastating losses, slashing asset prices by more than 80 percent.
It also is very important to know that every single mutual fund went bankrupt during the Great Depression. In that era, mutual funds were called “investment trusts.”
It is because all investment trusts went bankrupt that these financial instruments were rebranded as mutual funds in the current era. No one in their right mind wanted to own an “investment trust” after the Great Depression.
In my opinion, no one in their right mind should own a mutual fund today and I urge anyone who would like to avoid experiencing even greater losses than 2008 to sell their mutual funds immediately.
The U.S. dollar is about the only safe place to hide at this point. The loonie was on par with the U.S. dollar last week and we Canadians all know what a great bargain that is. In 2008/09, a Canadian could have earned a 30 percent return simply by selling all their mutual funds and holding their cash in a U.S. chequing account.
If a Canadian had gone one step further and bought bonds guaranteed by the U.S. treasury (via the fund symbol TLT), they could have earned an additional 45 percent.
Yes, that’s right. By taking almost zero risk, by holding U.S. treasury bonds, a Canadian could have earned a return of more than 80 percent.
While it is next to impossible to buy and sell any asset at its absolute top or bottom, earning a return of 50 percent was available to anyone who had any idea what was going on.
Thankfully, 2008 has given us a wonderful template to work from—and the opportunity for exceptional gains is available again right now for a very limited time.
The U.S. dollar appears to have already begun its rally last week as gold, silver, and oil appear to have peaked.
Speaking of gold and silver, to borrow a quote from my favourite investment forecaster, Steven Kaplan of TrueContrarian.com, there has been enough hype about these two metals in recent weeks to sink the Titanic a second time.
Keep in mind that in 2008, gold dropped more than 30 percent and silver dropped more than 55 percent. Even worse, the stocks of gold mining companies dropped more than 70 percent in 2008.
And let’s not forget about all the hype about oil in 2008. The media had the public convinced we were soon to run out of the stuff and that it only was a matter of when, not if, oil would be exceeding $200 per barrel.
Of course, oil instead plummeted more than 75 percent to $35 per barrel.
Today it appears silver has replaced oil for the most over-hyped and overvalued commodity. The truth is that the time to buy silver was back in 2008 when it was under $10 per ounce; not now that it’s near $30.
Rather than buying into the media BS and getting run over again in the upcoming months, let’s see how many Fort Frances residents can avoid becoming roadkill this time around.
All that is required is to pick up the phone without delay, sell all one’s mutual funds, and switch the cash immediately into U.S. dollars.
Reading Robert Prechter’s book, “Conquer the Crash,” and subscribing to TrueContrarian.com newsletter also would be wise choices, especially for those who want to understand how investing works so they can safeguard and consistently grow their retirement savings.
Yours very truly,
of Fort Frances)