Sowing the seeds of Hyper Inflation: 5 Reasons the Bear Market is Getting Worse

There has been a lot of buzz lately about reviving the economy, and rightly so. People are losing their jobs by the thousands, causing unemployment in this country to soar higher every day.

If the government Fed is successful at turning the U.S. economy around and ending the current credit crisis, around, it will only be because it flooded the system was overloaded with trillions of worthless paper dollars, sowing the seeds for eventual wildartificial inflation in record amounts.

If the economy were to pick up on top of that, between intense inflation and resumed economic growth, global gold demand across the globe for gold would absolutely soar. Why? Because people will realize the true value of gold versus the man-made, fluctuating value of paper money.

From late 2004 to mid-2006, tThe Fed raised interest rates 17 times, in steady quarter-point increments from a low of 1 percent up to 5.25 percent, from a low of 1 percent in the span of late 2004 to mid-2006. And overDuring that short period, the value of gold surged 127 percent!

To further prove my point, consider this: even with the current state of the economic downturn, the demand for gold surged to a record high of $79 billion in 2007 and $102 billion in 2008. And this happened despite strong nationwide concerns for a depression unlike anything this country has seen in 80 years!

Think about what would happen if the Fed’s recent actions take effect and the economy makes a comeback. Gold demand will skyrocket, and you know what happens when demand exceeds supply…the price shoots up as well.

With that in mind, now is definitely the time to get in on gold as an alternative investment opportunity before prices go through the roof.

Look at it this way: Even with the U.S. economy in a bad funk — gold demand hit a record $79 billion in 2007 ... and another record $102 billion in 2008.

So if the Fed's actions work ... the U.S. economy rebounds riding a new wave of inflation ... demand for gold will fly off the charts, sending the yellow metal's price skyward.

In other words, as a long-term investor, you would want to buy the dips in gold.

5 reasons why the bear market is here to stayfor good (and getting worse by the minute!).

Reason #1:

The Banking Crisis Still isn't FixedWasn’t Magically Fixed ...
It's Actually Getting Worse!

The U.S. government has thrown roughly $356 billion of taxpayers’ money at our country’s banks, but the problem hasn’t magically solved itself. In fact, the situation is spiraling downward at an alarming rate.

That money could have been put to much better use than fueling bonuses for AIG executives and bad trades from AIG to Goldman Sachs and JP Morgan, to name a few. I’m thinking that $356 billion could have more than jump-started our economy if it had been allocated a little more wisely. But that’s a topic for another day.

What’s done is done. So, $365 billion of taxpayers’ hard-earned money has gone into the banking system to help counter some of the nation’s mounting toxic debts (which are mortgages, car loans and other secured debts that people are simply walking away from).

Unfortunately, the International Monetary Fund (IMF) recently estimated that toxic debts could soar as high as $4 trillion. In January of this year, their estimate of toxic debts was $2.2 trillion. A jump of $1.8 trillion is quite alarming and indicates that the banking crisis is nowhere near over.

The U.S. government has allocated at least $356 billion bailing out the banks alone. Most of that has been thrown down a rat hole. For this same amount of money, 10 new banks could have been chartered with $35 billion each and they could have loaned out funds at 10-to-one leverage, creating $4.5 trillion of new financial muscle.

Instead, we're spending hundreds of billions to make sure that AIG executives get their bonuses and Goldman Sachs, JP Morgan and all the other financial institutions that were counterparty to AIG's enormously bad trades get paid off in full. In short, the Obama administration, rather than chart a new course to fiscal sanity, is intent on re-inflating the bubble.
And how is it getting worse? The International Monetary Fund (IMF) just announced that toxic debts could reach $4 trillion, up from an estimate of $2.2 trillion that it made in January.

Reason #2:

Job Losses are at Levels Unseen the Worst
Since the Great Depression

In short, the job loss is nasty, and it’s going to keep getting worse before it gets better. The national unemployment rate rose to 8.5 percent in March as 663,000 Americans lost their jobs. If you looked back over the past six recessions, you would see that this current pace of job loss is the worst it’s been in over 30 years.

If you have a job, count your blessings. Be thankful that you have money coming in to put food on the table and a roof over your head, and keep looking toward the future.

The March employment report saw nonfarm employment drop by 663,000 and the unemployment rate rise to 8.5 percent. Now, bulls will tell you that job losses and unemployment are both lagging indicators. True. But as this chart shows, the pace of job losses is worse now than in the past five recessions ...

Source: Time.com

Reason #3

It's Probably WA-A-A-AY Too Soon
To Call a Bottom in tThe Housing Market Just Keeps Taking Hits

Source: Calculated Risk
As of January of this year, the Home Price Index was down 19 percent from January of 2008. Just a month before, that year-to-year decline was 18.6 percent, so you can see that market values are steadily declining.

Because of the job losses we talked about in reason #2, many Americans are struggling just to pay their current mortgages, and alarming numbers are walking away from their homes and the corresponding mortgages. They certainly can’t afford to buy new homes right now.

And the Americans who haven’t been hit as hard financially are too scared about the potential of job loss to even think about taking on a new home loan.

Unlike the government, everyday citizens can’t create money out of thin air, so we’re pretty much powerless to turn the housing market around. Looks to me like the problem is going downhill fast with no immediate relief in sight.

You'll notice that the number of seriously delinquent loans was accelerating through the fourth quarter. What's more, the S&P/Case-Shiller 20-City Composite Home Price Index for January fell 19 percent compared to the same month a year ago, reflecting an acceleration from the 18.6 percent year-over-year decline reported for December.
And the problem is likely to get worse ...

Reason #4

It's a GLOBAL RecessionThis Recession Goes Beyond Our Borders

When Japan suffered from ten years of an economic downturn, the rest of the world’s healthy economies helped pull Japan out of its funk. Things are different this time around. The World Bank is estimating that global economic growth will slow significantly enough to cause a decrease in the global economy – a drop of 1.7 percent, to be exact – for the first time since World War II.

The World Bank predicts that developing nations will keep growing, slowly but surely. The sharp drop in GDP for the developed nations in Europe and the Americas will be painfully obvious, on the other hand.

Not to end on a bad note, but just a reminder that we’ve only been experiencing this current economic crisis for one year. The world economy saw declines for three years after the crash of 1929, and world trade is falling even faster now than it did during and immediately following the Great Depression.
When Japan slid into its economic "lost decade," the rest of the world kept chugging along, which was a factor in pulling Japan out of its rut. Today, the World Bank says global economic growth will slow this year by far more than previously estimated, thus sending the global economy into its first contraction — a drop of 1.7 percent — for the first time since World War II.
While the World Bank expects developing nations to keep growing — at a much slower pace — the decline in GDP for developed nations in the Americas and Europe will be sharp and painful.
In a separate report, the Organization for Economic Cooperation and Development (OECD), which includes the United States and other industrialized powers, estimated that the economies of its 30 member countries would shrink by an average of 4.3 percent this year. At the same time, the OECD predicted that global trade would shrink by more than 13 percent.
One final point: We are only one year into the current crisis. After the crash of 1929, the world economy continued to shrink for three successive years, and world trade is falling much faster now than in 1929-30.

Reason #5:

A Government-Inspired Rally of the Stock Market Has Made this the Time to Sell

Now is the perfect time to sell every stock you own. If you have a 401k, don’t break it up; move the funds to a self-directed IRA or standard money market fund. Stay away from long-term bonds until interest rates start to surge. Inverse ETF’s are also a good bet right now because of the market, which is bearish until proven otherwise!
The stock market is experiencing a Government inspired rally, now is the time to sell! SELL EVERY STOCK YOU HAVE. BUT DON’T BREAK UP YOUR 401K MOVE THEM TO A SELF DIRECTED IRA OR A STANDARD MONEY MARKET FUND. NO LONG TERM BONDS UNTIL A SURGE IN INTEREST RATES. Or inverse ETF’s are good.
WHY? BECAUSE
The Market is Bearish
Until Proven Otherwise

The main point here is that company expectations are very low, so it’s not too late to get out of the stock market without taking more of a hit than you might have already.

If you keep your money in stocks, expect a decline of 37% from last year at this time. Not to mention the fact that all 10 groups in the S&P 500 are anticipating an overall decline in profits this year, thanks in part to the previous four reasons in this article. (Side note: a decline in all 10 groups is highly significant and further proves that you should be withdrawing your money as quickly as possible.)

No one has money to spend these days. Companies aren’t producing as much and with the global economy in retraction, the S&P will only continue getting smaller.

Just to be clear, the stock market still has a long way to go before it’s completely hopeless, but it’s well on its way. Which brings me back to my original point: that now is the time to sell all your stocks and invest in safer, more profitable alternative investments.

Earnings season officially started yesterday with Alcoa, but it really kicks off next week. For the S&P 500, analysts are expecting earnings will decline 37 percent from the year-ago period. All 10 groups in the S&P 500 are expected to show a year-over-year decline in profits; that hasn't happened in the 10 years Thomson Financial has been tracking this data.
In sum, fundamentals are terrible, and they haven't improved enough to justify this rally. What's more, the market is overbought. So does that mean I think it's time to get short? Not really — the market can get a lot more overbought. One thing that could drive prices higher is that so many Wall Streeters remain cautious. And if S&P 500 companies start beating drastically lowered expectations, we could run all the way to 1,000 or higher on the S&P 500.
In fact, the market may get even more overbought and overextended, as we saw in the market 'recovery' of 2004-2006 when the U.S. equity indices were managed up to new highs. At the same time, the rot in the real economy spread, crumbling the foundations of wealth.
Regardless, the market for natural resources could lead any recovery ...
For instance, China's copper imports in the first two months of 2009 were up 71 percent from last year. Many copper insiders think there is value in the sector. Charlie Sartain, head of Xstrata's copper division, told Bloomberg that his company is now looking to buy smaller producers whose stock valuations have collapsed over the last 18 months

Families are facing hardships that haven’t been seen since the Depression era, and more and more American companies are declaring bankruptcy and closing their doors. Something needs to be done to turn our economy around, and I think mining gold and other physical commodities could very well be the cure to the problem.

Mining more gold and precious metals would not only create more wealth for investors but also more jobs for the unemployed. We could make the whole country wealthier if we just added more gold and other physical commodities to the mix.

There is still plenty of gold, oil, and other physical commodities to be mined. There is so much gold in Nevada alone, for instance, that it boggles the mind.

It is believed that there is still about 50,000 tons of gold left to be mined in the world, which amounts to roughly 40% of the gold that has already seen the light of day.

Wouldn’t it be nice if the government started tapping into those reserves to help with the current economic crisis? I’m sure we could all use a little more wealth these days – without sinking the next generation even deeper into debt! My next article will spell out 4five things you can do to protect yourself in this continued recession or pending depression, no matter where our economy heads that is pending.

On a side note, some people believe that Fort Knox, the keeper of most of the United States’ gold reserves, is quite empty these days. These people are saying that the government has sold off a majority of our country’s gold. It’s hard to say, since access to the depository is quite restricted, requiring a presidential order.

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AUTHOR BIO
Ron Wellman is the founder of We Invest Online, Inc., an international investment concierge company specializing in high quality, luxury investments and Investment alternatives for today’s sophisticated investors. Ron is member of Kingdom Advisors a group of investment professionals applying biblical wisdom to money. His main priority is seeking out investment projects that minimize risk, maximize tax deductions and increase profitability. For more information on how he can help you make informed investment decisions, please visit his website at www.weinvestonline.com.