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A Dramatic Turn for the Worse

By Dr. Steve Sjuggerud
Tuesday, February 24, 2009

In January, I told my subscribers why stocks could do well. Unfortunately, things just took a dramatic turn for the worse.

Let me explain briefly... 

In the January True Wealth, I told subscribers why I thought stocks could do extremely well:
The world is at relative peace... Prices of assets are the cheapest in a generation... And you can borrow money at the lowest interest rates in as long as anyone can remember. Plus, the government is throwing the kitchen sink at the problem. That is the best recipe I know of for a stock-market boom.
When I wrote that for my January issue, stocks had rallied nicely after their November low. That rally was a good sign... 

You see, the stock market usually bottoms halfway through a recession. This recession started in 2007. It's already 2009. So I had hoped the stock market bottom in November signaled we were at least halfway done with the recession... and recovery was on the way.

All the conditions that point to a stock rally are still in place. Unfortunately, the Dow fell to new lows last week and blew that idea. The latest economic numbers were bad, too. The combination of those two things tells me the recession hasn't hit bottom yet... darn it. And things are looking much worse for stocks.

Dennis Gartman – a better short-term trader than me – wrote this on Friday morning:
We are becoming very, very concerned that the public is on the brink of abandoning their share holdings en masse, facilitating a literal "Crash" in prices...

Bombarded daily by the fact that his/her stock portfolio or 401K has been decimated, the retail buyer of stocks is on the verge of dumping everything for his/her share holdings are the only things he or she still believes they've control over.

Once that [sell decision] has been reached... and we fear greatly that we are reaching that point now... there is no telling how seriously share prices can fall in the very shortest span of time.
In January, I was optimistic. I believed we could have pulled out of the recession in 2009. But now, that date's been pushed farther back... likely into 2010.

A stock market bottom in November sure fit neatly into our "script" for making money this year. But we've hit new lows in the Dow (and may see new lows in the S&P 500 as well), so the script has changed... the timeline has been pushed back.

No hurry to buy stocks now. Better to play it safe than to try timing the bottom here... 

Good investing,


Market Notes


For the past several months, we've checked in weekly with silver, one of the world's top "big money"-approved assets.

Silver holds the same "safe haven" allure as gold. It has served as a real, tangible form of money for thousands of years… so people flock to it when they get worried about holding paper currencies. With Europe and Russia's huge banking problems, "worried" accurately describes the mood across the Atlantic.

Our chart today shows what worry looks like. It's the past six months of trading in the silver ETF (SLV). In addition to showing SLV's price, our chart displays the amount of shares traded each day. Red bars show the trading volume on days silver declined in price. Dark bars show the volume on days silver advanced. The taller the bar, the greater the volume.

As you can see from the dominance of tall dark bars, investors are stampeding into the safety of silver. The money flow here is extraordinary. As The Daily Crux pointed out last week, all we need to hear now is "this time is different," and we could have a mania on our hands.

In The Daily Crux

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