Is there a sound course of action in the face of today's economic and monetary crisis?
"Bear markets, what are they good for? When a big bear market hits, it's like a main sewer pipe breaking. All the filthy sewer water flows out onto the street for all of us to see. And there's been a lot of filthy water coming out of this sewage break. We see that housing prices had risen far too high and that many of the mortgages were downright fraudulent. We see that our car manufacturers didn't know what they were doing and were making the wrong cars sloppily while paying ridiculously high wages for making these turkeys. We see that our rating agencies were 'out in left field,' and failed to see the almost-criminal actions in the mortgage market and the banks. We see that stocks were far too overvalued. Now the latest outrage, the former head of the NASDAQ, Mr. Bernard Madoff, 'made off' with billions of dollars in a self-admitted Ponzi scheme that cost his clients fortunes. The bright side of the latter is that the public loves nothing more than the sight of 'rich people' being fleeced by one of their own.
After the Great Depression, my dad took me aside and told me 'Dick, all these buildings are standing and all their builders are now broke. Most of the original builders are bankrupt. But when all is said and done, the buildings will still stand. And new owners will pick up the bargains and the mistakes that their former owners have put together.' So maybe that's the 'good part' of a bear market. It results in a transfer of assets from the fools who previously owned or built them -- to new owners who were smart enough to come through the hard times intact with cash or wealth.
I've repeated this many times -- 'In a big primary bear market everyone loses, and the winner is he who loses the least.'
That, in a nutshell, is the idea -- we want to be on the side of those who lose the least. This bear market has been a vicious brute, and I doubt whether I have a single subscriber who is up on his assets over the last year. It is estimated that over the last year the assets of Americans are down an incredible $7 trillion. Even the fabled endowment funds of Harvard, Yale, Columbia and Stanford are down as much as 25% over recent months. This generation of Americans has never seen anything like it.
My advice to subscribers has been to be in cash and gold, preferably in physical gold."