HOW TO CAPTURE PROFITS
IN THE GREAT BUST AHEAD
2010-2011-2012

FED CHAIRMAN BERNANKE IS BATTLING THE WORST FINANCIAL CRISIS SINCE THE 1930'S GREAT DEPRESSION.

The greatest credit bubble in U.S. history is destroying global liquidity at the fastest pace ever!

The Fed must create new M3 money faster than trillions in Structured Mortgage Debt Obligations (SDOs) collapse in value.

Read on to discover:

	The Dow Industrials Will Drop To 7,200 Before Rebounding by Mid-2009
	How To Profit From The Great Bust Ahead 2010-2012
	How To Profit From The Great Boom Ahead 2013-2016

Donald H. Rowe has been hailed as “one of the two top money managers in the U.S. today” by Predictions newsletter. While most of today’s investment advisors were in grade school, Don Rowe was safely steering his readers through the tumultuous markets of the ’70s and ’80s. Rowe was practically the lone voice to alert investors to the amazing run of the 1990s. Most recently, he was ahead of the pack in predicting a worldwide financial meltdown of monumental proportion.

Dear Fellow Investor:

Now, let me share with you a very important forecast:

...and crude oil between now and late-2009. The Dow Industrial Average could rebound to around 12,000 by mid-2009.

LEVERAGED DEBT WILL HAUNT THE
FINANCIAL MARKETS FOR YEARS!

The banks and the brokerage firms have already written-off $600 billion in various Structured Debt Obligations (SDOs).

However, Bridgewater Associates, one of the world’s largest hedge funds, just released a study revealing that total credit losses will amount to $1.6 trillion worldwide, or four times greater than what has already been written-off. The bean counters at Bridgewater estimate that the financials handle around $26.6 trillion in debt-based assets.

If such assets were valued at today’s market rates, an astounding $1.6 trillion would be instantly lost! But there’s more: This credit crisis is not even close to a bottom, nor to a resolution. The problem for the stock market is sobering.

Analysts worry that the banking system is encumbered by off-balance-sheet debt that amounts to more than the net capital of our banking system. Each quarter, financial firms decide how much debt they can write-off. After that amount is determined—let’s say $6 billion—then that $6 billion in off-balance-sheet debt is moved to the banks balance sheet and written-off.

Bridgewater Associates says we’re only 25 percent through the write-off process. Hence, we can expect more write-off announcements that could destabilize the banking and financial sectors in the future.

I am continually amazed that trillions in SDOs were created without the approval of or registration with some regulatory agency. Bill Gross, founder and Chief Investment Officer of Pimco, the world’s largest bond fund, made these observations in Fortune magazine:

“’Skim milk masquerades as cream,’ warned Gilbert and Sullivan over a century ago. Sure enough, today’s subprimes, packaged into financial conduits, with monikers such as SIVs and CDOs, pretended to be AAA-rated cubes of butter. Financial institutions fell for the ruse, and now we all suffer the consequences.

“Defaults are rising, the dollar’s sinking, and even Google’s stock price is going down. Something must really be wrong. It is. What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so difficult to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August 2007.

“My Pimco colleague, Paul McCully, has labeled it the ‘shadow banking system’ because it has remained hidden for years. It’s untouched by regulation, yet free to magically and mystically create and then package subprime loans into a host of three-letter conduits that only Wall Street wizards could explain. It is certainly true that this shadow system, with its derivatives circling the globe, has democratized credit.

“Yet, we overdid a good thing, and the subprime skim milk has soured. As the commercial-paper market shrinks by hundreds of billions of dollars a month, central banks worldwide are facing a giant stress test of the shadow banking system. The publicized and photographed overnight ‘runs’ on Countrywide and Britain’s Northern Rock in mid-August 2007 were nothing compared to what’s taking place in the shadows of the real banking system.”

The $1.6 trillion in SDOs is a continual threat to the stability of the banking sector and the financial markets. But it doesn’t end there! How will the Fed deal with $62 trillion in credit default swaps when that market begins to unravel? Or the $600 trillion in derivatives debt that former Fed Chairman Greenspan said was too big to regulate? And, if we did decide to regulate this problem, it would just move offshore to London or Hong Kong. The size of these problems is breathtaking!

The GDP of the U.S. is $14 trillion annually. Derivatives debt is 43 times larger than the U.S. economy. Global GDP is $53 trillion. A financial meltdown would produce something far worse than the Great Depression of the 1930s.

Going forward, the short side of the market will be far more profitable!

As a subscriber to The Wall Street Digest, I will show you where the rock-solid, moneymaking opportunities are in this bear market!

...as yields rise to at least 7 percent. Mortgage rates could reach 9 percent. Stocks and commodities will return the best profits during 2008 to mid-2009.

IS THE U.S. BANKING SYSTEM INSOLVENT?

The largest credit bubble in history has burst. Smart analysts are not forecasting a market bottom because no one knows how much level three debt (off-balance-sheet debt) the banks and financial institutions must still write-off. Star bank analyst Meredith Whitney of Oppenheimer & Co. correctly forecast Wall Street’s banking sector crisis.

Fortune Magazine asked Whitney what she sees ahead: “Whereas her peers keep searching for some sort of light at the end of the tunnel, Whitney thinks the tunnel is about to collapse. Bank stock investors will get crushed if they jump back in now, she contends, because the banks are facing much, much bigger credit losses than what they’ve reported so far.

“Moreover, Whitney is convinced that the economy is about to sink into an ‘early 1980’s-style’ recession that will devastate the ten percent of the population that became overextended during the housing boom. ‘It feels like I’m at the epicenter of the biggest financial crisis in history,’ says Whitney.

“Whitney warned last year––and continues to warn today––that the ‘incestuous’ relationship between the banks and the credit rating agencies during the real estate bubble will have a long-lasting impact on banks’ ability to recover.

“With Moody’s and Standard & Poor’s now trying to make-up for past wrongs, the pace of downgrades on mortgage securities shows no sign of slowing: There were $85 billion in mortgage securities downgraded in the third quarter of 2007, $237 billion in the fourth quarter of 2007, $739 billion in the first quarter of 2008, and $841 billion in the second quarter of 2008.

“This is a problem because every time their portfolios are hit by significant credit downgrades, banks are forced to improve their capital ratios. Often that means issuing reams of new stock, which leads to serious dilution, something shareholders at Citi, Merrill Lynch, and Washington Mutual can unhappily attest to. ‘You’re going to have this stealth pressure on bank balance sheets until you start to see the ratio of downgrades to upgrade change,’ says Whitney. ‘It’s something people don’t talk about.’”

NYU economist Nouriel Roubini also shared his view of the future. In 2005, Roubini said home prices were riding a speculative wave that would soon sink the economy. His current forecast is equally apocalyptic: a protracted recession, with up to $2 trillion in credit losses and a systemic banking crisis.

“The FDIC spent ten percent of its reserves to bail-out IndyMac, and that was the first in a wave of failures,” Roubini says. “Will we soon have to bail-out the FDIC?” Eleven federally insured banks have failed in 2008, with many more to come, according to the FDIC.

You are already seeing a shift to fears of a deflationary meltdown on Wall Street. Total derivatives debt amounted to $596 trillion ($596,000,000,000,000) according to the December 2007 report issued by the Bank For International Settlements (www.bis.org).

$596 trillion is a very large number that is far greater than all of the assets of all of the banks around the globe and the combined resources of all of the central banks!

No one knows how much worthless mortgage paper the banks and financial institutions are hiding in level-three asset accounts. Who is holding $596 trillion in depreciating derivatives paper? Who is holding $62 trillion in credit default SWAPs (CDS) insurance contracts?

The U.S. Treasury and the Federal Reserve do not have the resources to purchase enough of this debt to prevent a financial meltdown! The gross domestic product for the U.S. is $14 trillion; global GDP is only $53 trillion.

Homes-for-sale inventories continue to rise. Forty percent of home sales in many regions of the country are sales of foreclosed properties.

THE DEFLATION OF THE
HOUSING AND AUTO SECTORS

Deflation of the housing and auto industries will push the U.S. into the deepest recession since the Great Depression. The boom in housing began in 2001, when former Fed Chairman Greenspan pushed the Fed Funds interest rate down to one percent in order to address the 2000-2002 bear market and recession.

The S&P 500 lost 49.1 percent between the January 2000 top and the October 2002 bottom. Investors pulled money out of the stock market and bought homes and condos. Housing prices soared during the four-year boom, which peaked in July of 2005. Speculators bid-up home and condo prices, with the intention of flipping the properties after closing on them. The net result is a record glut of homes and condos that still hangs over the market today.

Buyers have little incentive to purchase homes and condos because they know home prices will be cheaper next month or next year. The downward spiral in home prices began in July 2005. More than three years later, home prices are still falling. When home prices fall below mortgage balances, thousands of homeowners simply give their keys to the bank or mortgage lender and walk away.

Realtors warn that foreclosures over the next 12 months will contribute to still lower home prices. Wall Street bought and packaged trillions of dollars in mortgages into SDOs. Since no one knows how to price these declining assets, no one will purchase them.

Worldwide, banks, brokerage firms, and pension funds, etc., still have well over one trillion dollars in debt to write-off. As a result, the FDIC expects more banks to fail over the next 12 months.

I do not expect a bottom in the housing market because interest rates will be rising in 2009. In the meantime, home and condo prices will continue to decline. Now is not a good time to purchase a home.

It will take years to muddle through the worst financial mess since the Great Depression of the 1930s!

On July 16, 2008, Fed Chairman Bernanke urged the House Finance Committee members to approve Treasury Department proposals to back-up mortgage markets (Fannie Mae and Freddie Mac). “The housing market is really the central element of this crisis,” he said.

Did the stock market bottom on July 16, 2008, while the regulators were offering solutions (Band-Aids) to Congress? Only time will tell. Our regulators are working overtime to deal with the problems created by oil, debt, inflation and the downward spiral of the housing market. But these are not the only problems that influence stock prices.

The dollar is one of the bright spots in our economy. At current levels, American manufacturers are the most competitive since the early 1990s. The American export boom keeps economic growth positive month after month. American manufacturers who moved to China are returning to the U.S. because China is now importing higher priced products to the U.S. Toyota and Honda continue to build automotive plants in America.

The challenge for the Fed and the Treasury Department is to keep the dollar at current levels. Deficit spending by Congress and our fragile banking system threaten to push the dollar still lower. Meanwhile, plunging auto sales threaten the survival of GM, Ford, and Chrysler.

The Great Depression of 2010-2012 could mirror the 1930’s Great Depression that lasted from 1930 to 1942—a period of 12 years!

The retirement of the 78 million baby boomers (26 percent of the U.S. population) born after World War II could produce a Great Depression that unfolds between 2010 and 2022—another period of 12 years!

The Great Depression of the 1930s was caused by:

(1) The newly created Federal Reserve allowed one-third of the nation’s banks to fail. One-third of the nation’s money supply (liquidity) disappeared instantly when banks closed their doors. That will not happen today because the FDIC and the Fed have guaranteed the banking system.

(2) Congress raised taxes five times during the 1930s, which prolonged the Great Depression. It lasted from 1930 to 1942––a period of 12 years!

(3) The 1930 Smoot Hawley Tariff Act ended free trade, which pushed the rest of the world into an economic depression. The Democrats want the support of the AFL-CIO unions (and their campaign contributions), which explains why most Democrats are fiercely anti-free trade. The Republicans want the support of the oil lobby (and their campaign contributions), which could explain why Congress has not passed a comprehensive energy bill that would end our dependence on foreign oil.

Raising taxes could push the economy into a great depression that could last well beyond the 2010-2014 recession and bear market!

Demographically, this economic downturn is expected to last until 2011—another 12-year period! Economics 101 is very clear: Cutting taxes will increase state and federal tax revenues and, hence, create jobs. Raising taxes on any economic group will increase unemployment.

The worst credit crisis in history is a global problem. The global banking system owns trillions in toxic mortgage debt that will take many years to write-off.

The assets in IRAs, 401Ks, and pension plans declined by 50 percent during the 2000-2002 recession and bear market. Retirement funds declined by over 40 percent during 2008, as the S&P 500 fell by 40 percent.

The assets of sovereign wealth funds are soaring because of exported U.S. dollars. At current rates of growth, Charles R. Morris, author of “The Trillion Dollar Meltdown,” says the assets of foreign sovereign wealth funds will exceed the net capital of the U.S. banking system in less than five years.

IMPORTED OIL FROM OPEC
FINANCES GLOBAL TERRORISM

The U.S. spends $700 billion ($700,000,000,000) annually to import oil from OPEC and other oil-producing nations that are dedicated to the destruction of U.S. economic power. This figure continues to rise annually. Foreign countries place a substantial portion of our exported dollars into sovereign wealth funds and invest the money in U.S. assets, such as Citigroup and, most recently, the GM and Chrysler Buildings in New York City. In addition, OPEC countries build state-of-the-art cities in the desert, financed by revenues from the U.S.

President Bush rescinded the first President Bush’s executive order banning offshore drilling because China is drilling for oil 60 miles from Florida’s coast. The four-dollar-a-gallon gasoline we experienced recently has dramatically rearranged the spending priorities of American consumers. Automotive sales have plunged to the worst levels in decades. Ford and GM are caught with 8-cylinder cars and SUVs they cannot sell to U.S. consumers. Bankruptcy rumors persist for both firms.

On the other hand, Toyota and Honda can’t produce their 4-cylinder and hybrid vehicles fast enough. Toyota is building a new Prius plant in the U.S. and converting its Highlander SUV plant to Prius production. Record fuel prices destroyed the airline industry and decimated the profitability of the transportation industry; $147-a-barrel oil destroyed the global boom.

Southern Europe is already in a recession, while Northern Europe is reporting slowing growth and profitability. None of the emerging market stock indexes are currently showing a profit. Oil production is 85 billion barrels per day and declining, while demand is 86 billion barrels and rising 1.4 percent annually.

In the U.S., there are 750 autos for every thousand people. In China, there are two autos for every 1,000 people. The average American consumes 25 barrels of oil annually. Japan consumes 14 barrels per person, India consumes two barrels per person, while China consumes one barrel per person. China is searching the world for every barrel of oil, while also building 200 nuclear plants to produce electricity.

Energy production is a “Manhattan type” top-priority project in China, whereas the U.S. Congress is out-to-lunch with the lobbyists.

There is over one trillion barrels of oil under the Rocky Mountains in the form of oil shale. The U.S. has more oil reserves inside the U.S. and offshore than all of OPEC combined. “In addition, the U.S. has vast reserves of natural gas and 27 percent of the world’s recoverable coal. The coal in the ground in Illinois alone has more energy than all the oil in Saudi Arabia. (Source: The New York Times)

“America’s coal reserves are equivalent to 20 times our proven crude oil reserves. Liquefied coal could solve our liquid energy needs for the next two centuries. An energy department report indicates that the “Green River” formation, underlying parts of Wyoming, Utah and Colorado, contains as many as two trillion barrels of oil, trapped in porous rock close to the surface. Two trillion barrels is seven times the Saudi reserves.” (Source: Investor’s Business Daily, July 15, 2008, www.investor.com)

Congress must end our dependence on foreign oil and allow drilling for oil in the U.S., Alaska and the Gulf of Mexico. Doing so will create thousands of jobs in the U.S. and stop the relentless flow of money to OPEC, Hugo Chavez, Libyan leader Muammar Qadhafi, and Vladimir Putin’s Russia.

THE DARK CLOUDS OF DEFLATION
ARE ON THE HORIZON

The retirement of 78 million baby boomers (26 percent of our population) born after World War II, will result in a dramatic reduction of economic growth. When people retire, they instantly spend less money because their biggest fear is outliving their retirement income or nest egg.

Consumer spending is the engine of economic growth. The first wave of these retiring baby boomers is already affecting economic growth. Deflation arrives in 2010, when wave after wave of these 78 million baby boomers enter retirement.

The Recession and Bear Market of 2010-2012 will be the most serious economic downturn since the Great Depression of the 1930s.

It is not that difficult to forecast a serious bear market and recession in 2010-2012. The stock market bubble will burst and stock prices will deflate. Meanwhile, the first global financial storm is building!

There is a cycle to all of this. No one can explain it. It just happens––like sunrise and sunset. If you’ve forgotten your stock market history, here it is again:

We had a Bear Market and Recession in 1920, 1921 and 1922.
We had a Bear Market and Recession in 1930, 1931 and 1932.
We had a Bear Market and Recession in 1940 and 1941.
We had a Bear Market and Recession in 1950, 1951 and 1952.
We had a Bear Market and Recession in 1960, 1961 and 1962.
We had a Bear Market and Recession in 1970, 1971 and 1972.
We had a Bear Market and Recession in 1980, 1981 and 1982.
We had a Bear Market and Recession in 1990, 1991 and 1992.
We had a Bear Market and Recession in 2000, 2001 and 2002.

The economic stimulus from the Fed and the U.S. Treasury has been well beyond unprecedented. I believe the enormous creation of money will temporarily stop the financial meltdown.

However, we are still printing money to solve problems that were created by printing too much money. The temporary net result will be the ‘re-flation’ of the stock market and the commodities sector in 2009.

Interest rates will eventually begin to rise in mid-to-late 2009 to address inflationary pressures. Rising interest rates will adversely affect housing and auto sales, slow economic growth and push the U.S. and global economies into a serious recession between late-2009 and mid-2010.

The main force producing this serious deflationary period is the lack of spending by the 78 million baby boomers and the rising number of people who will be unemployed.

Congress will attempt everything possible to stimulate economic growth, but the net result will be the destruction of the U.S. dollar, while stock prices continue to fall into a deeper recession between 2010 and 2014. The stock market will experience a temporary bottom in 2014, when the Kress Long-Term Cycles bottom in September of 2014.

The best investment positions to survive this difficult period will be to purchase 30-year U.S. Treasury bonds at the market top sometime in 2010, then shift to 100 percent or 200 percent short the U.S. and global markets.

The problem with a 5.0 percent “official” inflation rate is most severely felt by those on fixed incomes. The following yields produce a negative return for those who hold T-bills, notes and bonds: 90-day Treasury Bill, 1.39 percent; 2-year Note, 2.58 percent; 5-year Note, 3.37 percent; 10-year Note 4.07 percent; and the 30-year bond, 4.65 percent.

As the crisis in the banking and financial sectors unfold, there is increasingly no place for consumers and investors to hide. Investors will eventually have to short the markets to produce a profit. We’ll use inverse ETFs that short the market.

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