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.
