Stagflation, Recession, or Bust for U.S. Economy?
 In
2007, Gold experienced a remarkable year rising in value by
31%. Already this year, Gold has surged to a new historic
high over $1,011 in a non-stop Bull Market for precious
metals. Gold’s recent success is not based on its pretty
color or use in jewelry. The rush to Gold comes from
investors worldwide and is a result of the U.S. economy in a
major crisis.From Wall Street’s point of view, investors can’t make up their minds– the economy seems OK one day, falling into recession the next. Then we are hit in the face again with bad news about the Sub-Prime Mortgage Crisis. Sub-Prime is not a little problem. It’s a massive, worldwide, liquidity problem that won’t go away in a few weeks, perhaps not in a few years. The Sub-Prime Mortgage Crisis has already stifled the home building industry, depressed the U.S. Stock Markets, and threatens to take the economy into a recession.  Stocks
Keep FallingTypically, U.S. Stocks come out of the shoot in January with investors looking forward optimistically to the New Year. In fact, six out of the last eight Januaries have seen upward movement in the DOW. Not this year! In 2008, there’s been a sell-off of U.S. Stocks day after day, month after month. So far this year, the DOW Industrials have fallen by 20% since the October 9th high of 14,165. Where is all the stock market volatility headed? Should we expect a period of stagflation, a recession, or worse? With the U.S. Stock Market major indexes already down this year– 14% for the DOW, 13% for the S&P 500 and a whopping 13.5% for the NASDAQ, the arguments can be made that stocks are in a bear market with the decline accelerating. Wild swings with 200-300 point down days for the DOW Industrials index have been the norm since the Sub-Prime Mortgage Crisis began. At times, investors are fleeing stocks in a near panic. As soon as confidence looks like it is being restored, another surprise in the Sub-Prime Mortgage Crisis pops up and stocks head south again. Despite the efforts to put together a “Super Fund” to save the mortgage industry and banks, Washington has only put on a few band-aids. The banks are in big trouble.  Few Admit We’re Headed into a Recession It's been so long since America has had a prolonged recession, that we have to remind readers of the definition. Wikipedia defines a recession as a decline in a country’s gross domestic product, or negative real economic growth for two or more successive quarters. The early warning signals of a coming recession look like this: Home Sales Decline
– The S&P Case-Shiller home price index
reported an 8.9% decline in home prices for 2007, the largest
decline in at least 20 years. Historically, as a recession approaches, we begin to see Corporate Profits slowing down. Auto Industry & Industrial Manufacturing will begin to fall. In response, we will see the Federal Reserve drop interest rates to stimulate business. As we get closer and closer to a recession, there will be a growing number of defaults on mortgages, loans, and credit card debt. Wait a minute! If that’s the criteria, then we are most likely in a recession in the United States right now, but the data just hasn’t caught up with the facts. (Click here to read why the Federal Reserve, Merrill Lynch, and Morgan Stanley are all confident that the U.S. is entering a recession.) Six Great Years Before This Recession The U.S. economy has had a nice, long run. We are currently in the sixth year of an expansion cycle, which is longer than the average post-World War II growth cycle. When the economy remains strong for this long, we are past due for a downturn, recession, or worse. This is the bad side of a free market economy– the inevitable economic contractions we call a recession. Wall Street and the news media are just beginning to face the harsh reality: A recession is coming in 2008 and neither the Federal Reserve’s interest rate drops nor optimistic media reporting will slow the economy decline ahead in America. Sell Stocks and Sit on the Sidelines In the early days of 2008, oil prices topped $110 a barrel and have since topped $145, Gold soared to a new all-time high over $1,011 an ounce, and the most devastating news was that payrolls grew less than anticipated as unemployment hit a two-year high of 5% in December and stayed high at 5.5% through June. When people start losing their jobs, they slow spending and find it harder to pay their bills, a trend that guarantees to multiply the problems in the mortgage industry. Clearly, this is a hostile environment for owning stocks. With interest rates falling to 2.0% (after predicted by Goldman Sachs to go as low as 2.5% by the third quarter), bank CD’s and money market funds are sure losers. Inflation alone will destroy what little interest the stingy bankers will be paying. As one of my wiser friends said, “I’m fed up with the stock volatility. I’m selling out and sitting on the sidelines.” While that may or may not be appropriate advice for everyone, we understand his concern. When the fear of losing money is much higher than the hope of making money, it’s just as easy to punch the SELL STOCKS button and wait this one out. Gold May Be The Best Alternative With increasing risks of the Stock Market, falling interest rates, and so much uncertainty ahead during the political season, Gold may be one of the few investments that will shine in 2008.  While there’s no guarantee that the 31% profits Gold generated in 2007 can be matched in the coming year, there are fewer and fewer alternatives. At this time, we are recommending that many people who own little or no Gold increase their holdings to as high as 10%. Many economic advisors will recommend a core holding of 5% to 10% in Gold or precious metals at all times. During Bull Markets for Gold and Silver, those allocations may be increased somewhat. However, just as it makes no sense to keep all your money parked in the bank or all your money with your stock broker, you don’t want to own only Gold. Balance and diversification have been a theme our firm has preached consistently. In our 19 years of service to both investors and collectors, Austin Rare Coins & Bullion has provided expert advice and better service. When you’re ready to buy Gold, we’re here to help. We can answer all your questions, personally and privately over the phone. Our Gold Specialists are on duty at 1-800-928-6468 from 9am till 9pm seven days a week central time. Questions? Call a Pre-1933 Rare Coin Specialist at 1-800-928-6468
Austin Rare Coins, Inc. Serving Investors & Rare Coin Collectors since 1989 7200 North Mopac • Austin TX 78731
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