Investors Advisory Forecast



Are We as Stupid as They Think We are?

As we prepare this issue of Investors Advisory Forecast, the national political scene is abuzz. Although there are many concerns being voiced all across the nation, one of the more proliferative is that of universal health care here in America. Anyone who has turned on the television or opened a newspaper in recent months knows this is one of the most publicly controversial social, political and economic topics of our time.

Let me start by saying our interest in this debate, as it has to do with the Insiders Advisory Forecast, has nothing to do with whether you are for or against universal health care. Our concerns have to do more with the attitude that it seems “the powers that be” believe Middle America should just be Okay “drinking the punch” without asking valid questions or using our common sense.

While virtually everyone will maintain that, in principle, every single human life deserves access to, at the very least, “affordable” health care, one must remember that this care still has to be paid for. This is where the partisan divisions begin. How to pay for it?

In an already ailing U.S. economy, where Federal budget deficits and national debt are spiraling out of control, consumer price inflation is on the rise. The U.S. Dollar is being devalued daily around the globe and no one, including President Obama, wants to get too specific about how to pay for it. Truth is that discussion would most likely end the universal health care issue once and for all.

Whether or not universal health care ever becomes a reality, common sense dictates spending more money we don’t have is not a prescription for wellness.

For the past five years, First Fidelity Reserve has been trumpeting the forthcoming U.S. Dollar devaluation and unprecedented consumer price inflation. We also accurately forecast the rise of gold as these events continued to play themselves out.

This time five years ago, the price of gold was hovering near $400 an ounce and we stated to all that would listen—gold (and more particularly various rare coins) CANNOT stand the foreseeable demand coming due to our nation’s current economic situation. Get your positions now before prices go up!!

Today, gold is bouncing in and around the $1,000 price level and many of the CUCU 3000 Index coins purchased have done even better. By comparison during the same span, the Dow Jones Industrial Average is still down over 6% from its September 2004 index price. Yet Mainstream Media wants us to, once again, follow them blindly.

For those of you who understand that it is really up to each of us individually to secure our own financial independence, converting a portion of your devaluing U.S. Dollars into physical gold is a prescription that will potentially allow you to buoy yourself through the “second wave” of the financial tempest we are experiencing.

Mainstream Media and financial “planners” preached “no recession” and “stock recovery” all the way up until the time it tanked. The stock market melted down in the wake of the “subprime” mortgage crisis of 2008, which, as you will learn later in this issue, is far from being over, despite media pundits who continue to hail that the “recession is over.” Then, when the proverbial pooh hit the fan, these same financial gurus claimed “no one could have known” ducked their client’s calls and waited for America to forget.

When America did not forget, these experts did the next best thing. They found an angle they could play. It would sound like they were reconciling their mistakes but actually be designed to bring them commissions once again. They began preaching Gold Stocks and ETF’s.

However, even though the mainstream media continues to, in large part, ignore the real story, in favor of their own financial gain, many high profile individuals, including billionaire investor-philanthropist, Warren Buffett, are beginning to sing the same song we have been singing for the last five years: the U.S. Dollar is being devalued and inflation is going to become a reality of our lives.

Once again we are going to supply you with the facts and ask you to “un-hypnotize” yourself from mainstream media. Go back to common sense. Over the next five years, there will be a second wave of the “subprime” mortgage crisis that will severely test American resolve. Oil prices will continue to go up—WITH NO HURRICANE TO BLAME IT ON. We will eventually have to pay for the bailouts made in the last 9 months. And all this points to one thing - a devalued dollar.


Is Warren Buffett Bullish On GOLD?

In the midst of the tumultuous changes of the “revolutionary”” decade that was the Sixties, billionaire investor-philanthropist, Warren Buffett made the first steps on the journey that would lead him towards a success-paved destiny as the world’s “savviest investor.” “So what’s he saying Now?”

Along the way, he has rightfully earned the now legendary moniker “Oracle of Omaha” for his astute investments and acute “macro” vision of the U.S. and global economies.

Through his company, Berkshire Hathaway, Buffett consistently delivered compounded returns that have exceeded 20% each of the past 44 years. Over the course of those four-plus decades, he has developed a sharp business acumen that affords his followers keen insight into the essential truths inherent in a “macro” economic worldview.

While an early proponent of gold and precious metals, Buffett later tended to ignore metals and primarily acquired assets with “dividends” potential. However, Buffett is still a respecter of the silver and yellow metals and most assuredly understands the market mechanics that cause the price of both to rise or fall.

In the late Nineties, Buffet made a very public trade in the metals, amidst very similar economic stressors that we are seeing today. After closing the trade on some 130 million ounces of physical silver, Buffett humorously characterized it as “the perfect trade – except that we bought too early and sold too late.”

Since he rarely makes moves into the physical metals, whenever he does, people pay attention. In recent months, Buffett has pointed a sizeable portion of Berkshire Hathaway’s portfolio towards the metals futures. One can only speculate that he is purchasing against inflation and believes the price of gold is going to rise for some time to come.

Why Warren Buffett Forecasts Rising Gold Prices

Since his reputation is built on a seemingly infallible ability to choose “winners” in a diverse mix of industries, Buffett’s astute knowledge of market dynamics and global economies qualifies him as one of the leading economic minds of our time. To borrow an old E.F. Hutton phrase: “When Warren Buffett speaks, people listen.”

In May, he spoke before 35,000 assembled Berkshire Hathaway shareholders and delivered a keynote that addressed two inescapable themes central to his message: 1) the near-to-midterm prospects for the U.S. economy and 2) the fate of the tenuous U.S. Dollar.

In short, Buffett stated that “inflation” is imminently poised for a return engagement and the U.S. Dollar is headed lower. Assuming Buffett is his usual sharp-sighted, visionary self, both of these pronouncements imply that gold prices are headed even higher.

With Buffett’s keynote speech targeting a falling of the US dollar, the growing legion of gold bulls are certain to glean from his forecasts that gold has yet to reach the summit of its price value and the golden days of “the King of the Metals” are still before us. In fact, his prescient and dismal projections of returning inflation and a falling dollar led him to advise his followers to “invest in yourself.”

Buffett Likens Economic Stimulus To Half Dose Of Viagra

In the past year or so, since the recession officially began, Buffett has been an increasingly high profile voice on the state of and direction of the U.S. economy. For a while, he was on Obama’s short-list for a cabinet position. Buffett’s general concern in the wake of last year’s global economic melt down is that we are all now, collectively, in uncharted and tempestuous waters.

Because the federal government has been compelled to lead us through the storm, they have resorted to all manner of unprecedented economic stimulus and bailout programs. It is perhaps stating the obvious to point out that no one really knows for certain the ultimate outcome. So, it’s a little like playing darts in the dark. Hoping for a bull’s-eye, but lucky to even hit the board.

In the exclusive ABC interview, Buffett humorously alluded to the various economic stimulus programs as the equivalent of taking a “half dose of Viagra with some candy mixed in.” He believes that too large a portion went into “pork type” projects to appease the home constituencies of Congress, and that not enough was directed specifically at sources that would better serve the long term rebuilding required to come back stronger than ever.

What does this mean for the average American? Buffett is thoroughly convinced that “inflation” is a sure bet to become a condition of life. As a corollary trend to inflation, the U.S. Dollar will fall, which is also an important indicator of rising gold prices. It is not news to long-time gold followers, but history is replete with evidence that supports higher gold prices during periods of inflation. And in inflationary times the “Golden Rule” always applies. “He who owns the Gold makes the Rules!”

Warren Buffett’s Bottom Line On U.S. Stocks, Bonds, China & Inflation Investing

Despite Buffett’s apparently negative prognostications on the short-to-midterm prospects for the economy, he is actually optimistic longer term and does believe the U.S. economy will rebound stronger than ever-- just not anytime soon.

If you are set on buying stocks, Buffett still advises to “buy stock in a well-run company,” but he also advised in a recent ABC interview that he believes the days of “double digit” stock returns are over. As “get rich quick” stock gains become an antiquated artifact from a bygone era, an even broader swath of investors will increasingly begin to consider physical gold as a viable alternative, despite the apparent lack of “dividends.”

In the short term, Buffett is very bearish on U.S. Government bonds. For investors today, bonds are one of the poorest choices, especially for foreigners. To quote him specifically: “Anybody who holds (US) Dollar obligations from outside this country is going to get back less in purchasing power in the future.”

According to Buffett, from his perspective the US is implementing policies that inevitably lead to inflation and its attendant consequences. At the head of the class is the massive “borrowing” from foreign entities to fund the various economic stimulus and bailout programs.

The Chinese government is virtually stuck at the trough because of its heavy reliance on the U.S. Dollar as its primary reserve currency. So, the Chinese are taking their already held U.S. Dollars, buying U.S. Government debt instruments with a promise to repay in the future with what will surely be lower valued Dollars. Seems to be an insane premise, yet that is precisely what is happening.

Meanwhile back in the States, politicians continue to endlessly repeat the sound byte that we are paying for the stimulus and bailout packages with taxpayer money, when this is not at all the case. Quoting Buffett: “It’s wrong for politicians and others to keep saying they’re using (US) taxpayers’ money. My taxes haven’t gone up and neither have yours. What we are doing is borrowing from the rest of the world and building up Government debt. The classic way of reducing the impact and cost of foreign debt is by reducing the value of the dollars you’re going to repay them with.”

Buffett went on to say at the Berkshire Hathaway shareholders meeting that the ones really paying for the bailouts are the ones buying the fixed interest U.S. Bonds, which will inevitably be worth less in real terms when they are redeemed. Does this mean we are simply forestalling another inevitable crack in the economic structure down the road? We will have to wait and see.

As any good “oracle” should, Buffett did not just emphasize the negative predictions, but he also was encouraging and optimistic about the long-term prospects for the American economy. Sure, we are going to become well-acquainted with inflation! Likewise, it’s a virtual given the U.S. Dollar will further devalue!

However, Buffett opined that despair is unwarranted. He stated: “The best protection against inflation is your own earning power. If you are the best at what you do, you will get your share of the national pie no matter what inflation does. The second best protection is to own a wonderful business that does not need capital. With these guidelines, I’d say invest in yourself. It’s always been the best investment you could make.”

Sage advice indeed! It is wise to remain mindful that one aspect of “investing in yourself” implied by Buffett’s advice is the power of personal financial independence. Doing so, shields you as best as possible from the vagaries of the markets. With respect to Buffett’s view on the economic prospects for America, it is likely that gold and commodities prices will continue rising over time. Inflation and the ongoing devaluation of the U.S. Dollar are now realities. There is no point in wishing it weren’t so. There is nothing we can do to prevent this from playing itself out.

“It’s wrong for politicians and others to keep saying they’re using (US) taxpayers’ money. My taxes haven’t gone up and neither have yours.”

At times like these, it is useful to remember that in the Chinese language, they use the same word to describe both crisis and opportunity. Indeed, many will see the crisis, believe in it exclusively and wait for something to save them, rather than using the opportunity to invest in themselves. At the end of the day, this is the decision we must all make. If financial independence is your personal goal, then it would be wise to heed Buffett’s forecast of price inflation and U.S. Dollar devaluation.

Gold prices have never been so abundantly seeded for the potential of heading higher. Gold has ALWAYS been a store of wealth. So, investing in yourself and your own financial independence means buying gold sooner rather than later before prices rise even further. Hard tangible assets provide protection and independence in an otherwise computer age economy. What could be more “financially independent,” than owning an area you personally hold (whether in a safe or safety deposit box) that has proven itself throughout every economic challenge our planet has been faced with?


A Second Mortgage Wave Meltdown?

Just when Washington begins to tell America “We are in recovery”, it seems that we may be just getting started. Although many of those in power may want you to believe the almost two trillion in tax bailout we have already thrown at the problem has solved it, it turns out there is another far bigger wave on its way.

As a decidedly optimistic person by nature, at times, it is an editorial challenge to forecast negative or even potentially catastrophic, financial events in an attempt to accurately discern their probable consequences. In such circumstances, one easily runs the risk of sounding like a pessimist who enjoys predicting crisis. I assure you, nothing could be further from the truth. Just like Warren Buffett, I believe America will thrive again. However, the financial storm that began a little over a year ago is far from over.

It now appears another potentially more tempestuous mortgage crisis is brewing. Except this time, the “sub-prime” market will not be the albatross. The next financial wave of the “subprime” crisis deals with trillions of dollars and will likely further fuel the ongoing inflation and devaluation of the US Dollar. Fortunately for our clients, this bodes well for gold prices rising, substantially, both in the short and long interims.

Over the last five years we have been reporting on the fall of the US Dollar, the rise of gold and the coming price inflation due to a shrinking US Dollar. As with those, this new story is something that the Investor’s Advisory Forecast will be covering for some time to come. With an eye towards not only serving our clients, but helping them thrive through this fast approaching financial storm, we believe the best way to prepare for the future is to concentrate on the basics and learn from the past.



A Simple Look Back at What Caused 2008?

In 2007, Amherst Securities, an investment firm that specializes in mortgages, analyzed millions of loans that were bundled into mortgage-backed securities. They reported that the sub-primes were defaulting. What they didn’t clarify was that the loans they were generalizing as subprime were actually only referring to the “High Risk” section of the subprime market. However, as shown above, this is only one segment of the overall “subprime” market, and not even the biggest part, just the riskiest.

High Risk loans first began going bad as far back as 2005. They reached a peak in 2007 and triggered the devastating financial consequences we experienced in the meltdown of 2008. The monies associated with the “high risk” section of the subprime market were reported to be somewhere around $1.3 trillion dollars worth of bad debt.

What we didn’t hear about was that Amherst also ran the numbers on mortgages that were classified as “ARM” and “Alt-A Mortgages.” By definition, still subprime, yet thought of as more “sophisticated” by those in the industry, these loans were supposed to have been higher quality mortgages and thus more “secure.” With an estimated $2.4 trillion in “Alt-A” mortgages in play, when the resets begin, there will likely be a financial fallout that, at best, will equal the first “subprime” wave crisis, and at worst, will dwarf the first wave.

ARM and more particularly Alternative-A (Alt-A) loans (either fixed or adjustable) lured borrowers that may have been income and credit worthy for a “prime” loan, but had less than 20% equity in the underlying property and with low initial interest “teaser rates.” These rates were sometimes as low as one percent.

Under the assumption that real estate values would continue to climb, the mortgagee would plan on either refinancing or selling the property before the note came due. If either of these scenarios did not occur, the mortgage would automatically “reset” resulting in a new payment that is usually, though not always, much higher than the original payment. A mortgage of $900 dollars a month could easily jump to $1,600.

After the first wave of “subprime” mortgages began to go bad, housing prices began declining, even before the mortgage market locked up. As real estate prices declined and credit tightened, many of the second wave of ARM borrowers were unable to refinance. Unable to stop their ARM from resetting to higher rates, many of these borrowers also began to become delinquent and, in the worst cases, wound up in foreclosure. We now know how devastating the first wave was, but most of the mainstream media and Wall Street is pretending that is all behind us. Don’t believe it!

In essence, the same problem that caused the first meltdown applies to the Alt-A section as well--These notes were again given to people with no “vested capital interest” in the value of the homes they were purchasing.

You can look back at what was written in ‘05 and ‘07; you can look at the reset dates; you can look at the current default rates, and it’s really very clear and predictable what is going to happen here. This “higher rate adjusting” will, in a majority of cases, increase the average person’s monthly mortgage obligation to a point where many borrowers, who are already marginal, will begin going “underwater,” becoming delinquent and potentially ending up in foreclosure.

At this time, it is estimated that approximately 80% of all mortgages issued in recent years to “subprime” borrowers in the U.S. were “adjustable rate mortgages.” This includes all “Alt-A” mortgages.

The total market value of the “Alt-A” loans potentially in harm’s way is estimated at $2.4 trillion, which is almost double the estimated value of the first “subprime” crisis wave, estimated at $1.3 trillion.

If the indicators and projections that are now beginning to appear are reasonably accurate, these Alt-A mortgages will begin hitting their target reset dates as early as January 2010. In other words, the much lower “teaser” rates will begin adjusting to higher rates. This will force people to either refinance their homes or opt for foreclosure. And, since many of these subprime Alt-A loans were done as late as 2007 and 2008, this wave will continue until its latest loan rates reset and the number of foreclosures peak—somewhere around the beginning of 2013.



According to the forecasts, we will begin to see this new wave in 2010 and peak somewhere around 2013 to 2015. Along the way, a new wave of foreclosures will crest that will, by comparison, potentially dwarf the financial losses weathered in 2008.

From here it is a simple math game to understand that if this second wave only equals the first wave, then at minimum we are in for more failures, bailouts and open-ended deficit spending. However, if, as many expect, this second wave is greater than the first wave, then we will once again be entering uncharted waters, which will likely be even more detrimental than the first. 

How Precarious Is The Alt-A Market?

Recently, Deutsche Bank released a comprehensive analysis of this building financial storm and predicts that almost half of all U.S. homeowners will be “underwater,” which is an apt metaphor given the potentially devastating impact of this next and almost certainly larger “subprime crisis” wave. In our next issue, we will more closely examine this “underwater” class of homeowners and investors. But, for now, take a look at the two charts provided below for a glimpse at the potential scope of the second wave of the “subprime” crisis.

Everyone Will Be Impacted By The Alt-A Tsunami

While we will be writing about these events for some time to come, there is no need to attempt to communicate everything you may need or want to know in the space limitations of this issue. However, just know that at the heart of any crisis, there is opportunity. The Alt-A mortgage crisis will play itself out. It may be worse than we care to imagine, or less.

However, it is coming and none of us can stop it. The scope of this crisis is such that virtually everyone will be impacted in one way or another. So, while many are saying the “subprime” crisis is over and America is now in recovery mode, don’t believe it!

Prepare– yourself now, because even if you believe you are secure, the Alt-A crisis will impact your life. The loss of real estate value on the number of homes in the Alt-A sector will, at best, lower the value of many Americans’ homes and, at worst, weaken the US Dollar (due to inflation) to a point that will likely forever change the landscape of the world we view.

Calling It What It Is

The bottom line is this: we are experiencing the aftershocks of a real estate “bubble” that was first created during the Clinton administration, and generously stoked post-9/11 as a way of funding the U.S. consumer economy, while the Bush administration dealt with the terrorists.

We all now know, or at least those that have been observing closely, that the hyped real estate values needed to fund the big equity grab that low interest ARMs represented were not “real” at all.

It wasn’t too long ago when everyone believed without a doubt that the only two “real” tangible assets were real estate and gold. For a very large number of American consumers, the hard lesson here is that a continuing, unabated rise in real estate values is not “real.” Neither will be the newly printed money likely to show up in the form of government bailouts and stimulus plans given to the very people who started the bleeding to begin with.

As these events unfold, there will be continued skepticism over the U.S. Dollar. This skepticism, if not checked quickly could lead to the devaluation of the US Dollar. In turn, as history shows, the devaluation of the Dollar also portends gold prices going higher.

At this time, gold has crossed the $1,000 price barrier and will probably close the year out somewhere close to that number. When it does, it will be the 9th straight year gold has posted gains – the only major tangible asset class in the 21st Century to do so. Given the prospects for the next decade, it looks like gold is still in for an extended run on the bull it has been riding since 2002. If you don’t believe us on that one, then reread the Warren Buffett article and consider what his forecasts mean for gold’s long-term prospects. It’s simple, you can either do nothing (letting your dollars devalue) or you can place a portion of it in gold, where it will likely thrive until our country’s economic system RESETS itself.

Be sure to watch for the next issue of Investor’s Advisory Forecast when we continue bringing you news of the coming Alt-A crisis ahead of the mainstream media.