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The Other Twin Towers

The Shocking Case for Another
Depression

Americans are in debt for $31 trillion -- three times

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what we produce in a year. The last time our debts

were so totally out of control was the 1930s. In 1980
-- just 23 years ago -- we owed only $4 trillion.
This is just one indicator out of many that point to
a coming depression.
But my readers are doing just fine -- up 18.95% in
the 12 months just ended, a period when the Dow
was down 21%.

Get the Big Trend Right

...and most of your little investment
decisions will take care of themselves.
Dear Investor:

You could have done very well over the last 30 years with just a handful
of investment decisions. In 1970, a long-term investor should have bought
gold, silver and oil. (Gold went from $35 to over $800.) In 1980, you
should have sold your gold and oil, and bought Japanese stocks. (The
Nikkei Dow went from 6,849 in 1980 to over 39,000 in 1989.)

Then, in 1989, you should have switched out of Japanese stocks into
America's S&P 500 or, better yet, into the Nasdaq. Japan crashed while
the S&P went from around 350 to 1,527. Then you should have sold your
American stocks in early 2000 and put the proceeds...into what? That's
what this Special Report is all about.At historical milestones like
these, the rules of the investment game completely change. 'Tis a shame,
but the vast majority of investors continue to play by the old rules and

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either lose money or miss out on the glorious profits the Next Big Thing
brings about.

As you can see from the graphic at the beginning of this Special Report,
we're at another one of those major turning points. Read carefully what
we have to say -- we've assembled a lot of evidence.Here at Strategic
Investment, our analysis starts with identifying the big trend. Then we
pick our specific investments. And we're pretty good at it, if I say so
myself. What's more, we begged readers to bail out of U.S. stocks in 1999
and 2000. We've stayed bearish ever since as the major averages went down
one, two, then three years in a row.

We've made money for our readers these last three years while most people
were losing it.Some people will tell you it's all 20/20 hindsight. In
1999, who knew the market was going to crash? In 1973, who knew gold was
worth way more than $35? In 1989, who knew Japan would go into the tank?

We did. In fact, in 1989 I was so bearish on Japan that a fellow editor

at a conference handed me a book with a fake cover titled "How I Called
the Bubble in Japan." Little did he know how right that was. But our back
issues prove it too.What's more, I can tell you with almost 100%
certainty the key to successful investing: The bursting of a bubble leads
to a permanent change in the leadership -- in the dominant asset class.
By "permanent" I mean a change that lasts for one or two decades or more.

U.S. stocks aren't going to go back to "normal" -- not for a long, long
time. If you continue to chase the table scraps of the '90s boom, you are
making the mistake of a lifetime.

In this Special Report, my colleagues and I are going to tell you what
the new leadership is -- the great bull markets for the next five years,
and maybe the next 10 or 20 years. We give specific ways to play these
powerful bulls. Our picks have already made substantial profits.

We can do the same for you. Read this report, then join us every month
for an adventure in making money.

Sincerely,

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Bill Bonner
President, Agora Financial Publishing

Dear Concerned Investor:

Remember how you felt the day the World Trade Center came down?

Remember the sick feeling in the pit of your stomach...the grief...the rage...the
fear of where they would strike next?

Well, there's another set of twin towers -- you can see them for yourself in the
chart above. And this time, you're in the towers.

Think of how you'll feel if you lose your job. Maybe even your house.

Think of how you'll feel if your stocks go down another 70%. What life will be
like if your bank says you can't access your accounts -- you'll have to wait until
the government sorts everything out and decides how much you get.

Thousands of banks closed during the Great Depression. On a smaller scale it

even happened in the early 1990s.

There's a lot of yada-yada these days about a double-dip recession, a possible

depression, or even a powerful recovery with a 40% jump in stocks. Who needs
another opinion? I don't. I prefer facts.

So let's look at the facts. The chart shows every penny Americans owe.

It's expressed as a percentage of Gross Domestic Product (GDP) -- the total of

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everything we produce in a year. At the end of 2002, we owed $31 trillion --

that's "T" as in "Trillion" --which is about three times our GDP of $10.5
trillion.

The only time things were this bad was during the Great Depression of the
1930s.

What's your share of the debt? About $110,000.

How about a family of four's share? About $440,000.

Of course, those are the averages. Maybe you're rich and it doesn't sound like a
lot. But half the families in America make less than $42,000 a year, so trust me,
$440,000 is a lot. You may be in great shape yourself...for now...but your
stocks, your home value, and your source of income are not secure if the nation
goes bust.

From the chart you can see that for the whole period from 1940 to 1980 things
were under control, more or less. Not any more. We're piling it on, and the only
time it's happened before was the Great Depression.

As you can see, the debt has been going practically straight up since 1980.

If you just project the trend, the debt will go to $40 trillion or even $50 trillion
really fast. In reality, that's not going to happen. It can't. We will go broke
before it does. We won't even be able to pay the interest, much less the
principal, and nobody will lend to us anymore.

Look at the chart and study the first tower, the one from the Depression.

The debt came down, and pretty darn fast. It didn't get paid; it got written off.
The lenders lost nearly all that money. Bank accounts got wiped out, stocks

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went nearly to zero, real estate values plunged.

I have a lot of evidence that the economy is going to implode, and in a moment
I'm going to show you more of it. But first, I'd like to give you a bit of good
news:

Readers Who Follow My Advice Have Been Doing

Just Fine
My name is Daniel Denning, and I'm editor "I don't believe I have
in chief of Strategic Investment, a monthly ever read as succinct and
newsletter that's been around since 1984. exacting a discussion on
We've also added a free weekly e-mail to the interrelationships of
keep you up to date. violence, governments,
politics and democracy...
a superlative in clear
In the last year, I'm up 18.95% on closed thinking..."
positions. I'm talking about the last 12
months as I write this -- which could be a -- J. Ruban (Subscriber)
few weeks back by the time you receive
this. What's more, my open positions as this goes to press are up nicely. My
record is all there in black and white in the pages of Strategic Investment. You
can find the recommendations in the newsletter every month.

You could have made a gain of nearly 19% while every major American stock
market average took a nose dive. Most investors were getting killed. But not
the people who listened to me. Our profits included...

Franco-Nevada +75.00%

AngloGold +45.63%

Dow Diamonds put options +76.92%

Capital One Financial (short) +46.00%

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Oxford Health Plans +39.97%

Did I have some losers? Sure. But the average gain on 15 closed positions was
18.95%.

And what about 2001? I had 10 winners out of 12 recommendations. My

average gain was 9.2% including dividends. My two losing positions each fell
less than 1%.

My 2001 gain of 9.2% stacks up against a Dow loss of 7.1%, an S&P 500 loss
of 13%, and a Nasdaq disaster of minus 21%.

Our Secret of Successful Investing

Our secret is really no secret at all, yet most investors manage to miss it. We
step back from the distracting noise of daily events and look at the long-term
big picture. It's a heck of a lot easier to make money if you are riding a
powerful 10-year or 20-year trend.

Look at bonds. They've been in a bull market for more than 20 years! All you
had to do was buy a 30-year Treasury bond in 1980 and sit on it. You would
have made more money than buy-and-hold investors in U.S. stocks. (By the
way, the bull market in bonds is probably over. More on this later.)

In 1989, Strategic Investment warned over and over again that Japanese stocks
were overvalued. At their peak they were selling for more than 300 times
earnings. We begged people to join us in making money off this sure thing, and
we showed readers a very easy way to do it with put options. (Puts were pretty
strange to most investors in those days.)

People who listened to us reaped profits of 300% plus when the Nikkei
tumbled.

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In 1999, we showed readers the same forces were at work in the American
stock market. In other words, it was another bubble. That's why Strategic
Investment readers made good money in 2001 and 2002 while most investors,
like Herbert Hoover in 1931, thought prosperity was just around the corner.

What's great is that bubbles are so darn obvious. I know it sounds easy to say,
but it's true, and we have a proven track record of identifying them.

Some of our Strategic Investment editors can tell you all about 1970 when the
price of gold was fixed at $35. They were there. They saw that paper currencies
were way overvalued in terms of gold. And they rode the trend for 10 years, all
the way up to a gold price in excess of $800!

We Predict the Worst Is Yet to Come

As I write this, the Dow is off more than 29% from the all-time high it hit over
three years ago. The number one question on every investor's mind is whether
we've seen the bottom and recovery is on the way, or whether we're going to
see the second dip in a double-dip recession.

They're asking the wrong question.

The right question is whether there has been a fundamental change in the long-
term trend. The right question is whether this is an average bear market or a
historical turning point.

We say it's a major turning point. If we are right, most American stocks will
fare poorly for a long time to come. That is true even if there is a rally right
now that takes us almost back to the highs. In fact, we expect big rallies. We'll
even play some of them. But they don't change our basic stance one bit.

More important: If we're right, your livelihood and everything you own is at

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risk. Even your personal safety -- and that of your loved ones -- is at risk since
a major economic catastrophe may result in civil disorders (more on this in a
moment).

How Can We Say This?

We can say the bottom will be so incredibly low because the highs were so
incredibly high. You see, we study the past, and we've observed an empirical
fact. The losses that follow the bubble almost exactly match the gains made
during the boom. Economics isn't an exact science, but this comes close to
being a law. The higher the markets go, the lower they fall.

Look at these three charts of the most famous bubbles of the last 30 years.

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At the peak of each of these bubbles the curve gets so steep it's almost straight

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up. People who project the curve into the future make some pretty funny
predictions. Remember James K. Glassman and his book Dow 36,000?
Remember when folks said the emperor's palace in Tokyo was worth more than
the whole state of California?

When the crash comes, the market gives up almost all its gains. You can see it
for yourself just by eyeing the three graphs. In U.S. stocks that process is still
ongoing, and we haven't seen the bottom yet.

Even worse (if that's possible) is that the decline lasts for decades. Gold and
Japanese stocks have never recovered to their old highs. Would you care to
make a forecast for the Dow? Here, let me help...

How Low Can the Dow Go?

The average bear market in the last "Strategic and The Daily
century has given back over five years Reckoning have one of the
of gains from its highest point. If the most robust B.S. detection
present bear market is an average bear meters out there. I thank
market, the S&P 500 will decline to them for bringing some of
these points to my
around its 1995 level -- about 450. That attention..."
would translate into 4,000 on the Dow
Jones Industrial Average. -- Philip Zaroo (Subscriber)

That would be an additional 50% drop from its level as I write this.

Now, I don't go overboard with technical analysis, as this sort of thing is called.
If investing was as easy as just applying mechanical rules like this, we could all
hang out at the beach while our computers made us rich.

Still, at Strategic Investment we've followed the forecasts of practically every

technical analyst for decades. We find them useful when combined with the

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value and fundamental approaches. The best technical analysts enjoy awesome
winning streaks.

Right now, technical analysis gives us a prediction of 450 on the S&P 500 and
4,000 on the Dow if this is an average bear market. But...

You'll Wish It Was an Average Bear Market

The problem is this is not shaping up as an "average bear market," but as
something far more serious. First off, the 1982 - 2000 bull market wasn't an
average bull market but the longest bull market in U.S. history.

Second, its incredible rise was driven by a colossal debt expansion. The debt-
to-GDP ratio is far larger than ever before in the history of the United States.
(See the chart at the beginning of this report.) Worse yet, we get less and less
bang for all those borrowed bucks. During the 1990s boom, each 4.8 dollars of
debt bought us only one dollar of increase in GDP.

What's more, the boom-time stock valuations were far higher than ever before.
At its peak, the Nasdaq sold for 180 times its earnings. People were paying in
advance for 180 years of earnings! Even though stock prices have come way
down, P/Es have remained stubbornly high because earnings have fallen right
along with prices.

So what can we expect?

Following the 1929 peak, the market gave back 15.5 years of previous gains.
The brief 1970 bear market gave back seven years of previous gains, and the
severe 1973 - 74 bear market gave back eight years. If you look at the charts for
Japanese stocks and gold, you can see similar "retracements," as technicians
like to call them.

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At Strategic Investment, we believe the current situation is closer to that of

1929 than to the average post-WWII bear market. But let's be as optimistic as
we can. You should expect the S&P to give back a minimum of the average
bear market -- that is, a decline to the 1995 level around 450.

But it is far more likely to surrender previous gains going back to around 1990
(13 years), which would take the index down to 300. The corresponding level
for the Dow Jones Industrial Average would be around 2,500!

Don't keel over. In a moment I'm going to tell you about the Next Big Thing --
the powerful bull markets of the next 10 years. Invest in these markets and you
can multiply your money by a factor of five or 10.

But if you're going to profit, you have to move your assets (or what's left of
them) out of the way of the Tower of Debt that's coming down. A 2,500 Dow is
not engraved in stone, but it is the kind of decline you should expect. This bear
market is not likely to be just an average bear market. Let's just look at the kind
of excess we've come to take for granted...

Passed Out in the Gutter, the Morning After the Big

Binge
Look again at the Tower of Debt. Clearly, there's no precedent for these debt
levels except the Great Depression. Nothing else even comes close.

In the 1950s, mortgage debt was only 15% of the value of our homes. We
owned the other 85%. Now mortgage debt is 57% of the value.

Mortgage debt grew 60% faster in 2002 than in 2001. Refinancings last year
were a hundred times their 1990 levels.

Mortgage loan delinquencies are up 79% from four years ago. Defaults on FHA

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loans, mainly to low income buyers, are at an all-time high. And remember,
unemployment hasn't even reached recession levels yet. What will loan defaults
be like when it does?

It gets worse. Four out of 10 of us own our homes free and clear, so all the debt
is carried by the other six guys. Their average mortgage is 80% of their home's
value. A mere 20% drop in housing prices wipes them out.

Personal bankruptcy filings have been growing at double digits. They currently
hover around 1.5 million per year. Credit card charge-offs of bad loans are at
an all-time high.

Credit rating outfits like Moody's are breaking all records when it comes to
downgrading the debt of American companies.

Total debt has surged 52% in the last five years. As I write, the most recent
figures show it's growing at 7.7% per year. These growth rates will put total
debt at $41 trillion in four years, compared to $31 trillion now. In 1980 the debt
was only $4 trillion.

A lot of people will dismiss all these worries. Doom-and-gloomers have been
haranguing us about debt for a long time, and we're still here, right? The world
hasn't ended.

The answer to that is this: A lot of people predicted in the spring of 2000 that
the stock market would continue to rise, based on the fact that it had been going
up for 18 years in a row. No problem! Just take the trend and extend it into the
future. All you need is a graph and a pencil.

Look at the debt chart and ask yourself if you really believe it's going to
continue to go straight up. The truth is obvious, don't you think? This is not a
routine bear market. This is a change in the Big Trend.

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Get in on the Ground Floor of the Next Boom (Or,

Why Confusion Is a Good Thing)
Most people miss the Big Trends "Thanks for the finest
when they offer the highest profits observations I have seen from
with the lowest risk. That is, when any analyst or commentator. I
they are being born. By the time the wish all Americans could read
Big Trend is obvious to everyone, it and comprehend what you have
said. Thanks too for
is usually in the last stages of understanding that history does
euphoria. repeat. We have followed, and
are following the Trail of the
Here at Strategic Investment, we are Roman Empire -- but can we last
authorities on all the Big Trends of 400 years as they did?"
the last 30 years. We've made money
off of them. In each case, what we've -- Robert W. Williams, Brig
seen is that investors were extremely Gen. US Army (Subscriber)
slow to recognize the Next Big Thing. They were extremely slow to understand
that the rules of the game had changed.

The greater the mania is in one sector, the more likely it is there are neglected
asset classes elsewhere that offer huge upside potential. This is one of the
cardinal rules of investing. But it's a rule most investors don't follow. They are
fixated on the past, even several years after the previous bubble hits its high
and heads down.

They try to figure out when a popped bubble is going to come roaring back (in
reality the bear market is going to last for decades). And at the same time they
are confused and uncertain about the Next Big Thing.

As far as I'm concerned, the period when investors are confused is when the
opportunities are most appealing. That's when the new Big Trend is being born.

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Let me repeat that. The opportunity is greatest for huge capital gains when the
new Big Trend is not clear in the minds of most investors. I say "in the minds
of most investors" because in the real world the Big Trends are plenty obvious.
The investing public just doesn't see them.

1982 is a good example. Investors had lost money in just about everything for
the previous 15 years. They'd suffered runaway inflation, tanking stocks and
rising interest rates. Stocks were no higher than they had been in 1964. The
bubbles of the 1970s -- gold and oil -- had popped and were in decline.

Investors had lost a ton of money. Nobody knew what to do. It was in this
environment of great uncertainty and fear that history's greatest bull market in
stocks and bonds got under way. The S&P 500 soared 66% during the first
year. Within five years, the S&P 500 tripled!

Even after those gains, people refused to believe the new Big Trend was real.
They were looking for gold and oil to make a comeback! The longer the
previous trend has been in place, the more time it takes most investors to see
there's been a change.

At these historic turning points, the minds of most investors are paralyzed.

Look around you. What do you see? Paralysis, and lots of it. To us here at
Strategic Investment, that means a chance to make big money.

Here's how ...

read on

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