Editor's Rant - Comments from Paul Mladjenovic

Apologies to all about not sending off some recent issues of the Prosperity Alert; Too much going on had derailed my efforts and I hate to send off a flimsy issue. I will be able to double up on issues this spring to keep you informed. The next 5-10 years will be the most remarkable years for the economy and financial markets in the history of our country.

As many of you now know, the housing and mortgage markets are having huge problems. Mortgage delinquencies and foreclosures are soaring. The repercussions are even being felt in China, believe it or not! Most people were surprised. Were you? Well, if you read past issues and/or attended the Financial Vortex or other Prosperity Network/ Mladjenovic financial seminars, you were in fact expecting these massive problems. You and I were ahead of the curve. During the past few years, most of my clients were prepared to either protect themselves or to take advantage of profitable opportunities. Many of my clients sold their property at the top of the market to take advantage of the housing bubble. Many of my clients build up cash positions to start buying real estate at cheaper `post-bubble` prices. Still others switched from dangerous adjustable rate mortgages to low-rate fixed mortgages. The speculators among them bought puts on the stocks of home-builders and sub-prime lenders. The right info can help you.

Some of you may remember that in 2005, David Corsi and I ran a seminar entitled `Housing Bubble Profits`. I remember proposing this seminar to the Learning Annex in New York and they flatly turned me down. The head big-wig said to me then `We think your seminar would pack the room but we refuse to run it since we would tick off 40 real estate speakers that are telling everyone that the market will keep going up!` During 2005-2006, they ran these huge `Expos` with thousands of attendees and dozens of real estate `experts`.

If Dave and I ran a seminar like `How to get Rich Overnight in Real Estate` we would have done well but we could have wrecked the reputations that took us years to build. Warning people about a massive problem and getting them prepared was more important. In the long-run, Dave and I will do well as the word gets out so we`re not worried about making some `quick buck`.

Realistic Ways to make money in Real Estate, The June 10, 2007 event

Now if you want to make money the right way in the troubled real estate market, then you should consider an event that David Corsi and Dale Siegel are doing on June 10. There will be more details on this very soon and in upcoming issues of the Prosperity Alert. David is my favorite real estate expert and Dale is my favorite mortgage pro. To find out more about these two excellent real estate authorities, I invite you to visit David Corsi`s website at www.peaceofmindrealestate.com and Dale Siegel`s website at www.circlemortgagegroup.com.

In fact, PLEASE do the following:  Email both of them to either ask your real estate or SUGGEST something that you would love to see addressed at their event. The best way to see many of you attend a top-notch event is to make sure that the event offers what you really want.

David and Dale are not smooth-and-flashy types (I say that as a compliment!). They don`t have slick presentations and high-pressure up-sells to ultra-expensive kits loaded with fluff. They offer solid information with practical, real-world strategies and profitable methods that have worked over the years in good, bad and neutral real estate markets. Call or email them about their June 10^th event and say hello from Paul Mladjenovic! Nuff said.

Book Announcement:

I can now say it publicly. I just signed a contract with the publisher Wiley to do a book (tentatively titled) PRECIOUS METALS FOR DUMMIES. I have been preparing for it during February which took up a lot of time and it prevented me from sending off a February issue of the Prosperity Alert so thanks for understanding. If all goes well, the book will be in the market by December 2007. As all of you know, I am on record saying that precious metals are in a powerful long-term, historic bull market. As of today, that is more true than ever. As I have said before, Gold will hit $1000 and Silver will go to $50. This new book is to help the general public learn more about what you are already aware of. Gold, Silver and their mining stocks will probably go to spectacular highs before this bull market is done. Stay tuned

The recent market turmoil

There is too much to write about what happened in the markets and there is unfortunately too little time to give it justice. So please read the accompanying essays that do an excellent job covering the tumult. Read the essays and share them with others. Feel free to forward this issue to others and encourage them to sign up for their own free subscriptions at www.SuperMoneyLinks.com.

In the coming months and years, there will be more volatility, not less. Fortunes will be easier to make for those in the know but the tremendous pitfalls and massive risks that are now unfolding will be more evident for the general investing public in due course. The problems are so deep-seated that I will devote an entire seminar on the topic. The seminar `Mega-trends and Meltdowns` will probably be the most important seminar that I have done in a decade. The overwhelming research tells me that the next decade will be the worst decade in American history. Economically, the pain for our society will be worse than the Great Depression. There are so many economic problems facing us that they form a `perfect storm` that will definitely hit by some time in the next decade although some of these serious issues are already surfacing.

By the way, if any of you are financial advisors or seminar leaders, or if you know someone that is, please let them know what you know. Please inform them about the problems unfolding in our society. If they are not informed, what will happen to their clients and students? Now if you don`t know what to say, don`t worry; just send them our way. I would love to take some time this year to educate financial planners, brokers, teachers and advisors. If they are more `in the know` than their clients and students will be served better and more people will be prepared.

I am angry at the politicians & mass media

Recently, there has been a lot of press about how the Bush administration fired 8 attorneys in the Justice Department. It is really a non-story but it has political value so there is a huge hullabaloo in Congress over this. It is no secret that the mainstream media is generally anti-Bush so a lot of air time is devoted to this idiotic story. Why is it an idiotic non-story? Well, we forget that the Clinton administration summarily fired ALL 63 attorneys in the Justice Department when it was in power. Among those 63 fired were several prosecutors investigating corruption by Clinton administration officials. At that time, the media (and Congress) basically didn`t care. Believe me, I could (and you could) find fault with both republicans and democrats very easily so don`t read too much into this commentary. Butwhy do I bring this up in the Prosperity Alert? Several reasons:

1. There are HUGE problems (and many of them) that we face as a society. Yet, the mass media finds more value in non-issues such as some attorneys that got fired. The mass media will run more stories and spend more time on idiocy like this or on Britney Spear`s love life or on what Hollywood stars are up too. Yet there is very little attention on the debt problem in America or the retirement crisis that 78 million baby boomers will be facing. Disgraceful! If people are not informed, they won`t be prepared. Ugh!


2. The politicians spend a lot of time wrangling and show-boating. They will rush to the camera if that means they can bash their opponents and do an eloquent speech which results in no value at all for America. They are happy to do hearing after hearing and talk and talk but when it comes to doing something brave (like cutting their wasteful spending ways) they will postpone hard decisions (with a straight face they call it `reform`) for the next crop of elected officials to deal with. We pay these craven windbags a fortune and all they do is grab headlines and abdicate their responsibilities. Disgraceful!

Politicians and bureaucrats are the PRIMARY reason our country is heading into financial chaos. The mass media is the primary reason most of the public is clueless and uninformed. Put these two wretched groups together and I have to echo the Mogambo Guru`s clarion call: `We`re Freakin` Doomed!!`. Mogambo, it is indeed a pithy observation! Remember; your prosperity is on the line. The media and the politicians are doing more harm than good and it can cost you dearly. Be aware and inform others. We`ll continue to monitor the skullduggery and keep you ahead of the curve

Regards, Paul Mladjenovic

Editor, Prosperity Alert

www.SuperMoneyLinks.com

Best of Ken Gerbino on recent market turbulence with Gold

Let`s get some facts straight before you make any decisions regarding your gold stock portfolio and your other assets. Most of these facts point toward higher gold and metal prices after the panic selling stops. Industrial stocks and bonds may have shown the first signs of a sustained decline or at least a major topping range.

- There will be no recession or slow down in China which people feared would cut demand for gold and base metals as well as impact other economies. The facts behind this statement are: a) Money supply (M1) increases in China are 20.3% y/y (year over year) and have averaged an incredible 14% for the last five years. Recessions don`t start with that kind of new money in the system; in fact this data spells boom times for years and inflation as well for China. Also retail sales in China y/y, has averaged 18% for the last four years which shows an internal economy is developing. China is most likely at least 2-3 years away from even a slowdown to 5% growth.

- The Chinese authorities did the right thing in clamping down on illegal stock sales on the Shanghai and Shenzhen stock markets. Their other measures to curb speculation (margin and bank lending for stocks) caused a panic in these two overbought markets sporting an average p.e. ratio of 45 (these markets are mostly retail accounts and basically limited to Chinese nationals only). The result was a huge 8.8% sell off in one day. But the Hong Kong market had only a small reaction and was down only 1.75%. So the smart Chinese money in Hong Kong wasn`t in any way panicking.

- ZTE, China`s largest phone equipment maker was up 3% during the panic. This is more anecdotal evidence of no recession anytime soon for China.

- Gold in Hong Kong was almost flat in spite of the stock sell off on the mainland. Therefore the more sophisticated Chinese investors weren`t buying into the TV talking head syndrome that the strong economy in China is now over and that gold and base metal demand would decrease.

- In New York gold was only off $2.5 despite the Dow plunging at the close of the commodity trading session. In the NY after market which is illiquid and easily influenced by a panic, gold was hit hard and then the Gold ETF followed suit and sold off as well.

- Bonds in the U.S. rallied as a safe haven. But will foreigners buy US bonds if the dollar continues to go down – which it did – which makes the gold rout in the aftermarket that much more suspect and temporary.  My guess is that gold needed a breather since it has had a recent sustained rally.

- The Fed is now faced with a housing slowdown and a possible further market crash from a nervous and obvious vulnerable stock market. They would be way out of character to raise rates any time soon especially with the latest report on mortgage defaults at four year highs.

- The Fed not raising rates means more weakness in the U.S. dollar and that is bullish for gold.

- India is the largest gold consuming nation. What`s happening there? 2006 M1 money supply is up 20% and has averaged 17% per year for the last 3 years! GDP is expected to grow 9.2% in 2007. These are powerful stats that should mean continued support for gold prices.

- How long will it be before China lifts exchange controls and allows all those remembers they have been creating to be sold for some other currency to facilitate investing overseas? This will allow the government policy of a weaker currency to be aided by the people themselves and allow their mercantilist economy to continue. A good Libertarian definition for Mercantilism is where a government is on the side of the factory owners and big business and pursues a policy that benefits the business class at the expense of the average person. A strong currency allows Joe six pack to buy cheaper goods from overseas whereas a weak currency makes everything more expensive for him but allows the business owners to export more. Mercantilism squeezes the little guy and helps government cronies. It`s a bad deal and 180 degrees from a free market.

- Margin calls are a real possibility in the next 24-48 hours. One should just be patient with buying until the dust settles.

- The sell off in the mining shares took place when almost every mining analyst, mining money manager, and gold fund manager who are anywhere on the global radar screen were all attending the BMO Gold Mining Conference in Tampa. These smart money players were all away from their screens and definitely out of the loop as their sector took it on the chin. Most likely by Thursday, when these heavyweights are back at their desks, they will have a shopping list of mining stocks they love but were waiting for a sell off to buy.

- Nikko Cordial is the 3rd largest brokerage house in Japan. They are being nailed for cooking the books and their stock is plummeting. This should be another reason why some Japanese household money will find its way into gold.

- My experience dealing with and knowing many hedge fund managers is that they have little knowledge or even know what Austrian school economics is all about and certainly have little knowledge of the hard money- paper money controversy. Ayn Rand, Nobel Laureate F.A. Hayek, Murray Rothbard and Harry Schultz could be Academy Award nominees for all they know. Hedge fund participation in the gold market and gold shares is growing not because of a deep seated reasoning on economic issues but only because it is a hot sector. The volatility in the gold shares will be above average in the coming years because of them. They will be the gold bugs worst nightmare and best friend – depending on the trend. This is why being on margin will be a bad idea.

- Derivatives: With a global market panic starting in a low interest rate and, so far, low inflation environment, one has to be wonder about the real reason for this sell-off. Easy money almost everywhere leads to leverage and speculation. No where is this more prevalent than in the global derivative market. It is not out of the question that third party defaults and risk aversion designed instruments that collapse and go sour may someday overwhelm the financial markets. Latest figures from the Bank of International Settlements: $8.3 trillion of real money is controlling $313 trillion in derivatives. That`s 38 to 1 leverage. These figures are just for the over - the - counter derivatives and do not include the global exchange traded derivatives in currencies, stocks and commodities which are another $75 trillion. Any accidents here should make gold a much desired asset class.

- Every once in awhile technical trading and computer trading take over almost completely when a human panic evolves in markets.  This is what happened on Tuesday`s crash. Fundamentals were ignored. The Shanghai and Shenzhen markets were selling at 45 price earnings ratios. Many of the mining stocks that we own in our fund are selling at only2-3 times expected cash flow when they go into production. These developmental mining companies with documented reserves and real value in the ground sold off even though they are obviously not at speculative levels. I am sure there are similar stories for other mining portfolios. This across the board sell off is a sign that hot money is being chased out of the mining stocks and the shares will be going into stronger hands.

- If the mainland Chinese are bidding stocks to 45 times earnings, it is an indication of how high they will eventually bid up gold mining companies in New York and Toronto when exchange controls are lifted. As Doug Casey likes to say; `it will be like Hoover Dam going through a garden hose.`

- The U.S. money supply is up 5.5% for the last twelve months and 16.7% for the last three years. Raw goods and Intermediate goods are now climbing at above 7% and this will soon impact consumer prices. With inflation in the pipeline, will foreigners want to buy US bonds which will be heading down? This will also hurt any dollar support in the future from this source and therefore be supportive of gold.

Conclusion  

Excessive speculation in China by retail customers and a market correction have little to do with the Chinese economy`s forward progress. The plans to build 120 airports a year  for the next 10 years and tens of thousands of other projects will not be affected because some gamblers and speculators overdid it.

Gold and gold mining shares, despite a short term disappointment will surely recover as the investing world has been given a wake up call on the frailty of  paper assets owned by global investors. Base metal stocks will also recover as the China and India growth story has many years to go.

For other commentaries on gold, mining stocks and the economy visit our company`s website. www.kengerbino.com

Best of Bill Buckler - Essay from March 15, 2007

Services, including the vast US financial services sector, are the place in the economy where everybody washes each other's shirts and get rich while fewer and fewer manufacture new shirts. Services are by far the largest economic sector in the US economy. But now, the US Institute for Supply Management's services index has slid to 54.3 from an eight-month high of 59.0 in January 2007. The result for February is the weakest since April 2003. Being the largest economic sector in the US economy, services have a huge importance for US employment. Another month of deceleration at this speed will see the US service sector in contraction. That will mean that US unemployment will climb. When that happens, the huge labor market will contract leaving many American without jobs. To clear this labour pool in a market which has now become "illiquid" will mean that the price of labor will have to fall.

The US savings rate "improved" to minus 1.2 percent in January from minus 1.4 percent in December.

The Expanding US Recession Sectors:

Inside the US economy there is now a housing recession, an auto recession, a manufacturing recession, and a real capital investment recession already present. With these large economic sectors contracting, they are also mutually reinforcing each other. Further weakness in one sector in turn weakens the other sectors. As the huge US services sector is now decelerating and could slide into its own retreat in the next one or two months, all these sectors will join up together into an obvious national recession.

On The Ground Where Most Americans Live:

Associated Press has reported that nearly one in six people in the US rely on some form of public assistance. That is a larger share than at any time since the government began measuring 20 years ago.

Median US family annual inco me has declined by nearly $US 1,300 since 2001. More than 3 million US manufacturing jobs have been lost since 2001. That is also the steepest and most prolonged loss since the Great Depression of the 1930s. Were one to go back to the decade between 1960 and 1970 when Americans had the highest per capita living standards in the world, one would find that since then, the American economic middle class has not only been contracting in numbers but that in fact their average standard of living has been falling slowly ever since.

2007 – The Privateer http://www.the-privateer.com

Michael Nystrom on that recent 416-pt plunge
BullNotBull.com
February 28, 2007

At it's worst level, the Dow was down today over 540 points in a global selling spree that started overnight in China. By the end of the day, it had recovered somewhat, but still closed down over 400 points. The real story was the volume: 2.3 million advancing shares advanced, versus 2.3 billion decliners in what could be the most lopsided selling day in history! In other words, 99% of today's share volume was down!

After hearing this news, many people's first instinct is to ask "What caused it?" The next question people are concerned about is, "Will it continue?" And finally, "What should I do?" I'll do my best to answer those questions in this article.

What Caused It?

It's hard to say exactly what single event, if any, "caused" today's market meltdown, but we do know that it was a global selloff that began overnight in China. The Shanghai index fell a whopping 9% the very day after it reached an all time high. Remember, this market had risen over 130 percent last year, so this was obviously a market driven by speculation, similar to the 1929 US market, and the 2000 Nasdaq market. The parabolic rise made a correction inevitable, and jittery, speculation-driven markets such as these can sell off on the slightest hint of rumor.

"Traders said the slide did not appear to be triggered by concrete news," but instead was fed by various fears. The linked article goes on to discuss a number of rumors that fluttered through the crowd. Westerners are much more likely to ascribe the cause of the plunge to Greenspan's speech to a business group in Hong Kong, in which he stated the US economy was likely headed for a recession by the end of the year. Greenspan is no longer head of the Federal Reserve, and holds no official position, but his words and opinions obviously still have considerable sway. Apparently he's still the Maestro.

This morning's bad news didn't end with the markets. Early risers also learned that a suicide bomber struck the main gate of the compound Dick Cheney was visiting in Afghanistan, in an apparent attempt on the VP's life. Later the Commerce Department reported that durable-goods orders fell 7.8 percent in January, including the biggest slide in business equipment demand in three years.

It was a morning of bad news. Markets are emotional and all the pessimism took its toll. The fact that consumer confidence was announced to have risen to a 5-1/2 year high did nothing to help the morning sentiment. I'm not sure what drugs consumers are smoking these days - or maybe it's the people doing the surveys - because things sure don't look that great to me!

So to get back to what "caused" the plunge - conditions were ripe, and there were a number of triggers. Before we go on, let's take a look at some charts:

Dow down 3.29%, S&P 500 down 3.4%, Nadaq down 3.86%. This is not crash territory by any stretch of the imagination, (though you woulndn't know that from CNBC's breathless reporting of the plunge). It just feels like it because we haven't seen any substantial pullbacks over the past 5 years. These were in fact the worst market drops since September 2001.

The technical situation with the Dow, S&P 500 & Nasdaq are similar, so lets focus on the S&P 500. The eight-month uptrend on the daily chart has clearly been broken. The trend line that served as support for the past eight months now serves as overhead resistance. Today's action also plunged prices below both the 50-day and 100-day moving averages. Not a good sign for the bulls.



From a longer term perspective, however, the uptrend since the start of the Iraq War in March 2003 is still intact, and not at all threatened by today's drop. Weekly MACD is topping out, however. From the looks of things, a short-term stock market top is in place.



It was a uniformly down day. The dollar continued its slide:



As did the precious metals. Silver fell about 5%, and gold was down about 4%, backing off from its quest for $700 per oz.



The gold bugs index also fell about 7.5% - almost twice the amount of either gold or the general market. Investors who think of holding gold shares as insurance against a general market drop may want to reconsider after today's performance.



Where did the money go? It fled to the safety of US treasury bonds. The 10-year yield continues to slide.



Will the stock slide continue?

Greenspan's remarks last night and the ensuing market slide calls to mind his famous "irrational exuberance" comments in 1996. Like this time, those comments were made while the US market was closed, and led to an overnight global market selloff. Hong Kong fell almost 3 percent; Japan - the biggest Asian market at the time - fell 3.2%. Germany dropped 4%. The Dow fell too, but recovered most of it by the end of the day. In the long run, US markets went on to experience even more irrational exuberance, continuing to this day. The events of December 1996 turned out to be just a minor blip in the roaring bull market of the late 1990s. Greenspan made those original comments when the Dow was hovering around 6,500; it has since nearly doubled.

Will this time be the same -- another tremendous buying opportunity for those willing to buy the dip? Doubtfully.

The 1990's bull market was driven by three powerful fundamental factors: technology, disinflation and demographics. We had the twin internet and telecom booms, which fueled demand for computer and telecommunications hardware, software, programming and related services. The increasing trend of outsourcing to Asia yielded the dual dividend of falling prices for consumers and increasing profits (made in taiwan) for corporations. The booming economy created many high paying jobs, and workers were increasingly participating in automatic stock investment plans through their 401(k)'s. The world was at peace. The mood of the country was expansive and optimistic.

The post-bubble economy did not experience a collapse - as was widely expected - due to the massive flood of cheap money provided by the Federal Reserve. This money helped stave off bankruptcies - both personal and corporate, although we did see the three largest corporate bankruptcies in history in 2001-02: Worldcom, Enron, and Conseco. Easy money also led to the housing industry boom, but for many, it was a muddle-through economy without the excitement or the optimism of the 90's boom.

The question at hand today is: what can drive the economy forward now? The housing industry is on the skids. American manufacturing is a thing of the past. The US auto industry is in big trouble. There is no technology "silver bullet" like the internet or mobile phones that we saw in the mid-1990's which can carry the economy forward. Microsoft Vista was released to a chorus of yawns. The current expansion looks tired. The only thing bullish is the outlook for war. And going forward, the demographic outlook for stocks is not favorable. Even Harry Dent, who is still predicting Dow at 20,000 by late 2009 (interesting report for free download) is bearish long term and speaks of something like a second great depression to follow.

The first wave of baby boomers is expected to begin retiring soon. Many of those boomers who dream of an early retirement check their 401(k) balances and do their calculations - in their head or on fancy spreadsheets - as to how many more years of working and savings growing at x% per year until they can retire. But the smart ones are already quietly heading for the exits. The first boomers start retiring in the next few years, and in order to maintain their standard of living, they need to sell their stocks. The problem with this is that as boomers begin to sell, without additional buyers the stock market will go down. This is bad for those who are still trying to use the market as a savings device, and may lead to a premature rush to the exits.

The stock market has provided many with paper wealth, but that paper wealth must eventually be converted into cash. Therefore, as individual boomers retire, it is in their interest to maximize their own return by cashing in and selling their stocks (and/or other assets such as real estate) as quickly as possible - before others have a chance to. This is a defensive mindset - the complete opposite of that which prevailed during the expansive 90's.

To sum up, the economy is slowing and the nature and composition of the economy is changing. Furthermore, a social mood change is in the air. There are no technological breakthroughs to drive the economy forward and baby boomers - with one eye on retirement - are beginning to shift their attention away from stock accumulation and towards stock distribution. After all, if the short-term market top is in, and retirement is just one or two years away, what is the point of holding stocks?

What should I do?

Inevitably, the question comes back to "What should I do?"

Unfortunately, there are no easy answers to this question, since everyone's situation is unique. The best advice that I can give is to learn to understand the dynamics of the economy and stock market, and to learn to think for yourself. Listen to experts, take in as many opinions as you can, but critically evaluate what they are telling you. Just six years ago at the Nasdaq market peak, the deafening mantra from Wall Street was "Buy and Hold!" This was excellent marketing material, but terrible investing advice. The world is always changing, so you must keep up with the changing events and understand how they will affect your life and your portfolio.

Two excellent, brand new bearish books have crossed my desk in the past few weeks from publishers, and I will have reviews of them on my website later this week. The books are Financial Armageddon, by Michael Panzner, and Crash Proof by Peter Schiff. They're both excellent books, have good advice and I recommend them both. If you'd like to be notified when these reviews are up, as well as when other articles such as this one are published, please sign up to my low volume email announcement list.. What's going to happen tomorrow? Stay tuned.

Thank you and best regards,
Michael Nystrom

www.bullnotbull.com lEmail

REMINDERS FOR UPCOMING EVENTS:

May 19, 2007: Advanced Options Workshop
For details call Paul at 201-585-0239 or email: paul@mladjenovic.com

June 10, 2007: Real Estate Investing with David Corsi/Dale Siegel
For details call Paul at 201-585-0239 or email: paul@mladjenovic.com

September 2007: Paul Mladjenovic latest seminar `Mega-trends and Meltdowns` will premiere.
For details call Paul at 201-585-0239 or email: paul@mladjenovic.com

Have a great day Regards, Paul Mladjenovic