When it comes to the U.S. credit crisis, we’ve all heard the numbers. The stock market decline wiped out $7 trillion in shareholder wealth. It forced the federal government to commit to $11.6 trillion in bailout programs and stimulus spending. And it’s led to the longest U.S. downturn since the Great Depression.

The U.S. stock market has enjoyed a strong rally since the early spring, but while the economy has shown improvement, it still faces major headwinds. So it may be best to hedge against the U.S. dollar, which is likely to experience a significant decline over the next few months.

At Casey Research, they have been watching the actions of foreign holders of U.S. dollars as closely as a Las Vegas pit boss watches a card player on a $1 million winning streak. Many of those in the deflation camp largely, or entirely, ignore the potential role these foreign holders may play in the drama now unfolding.

We are now in June 1930, according to trader/author Ron Coby, a friend and neighbor of one of our favorite underground investors Dan Ferris. (Ferris is a member of the Stansberry & Associates Investment Research team and editor of Extreme Value. ) Ron believes stocks are going to plunge – just as they did from June 1930 to July 1932 when the crash that began on October 24 1929 finally bottomed.

Investors and analysts return from the long holiday weekend only to face a rather light week on the economic calendar – except for the earliest stages of what’s expected to be yet another dismal earnings season for U.S. companies.

The mutual fund industry has done their best to convince investors that the long-term return of the stock market is just over 12%. That is their justification for “buy and hold.” But you can throw that number out the window.
The annualized return of the S&P 500 from 1929 through 2008 is actually 8.9%. And for most active investors the return would be significantly less.

We keep having bad dreams about all the phony money central banks are creating to ‘fix’ the economy. This is not a figure of speech. We are actually having nightmares about this. We wake up in cold sweats.

Making money in investments requires backbone. We call it risk taking. If you are willing to take an acceptable level of risk, you can usually make money. If you think you can somehow magically invest without risk you are banking, not investing.

The markets don’t get any tougher than the last few weeks. Nothing seems to be working, except for the toughest of the tough- bonds.

Steve McDonald of Investors Daily Edge says, “A simple corporate bond strategy can make you a ton of money in the next few years, with almost no risk to your principal. And it’s so simple it’s almost unbelievable.”