Rule Number One: Get Ready to Exit Stocks

Just after the financial crisis and stock market crash in late 2008, coauthor Bob Wiedemer had dinner with a friend. After a few drinks, the man revealed that he had recently made one of the biggest financial mistakes of his life. A fan of our first book, Bob’s friend admitted he only half-believed our 2006 predictions in America’s Bubble Economy about the coming Bubblequake, and therefore, he sold only about half of his stocks prior to the 2008 crash. For sure, this guy saved himself from what could have been twice the loss by selling half his holdings near the market peak. But he felt terrible having not sold the other half, too.

Let Bob’s friend spare you his learning curve. Despite the stock market rally in 2009 after the big crash, stocks are vulnerable to a crash or a series of smaller downturns, and will eventually fall much further than the crash of late 2008.

As we said before, the long term and the short term are not the same.

In the short term, more massive money printing by the Federal Reserve could continue to support the stock market and could even push it higher in 2011 and beyond, assuming there are no Black Swan events that spook investors. In fact, if the Fed wanted (and if there was enough political support for it, which there may not be), continued massive money printing could potentially push the Dow back to its 2007 all-time high of 14,164 or higher. (See the Appendix on possible market manipulation for further thoughts ...

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