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Smoke and Mirrors

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Seems like you can’t go anywhere these days without running into someone’s rosy report and optimistic outlook regarding the economy…or at least it seemed that way a week ago. Just last Thursday, the market looked to be on a run again, hitting over 10,300. Traders were looking with expectation to the job report that would show that the economic recovery was well underway. Confidence was high.

Then the actual numbers hit. And it’s been downhill ever since.

Today, as I write this at the close of trading on Monday, the Dow is sitting at 9,816, down 115 points for the day.

The reason for the slide? Anxiety over whether the US is really recovering—or instead hiding behind smoke and mirrors.

As The Wall Street Journal reports, “Traders and analysts said the selling was driven by a fearful sentiment among investors that doesn't seem likely to abate anytime soon. Until recently, the U.S. had been viewed by many traders as a relative safe haven at a time of economic stress elsewhere. But in the wake of Friday's weak jobs report and the consumer-credit reading, that assumption is looking shakier in many participants' eyes.”

Smoke and Mirrors

When the jobs report came out on Friday, it reflected a drop in unemployment from 9.9% to 9.7% as the economy gained 432,000 jobs. President Obama said, “Workers who are laid off—they’re starting to get their jobs back…[the economy] is getting stronger by the day.”

What Obama failed to mention was that 411,000 of those new jobs are temporary census jobs. In other words, 95 percent of the US job growth was temporary government-created jobs—as Bill Bonner puts it, “People paid by the government to count the people who pay the government.”

To call that healthy job growth is like calling a tumor healthy cellular growth. It’s insane. The government raises your taxes to pay unemployed people to count you. And after the census is over, what then? What will those 411,000 people do?

Even worse than the smoke and mirrors spin of the jobs report is the cold, hard reality that the largest segment of unemployed are long-term unemployed.

As Newsweek points out in “A Tale of Two Recessions”: “Forty-six percent of the 15 million people out-of-work in this country has been unemployed for 27 weeks or more (quick math: that’s more than six months). That number—the worst since the Great Depression—shows no signs of subsiding. ‘We're still in a tremendous labor market hole,’ says Lawrence Katz, a professor of economics at Harvard University. ‘It will take four-and-half more years of consecutive months of job growth to get back to where the labor market was before the downturn.’”

How can the president say that the economy is getting stronger by the day when the fastest growing segment of unemployed folks are those who haven’t had a paycheck in over six months? For whom is the economy getting better every day?

The answer is the ultra rich. They’re profiting as the middle class gets pummeled.

Clearing the smoke

The market’s response is proof that it isn’t fooled by the smoke and mirrors. The smart money is exiting the market—and fast. The economic problems of this country, and the world, are deep, scary, and potentially catastrophic.

I feel for those who are locked into their 401(k) plans and who are praying that the market goes up so that they can retire. Unfortunately, I don’t believe the market will go up. As I predicted in my book, Rich Dad’s Prophecy, the biggest stock market crash in history is still coming—and it may be coming sooner rather than later.

The reason? The baby boomers are entirely dependent on the stock market for their retirement. They are also the largest age group in the country. As they retire, they’ll need to draw on their 401(k) plans to survive. That means more people will be taking money out of the market than will be putting money in.

Add to that a massive wave of entitlement payments for programs like Social Security and Medicare—payments we don’t have money to make—and you have a disaster waiting to happen.

The Good News

The good news is that you still have time to prepare for—and profit from—the coming crash. The first thing you can do is begin increasing your financial IQ by learning as much about money and investing as you can.

There is no guarantee that you’ll prosper—just as there isn’t for me. But those with a high financial IQ will be much better positioned to profit than those who are financially ignorant. That’s why the Rich Dad motto is Knowledge is the New Money.

If you don’t have much money to spare, you can at least begin to invest in silver. As I write this, silver is selling for close to $18 an ounce. Almost anyone can afford to purchase a few ounces or more of silver. And silver is an industrial metal that’s being consumed faster than it’s being produced.

If you’re well off, it’s not too late to purchase some gold. As it always has, gold will be valuable to own when the economy crashes.

In the end, there is no crystal ball to guide us through these dire economic times. Stay vigilant. Continually educate yourself. Get smart with your money.

Original publish date: June 09, 2010

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