Resource Stock Special Report - V15 #7.0-0 - Market Outlook  March, 2009

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                                Outlook 2009 - March 2009

I usually complete my market outlook for the year in February sometime but this year, I put more
focus on making changes to out portfolios and finding cheap stocks to profit from and so far that
effort has paid off well. I will continue to do this, but I want to make some comments on where I
see things going.

I put most of this together in February and March so we label it as a March Update

I don't like to be the bearer of bad news, but this bear rally and the current market we are in now
is probably as good as it will get this year. Once the rally has run its course through April to
June, I am afraid things are going to get a lot worse.

This recession and bear market is like no other. It is basically a balance sheet recession, not the
more typical consumer led, manufacturing downturn or Fed induced recession to tame inflation with
tighter monetary policy/interest rates like we have seen in the past.

This recession has already taken out the records of the past 2 worst recessions, 1974/75 and
1980/81.

The main reason it will get a lot worse is because of all the Fed intervention. What they are doing
will just drag this out a lot longer. For this recession to run its course and hit bottom will mean
more asset liquidation, debt reduction and restructuring of corporate and personal balance sheets, a
rise in the savings rate and continued economic contraction with continued deflationary pressures.
These are the necessary things that must happen in a balance sheet recession.

We need to come to the point where consumers have paid down debt, or defaulted on it and increased savings. We have to see corporate restructuring, meaning a lot of bankruptcies and
mergers/acquisitions. The weak, poor business, bad assets and debts have to run the course of
default and bankruptcy. When that is cleared out, we will be at bottom and growth can resume once
more. All the action by the Fed and government to prop up the bad businesses and debt is just
delaying what will ultimately happen. It is like pouring money down a black hole, a real waste that
will create a deficit problem and another big burden on the economy and tax payers (consumers) that
are the major driving force of economic activity.

The reason this is so nasty is because we have not had a recession for so long and there has been no
purging process of bad debt and business. Every time we have come to the brink of recession or an
economic slowdown the Fed/Government has used easy money resulting in huge debt increases to keep
the economy going. This resulted in bubble after bubble with each one getting larger. Starting with
a mild recession in 1991 that led to the tech bubble in 2000, almost or a mild recession and then
next, onto the real estate bubble with stocks participating each time. In fact this last bubble with
real estate became so huge, it was not enough to increase the debt in the U.S. but they created so
much of it, they sold all the toxic debt all around the world, so it became a world wide real estate
backed debt bubble.

And what is more, it appears the same mortgages were used to create multiple investment scams, in other words - the same mortgage was sold more than once!!

And still if that was not enough, bankers bundled up other consumer and corporate debt into BCBS (Bull Crap Backed Securities) and sold that too. In the past, banks were limited to how much debt they could issue (loans) based on ratios to their assets on the balance sheet. But as long as the
financial institutions could sell, or off load the debt from their balance sheets they could keep
created more loans and debts. And of course collecting more fees and bonuses!

Now we have a $60 trillion plus debt problem and the Fed/Treasury throwing a few trillion around is
just delaying and prolonging the pain of adjustment or correction of the problem.

And this number does not touch on deficits or future obligations.

I know it is hard to get ones head around a trillion dollars. How much is it?

One trillion dollars is a billion $1,000 bills. If one could somehow round up a billion $1,000 bills
and place them end to end, it would take a very long time to complete the task. That line of fiat
$1,000 paper promises would stretch 96,275 miles – enough to circle the globe 3.9 times at the
equator.

Another picture a subscriber sent me

http://www.clevelandgrapevine.com/forums/display_topic/id_47

Bill Gross, Chief Investment Officer at PIMCO says the Fed’s purchase of Treasuries and toxic
mortgage garbage will probably exceed $6 trillion. Fortunately today's money printing presses are
computer keyboards where numbers can be entered, real paper printing presses would burn out many
times over completing this task.

As I commented before the so-called solutions are being performed by the same crooks who caused all
these problems in the first place. All I see is compounding problems.

                                   Government debt chart

The next bubble is going to be in government/public debt and precious metals, perhaps some other
commodities joining in, depending on how badly the US$ falls and whether the fed creates an
inflationary or deflationary depression. Despite the deflation fears, so far gold and the bond
market are signaling inflation.

We can see from the yield curve that short term rates remain near zero but as the Fed has turned on the printing presses with all the money creation, long term yields have been rising. The yield curve is as steep as it has been in many years. Right now the spread between the 30 day treasury and 30 year is about 3.5% and it was increasing until the Fed announcement a couple weeks back. Once thespread gets over 3% and the yield curve starts to steepen, it is a clear sign that economic growth
and/or more inflation is expected. The last time we had such a steep yield curve was at 5% in April
2002 - the start of the housing bubble and at the bottom of the tech bubble meltdown.

Many are forecasting the 30 year yield to go back to 5% this year and I see that as a likely target
even with Fed purchases (money printing) of long term treasuries. These higher interest rates will
make it more difficult for the economy to grow - acting as a damper and increasing the time period
for debt and balance sheet restructuring.

                                The Grand Daddy of Recessions

The signs that this downturn is like no other and will last a long time are everywhere!!

The ECRI Weekly Leading Index Growth Rate is at a record low, again taking out the 1981/82 and
1974/75 lows.

Predictions are now at 15 Quarters Needed For GDP To Fully Recover from this recession way longer than anything going back to 1950!

Credit growth is at an 8 year low and will not be long before it takes out the lows of 2000, in
other words, all the stimulus is doing nothing. And that is because the problem is debt, you cannot
fix a problem of too much debt by adding more debt, that worked in the past, but we hit the limits
in this bubble.

The FIBER Leading Index of Inflation is at its lowest point since 1960!

Private Sector Credit Market Debt to GDP is over 170% compared to 130% in 2000, so we have not even
begun the repair process to the corporate and private sector balance sheets. The UK is in worse shape.

Household Net Worth Declines At a Record Rate of 15%, double the drop of anything we have seen in the past 60 years!! To put it into perspective - Credit Suisse calculates America household net
worth has dropped by US $11.2-trillion in 2008, more than the combined economies of Japan, Germany,
Canada, Mexico and the entire continent of …..Africa.

US Debt-to-Income Ratio Rose As Much In The Past 7 Years As It Did In The Previous 39 Years and this all has to be unwound to more normal levels of well under 100% from the recent peak of 139%. The household debt service ratio is still near an all time high. Again - we have not even seen the
beginning of the debt repair process among consumers.

But it will happen, and the beginnings are underway as 11% of households are in fore closure or
arrears far above previous highs around 6%. Delinquencies in prime mortgages are at a record 5%
compared to a more normal 2.5%. Credit card and car loans have the same problem.

And at the same time, despite all the Fed efforts and easing, the banks are doing the opposite, with
the tightest lending standards on record.

There is no bottom in site yet for the housing market!

The Case-Shiller Home Price Index is at a record low, dropping almost 20% in the past year and now down about 24%. However, it needs to drop to between -50% to -60% to get back to realistic prices. New home sales are at their lowest level since 1963. Inventory levels are still at records and will
have to be worked down. This is not the time to hold real estate and hope for a recovery, the longer
you wait to sell, the lower the price will be, especially when we get into the next phase of this
downturn, after the bear rally and when hope fades and all realize the Fed stimulus did not work.

Not only are housing inventories at records but so are vacancy rates at record levels. We don't even
know if we have seen the ultimate high with inventories and vacancies and lows in prices, let alone
begin the recovery process. The first step is for inventories to come down and that will mean much
lower prices still.

The amount of square footage space per Single Family Home is at a record high and the number of
persons per household is at a record low. These are bubble extremes that have to revert back towards
more normal levels.

What I am saying is this housing bubble has created way too much housing at a time when the baby
boom generation is entering the phase to down size their homes or move out entirely.

This housing problem will not be fixed in a couple years. It will take many years - perhaps 1 or 2
decades.

Don’t be fooled by the recent improvement in existing home sales numbers: 45% of the sales were
foreclosures and short sales, or banks dumping properties.

Normally February sales are up over January. It is a very seasonal thing. Using the seasonally
adjusted numbers, you find sales were down 2.9% instead of up 4.7%. But the media reports the
positive number. Also the 4.7% rise was "plus or minus 18.3%". That means sales could have risen as
much as 23% or dropped 13%. We won't know for awhile until we get real numbers and not estimates.

Typically with these government statistics, you get a preliminary number, which is a guess based on
past trends, and then as time goes along that data is revised. In recessions like we are in now the
revisions are almost always negative.

Shilling estimates that we still have about 2.4 million excess homes and Shilling and other analysts agree it will at least be to 2012 to work through this excess and that assumes that it does not get any worse than it is now?

I remember well a  similar housing and stock market bubble in Japan that ended in 1990. We made a
lot of $$ in that decline by purchasing Nikkei Put warrants on the main Japanese stock index. Japan
has an older population than the U.S. hence the peak in their baby boom was back in 1990 compared to
around now in North America. Japanese real estate is still deflating to this day from the 1990 peak
and their stock market just hit another new low since the 1990 peak.

As expected, so far lower mortgage rates have not stimulating much home buying, merely refinancing.
The massive injections into the banks have kept them from melting down near term but have not
stimulated substantial new lending again.

That is because we have begun a deflationary process and a slowing in demographics that ultimately
is too large for the government to counteract, even with $4 trillion or more.

************** Consumers - the engine that can't

The Consumer Cycle ended abruptly in Q3 2008 when credit seized up, causing a severe cutback by
employers. Personal Consumption Expenditures fell off a cliff with the 7 month percent change number at -6% far below the last low of 0% in 1960. Retail sales have plunged

Consumer surveys on home and vehicle purchase are at their lowest level since the 1980//81
recession.

The OECD Leading Indicator is already reading the Deepest Global Recession since 1974, and give it a
few more months and I am sure it can beat 1974.

                           OECD chart

             ************** The Challenge **************

A big challenge with a newsletter is getting readers to listen and act to the theories and
projections you believe in.  If I told you last year that the market would collapse by the end of
the year and all your investments would vaporize 60% to 80% I would be labeled a doomsdayer freak, I
tried to warn investors in my 2008 outlook, if you go back and read it again.

But I will confess, even I did not expect we would be hit so hard, all my analysis and the
fundamentals told me that we were diversified in the right sectors, but what I did not figure in was
the massive government intervention, that triggered a massive, quick and brutal de-leveraging.

Nor how all the hedge funds got trapped on one side of a trade which amplified the intervention into
a quick and massive de-leveraging in stocks, like PM stocks that should have never occurred.

The truth is so much more obvious now in the simple performance. So far as of the end of March 2009
the S&P 500 is down about -11% YTD and the TSX down -5% but our 74 resource stocks have seen an average gain of 52% in just 3 months, totally blowing away the major indexes. The reason is simple, the stocks on our selection list should have never gone so low and are simply recovering to more realistic prices. Plus we seen a start to the recovery in our gold stocks in December 2008. Many of our stocks seen another big jump in the past couple weeks as the bear rally has gained some more
momentum.

The key point - we have to act on these expectations. We cannot simply buy and hold stocks and hope for a recovery. We have to realign our weigtings in different sectors more often through out the year.

            This problem is far reaching - beyond North America

For some member states, it may be the case that asset relief for banks is no longer an option, due
to their existing budgetary constraints and/or the size of their banks' balance sheet relative to
GDP. The extent of any risks to the EU banking system as a whole from an inadequate response in
these member states needs to be considered, particularly in the case of cross-border banks.

The obvious candidates are Ireland, Luxembourg, Belgium, the Netherlands, Austria, Sweden, and
Britain -- and non-EU member Switizerland -- which all have oversized banking sectors. EU banks hold
balance sheet assets of E41.2 trillion (L36.9 trillion).

The IMF says European and British banks have 75 percent as much exposure to US toxic debt as
American banks themselves, yet they have been much slower to take their punishment. As of last
month, writedowns have been $738 billion in the US, just $294 billion in Europe. And remember there
will eventually be 10's of trillions to deal with.

Global banks have so far written down half the $2,200 billion (2.2 trillion) losses estimated by the
IMF. On top of this, EU banks have $1,600 billion of exposure to Eastern Europe -- increasingly
viewed as Europe's subprime debacle, and EU corporate debts are 95 percent of GDP compared to 50
percent in the US, a mounting concern as default rates surge.

The EU document also highlighted the real danger of a subsidy race between member states" if
countries start to undercut each other in the way they value toxic debts in their 'bad bank' rescue
programs. This could be used as a means of covert state aid, undermining the unity of the EU single
market.

It will also lead to an explosion of budget deficits, already threatening to hit 12 percent of GDP
in Ireland next year and almost 10 percent in Spain and Britain.

So what we are going to see in the years to come is several different countries that basically go bankrupt - and we are no longer just talking about 3rd world banana republics, but well known established economies.

I want to emphasize a simple fact. In the early part of the year and this time ongoing - everyone
comes out with their forecasts and there has been lots of predictions/analysis comparing the current
crisis to other recessions, the great depression etc. They say it is not as bad as then
because......
We won't have that problem because the Fed is doing this.......
etc. etc.

The truth is - nobody knows what is going to happen because we are in a financial and economic
crisis of epic proportions that cannot be compared to anything that has ever happened in
history!!!!!!!!!!!!

Some compare to Japan's deflation but the situation in the U.S. is much worse. Japan did not have
the huge trade deficit and fiscal deficits and had a high savings rate. The problem was isolated to
Japan but this time it includes North America and Europe, among others!

                                The Great Depression - 1930s

Most often you now hear comparisons to this period

The great depression of the 1930s was also much different I think the comparisons to the 1930s
depression are flawed, there is too many differences. Now is nothing like the 1930s.

In the 1930s you also had a severe draught that caused a collapse in agriculture which was still a
good part of the economy back then. It was called the Dust Bowl that began in 1934 that sent the
unemployment rising after the 1932 low in the stock market. About 40% of the work force was
agriculture related. Hence, Congress could not pass a law to make it rain. The real devastation was
that this presented a huge portion of the work force that had to be retrained into skilled labor. It
was the Great Depression that finally by force of necessity, created an industrial work force that
may have taken another 100 years to unfold by gradual transformation.

After  the 1929 crash for the next three years, the money supply shrank by 30 percent, not yet this
time, but is actually increasing, although both cases the velocity of money has dropped! Meaning how
quickly it moves around the economy and is just as important as the supply.

Then there was Smoot-Hawley’s steep tariff rates, this wiped another 1/3 away from
farmers/agriculture alone.

Nine thousand banks closed their doors in the United States between 1930 and 1933, so far the Fed is propping the banks up.

In 1931 they jacked up interest rates (discount rate)  and 1932 doubled taxes. It looks to me that
rates will be kept low this time, but I wonder on taxes and how the huge deficits will be handled,
more printing of money??

Then there was the Wagner Act in 1935 that gave too much power to the labor unions at exactly the wrong time as corporations were already struggling in a depression, they did not need higher labor costs, strikes, violence, plant seizures etc., union ranks swelled 2 1/2 times by 1941 killing
productivity. The labor market and world trade are totally different now.

Leverage during the Great Depression was not even remotely close to what we have to face today. The credit-default swaps are alone worth about $60 trillion.

It was the financial war between European nations attacking each other's bond markets openly
shorting them that led to all of Europe defaulting on their debt in the 1930s - will this happen
again? It certainly is possible - but could be a different outcome this go around.

Furthermore, we are now in a Floating-Exchange Rate system that has made the global economy far more complex than it was in 1929.

   ***********************************************************

                                   Markets - where to

I don't want to mislead you with some hope that we can get back to normal and to what we knew
before. But you don't have to be depressed or despair. There will be lots of opportunity to make
money. We have to give up our old buy and hold for the long term, taking part profits on the way up.
We will still do that, but we will also be using trailing stops that will get us totally out of
positions with our profits. And we will be selling total positions many more stocks and more often.

Forget everything you know and learned about the financial and stock markets, it has changed and will not revert back to what we have known for the rest of our life time. The investment climate will be much different and if you don't change, you will be wiped out totally, not just your investments. 2008 was just the beginning of a long term down cycle that actually started topping out n 2000.

                                            S&P500 Chart

Again the best measurement of the U.S. market is the broad 500 index. You can see a very bearish
long term chart formation. A huge double top. Each top representing a bubble and burst. You can see
that the bubble action got started in the mid 1990s with a steeper rise in the index and increased
activity in the MACD. To unwind this bubble action we will probably come back to the mid 1990s
levels, around 400.

Will it bottom there? A simple measurement is to look at the P/E ratio. Many that are optimistic are
now predicting S&P earnings of $50 and at a multiple of 16 we are looking at 800 on the S&P, lower
then we are now. However, I am expecting a much lower earnings number and often the multiple in a
deep recession or depression will go lower, so we could end up with $40 times 10 or 400. That is a
drop of over -50%.

The problem is these numbers are probably too optimistic. The estimates are always revised
downwards.

I went to the S&P web site and looked at the earnings for the S&P 500. It's  real ugly. The
as-reported loss for the S&P 500 for the 4th quarter was -$23.16 a share. This is the first reported
quarterly loss in history. That almost wipes out the expected earnings for the next three quarters.
The next four quarters are now projected at about $35

If we look at the better looking (with adjustments) operating earnings, S&P estimates that operating
EPS for its 500 index for 2008 were $49.47 – down sharply from 2007 EPS of $82.54. The 60% drop in
S&P 500 EPS was chiefly due to the performance of the financial sector. S&P projects top-down 2009
EPS at $48.15 and 2010 EPS at $46.89 In other words, the trough earnings year will be 2010 – not
2009 - if these estimates turn out to be correct. Thus, at its recent trading level of 830, the S&P
500 was trading at 16.8 times and 17.2 times the above-mentioned EPS numbers for 2008 and 2009.
However, what should the market multiple be on trough earnings in a recession?

For the past few years the S&P has been trading around 16 and 17 times and still is at these current
multiples. Most often in recession troughs the multiple is much lower. And in a couple of the worst
case scenarios, the 1974 bottom the P/E was 7.5 and the 1942 bottom was at 10.1.

So we could easily see a P/E multiple of 10 at the bottom and I would be willing to bet that the
earnings estimates are too optimistic as usual. So do not be surprised to see earnings around $30
and a multiple of 10 - yes that is right, and S&P 500 at 300 or a -70% from the 825 level.

This is likely to occur over the course of the next two to three years

                                                       S&P 1 Year

Looking more short term at the 1 year chart we can see that the market did a lot of trading on
either side of 900 in the last several months of last year as the market was coming to grips with
the recession and crisis. This will act as heavy resistance and the 900 level is where I see this
bear market rally peaking. That will likely occur over the next couple months and by that time the
200 day moving average which is another key long term resistance level (support in an up market)
should be down around 900.

This 10 year chart shows quite clearly how important the 200 day average is (blue line). It acted as
resistance in the bear market in 2000 to 2003 and as support on the rally back up until early 2008.
Now once again it will be resistance in this current bear phase that should last at least the next
couple years.

                         S&P 10 Year chart

Also note there was substantial bear rallies on the last down move and also note the previous low in 2002/03 around 800 has been decisively breached.

So in the next couple months I want to sell about 20 of our stocks or so, take profits in others and
move stop/losses up.

The plan then would be to go short the market with ETFs and stay long the precious metals stocks

                             Canadian Market - TSX

The Canadian market is more over sold and cheaper than the U.S. Hence I expect the Canadian market
to perform better, not fall as badly as the S&P. Canada has a stronger fiscal position and its
financial sector is the strongest in the world right now.

The main reason the TSX was hit so hard was the massive de-leveraging that took place among
commodity related stocks where many hedge funds had long positions.

TSX was recently trading at 8,940, or 9.8 times trailing TSX earnings from continuing operations.
Even after the recent recovery off the March 6 low, the current TSX P/E multiple is well under the
low P/E recorded in every year back to 1982 except for 1988 when it traded at 9.6 times that current
year’s EPS. At its March low, the TSX traded down to only 8.2 times trailing EPS. This underlines
the degree of capitulation that has taken place. It does suggest that valuations on an earnings
basis at least are very low, even taking into account that consensus estimates for 2009 are in all
likelihood still to be revised down significantly. Looking at cash flow, the P/CF multiple on 2008
TSX estimated CFPS is 7.3 times – a level that for Canada is not especially cheap since the TSX
regularly traded at or below these P/CF multiples in the 1980s and early 1990s.

Because the TSX was hit harder and is a cheaper valuation it should perform better than the S&P. A
stronger C$ and not so big of a deficit problem in Canada should also be a plus over the U.S. The
other significant factor is an increase with inflation that looks very probable within the next
year. Depending whether fed actions create a inflationary or deflationary depression will be a key
factor. With the heavier commodity weighting, the TSX will perform much better than the S&P in an inflationary outcome and the S&P would probably out perform in a deflationary outcome.

                 ************** Summary ***************

I am expecting inflation now, but after an initial bout of inflation we could slide into an outright
deflation sometime in 2010 or 2011. Again it all depends on the Fed and Treasury interventions and
actions and that we cannot be sure of. The only thing I am most certain of, they will error on one
side or the other!

Our economic and financial conditions/fundamentals are totally different then at any other historic
time. This will make it much more difficult for all financial advisors and market participants then
at any time in history. And for the Fed/Treasury also!

But what I do know, the problem is a collapse of debt. This is where the vast amount of entities we
have know for years become insolvent. This includes, business, companies, households, governments
and individuals. It is and will be very far reaching. Yes the big collapse and doom and gloom that
many hard money (gold) newsletters warned about is happening. Going back hundreds of years there has
been a few other collapses of debt and from that we can learn a few things.

Nothing the Fed or government can do will stop this, it simply has to run its course. The global
economy will collapse into a deep depression that will last many years. But the stock market will
probably go up and down in continued volatility. Sometimes going up in false starts with hope that a
recover has begun, we hit bottom or this government program will work, whatever, but the market will
come crashing down again when the reality hits - no it did not work - or no that was not a recovery.

We will likely see a final bout of inflation and rise in commodity prices in the next year or so,
peaking in 2009 and 2010 and then go into a deeper depression and falling prices, unless we see a
collapse in currencies that cause a dramatic rise in the dollar price of commodities causing run
away inflation. This is unlikely because at this point it looks like a surge of inflation is coming
and once that does, the Fed/Treasury will probably believe they are being successful. However,
because there has been no restructuring or fixing of the problem yet and there will not be much of
that with the current political driven response, deflationary pressures will continue to mount and
resurface.

In one sense their hands are tied. If they announced what really is needed and has to be done, it would be so mind boggling and devasting it would cause the markets to crash.

Therefore, the stimulus plan will fail either because it will generate a short-term inflation surge
that stops the stimulus or, more likely, because the response is muted and the deflation process
sets in again regardless.

Lower mortgage rates have not stimulating much home buying, merely refinancing. The massive
injections into the banks have kept them from melting down near term but have not stimulated
substantial new lending again.

That is because we have begun a deflationary process and a slowing in demographics (boomers at age
of slower spending and higher savings) that ultimately is too large for the government to
counteract, even with $4 trillion or more. The current economic situation will only amplify  the
demographic trend of the aging baby boomers.

           ***************** Asia offers some hope *****************

China has been a driving force in the commodity boom and what I mention above is not the case in
China, which still has upward demographic trends, does not have a massively overleveraged banking
system, and is not holding toxic securities—not to mention that China has a massive trade surplus
and currency holdings—the country is cash rich and their citizens have high savings. Hence, China
can afford a stimulus plan, and it is largely going into infrastructures like roads and railways
that will pay off long term.

And China's stimulus plan is actually working as the bank lending rate has increased this year
compared to the 4th qtr. of 2008.

It is the growth in development and demographics in the emerging world that is likely to ultimately
put a floor under this crisis and make it less severe overall than the Great Depression of the
1930s.  Emerging markets now account for 80% of global growth, vs. 20% in 1989. As we move forward, this will increase even more, with major regions like Europe slowing more so.

In other words, the deflation and stock market collapse will not be as bad as the 1930s and I
believe our financial system can adjust much quicker than back then. But we need to get to the point
of an acceptance of restructuring, meaning massive failures/bankruptcies, mergers and acquisitions.
And these mergers and acquisitions must have one strong partner. Currently we have seen many mergers
among two insolvent partners.

Excess money creation in the US and growth in the rest of the emerging world could cause commodity prices and inflation to advance again, which favors an inflationary depression. Conversely, the U.S. continued meltdown and that of Europe could continue to hurt the exports of the emerging countries and if their domestic economic growth falters that which would favor the deflationary depression.

It will be key to monitor how Asia performs in the months and years ahead.

                                     Bear Market Rally

The bear market rally got started from the new lows in early March and the S&P is up about +22% so
it definitely qualifies as a bear rally and is the one we have been waiting several months for,
although our precious metal holdings began their rally from the lows of Oct./Nov.

There has been numerous items considered as good news that are driving the rally. Remember, I said
it will be false starts and beliefs of bottoms and recoveries that drive these bear rallies or fake
outs.

One of these was the data a few weeks back from the America Association if Individual Investors
(AAII) showed that the number of bears has reached 70%, the highest reading ever recorded…. Such
extreme bearishness is usually the harbinger of a surprise move around the corner. To the upside.

We seen a good response to the Fed announcement to buy it's own treasuries - taken as a sign of more stimulus. And what got little attention was the Fed went on to say it would also expand its
purchases of mortgage-backed bonds to $1.25 trillion from the previously announced $500 billion.

The Group of 20 Nations agreed to provide $1 trillion in resources to the International Monetary
Fund, and the Financial Accounting Standards Board (FASB) voted to relax fair-value accounting
rules. As a result, the Dow rocketed nearly 3% higher, briefly peaking above the 8,000 level for the
first time in 2 months. Friday ended the week on a more muted note, when the Labor Department
reported that nonfarm payrolls fell by 663,000 in March, and the unemployment rate swelled to a
26-year high of 8.5%. However, the figures were roughly in line with expectations, and, buoyed by an
impressive earnings report from Research In Motion Limited (RIMM),

April has historically been rich from a seasonality perspective, with the Dow Jones Industrial
Average (DJIA) averaging a gain of 1.27% for the past 100 years -- the best of all months.

And of course there is the 'sell in May and go away' which would also fit into the timing of this
bear rally going higher.

With this in mind, I plan on taking profits and selling 20 0r 30 of our stocks over the next one to
three months.

We will then go into more hedges for the next down move and stay long precious metal related
investments. This will remain a good place to be invested.

I don't want to go into a lot of analysis on gold, as again, these are historic and unprecedented
times and all markets including gold will probably behave differently.

What you need to know is simple

Gold is Money!!!!!!! That is why central banks own it, the IMF owns it. That is why governments are
intervening in gold to help make their currencies appear stronger to the gold currency. That is why
investment demand is at records and there is shortages of all kinds in physical (coins etc.) That is
why the premiums to buy are high to buy physical. That is why the most astute and wealthy investors
in the world are filling vaults in Switzerland and elsewhere.

The other thing you need to know. Gold is the only currency that is nobody's liability. It cannot
default. It is the only currency that is not a promise from some government. Paper money is only as
good as the government and economy that it represents and right now there are very few governments
and economies that are strong and will not weaken further.

Those who are ignorant/don't understand gold have argued it has been mediocre investment. With such
a crisis, why has it not soared?

Gold ended 2008 up only 5.4 percent for the year during the credit crisis that claimed some of the
biggest investment banks including Bear and Lehman Brothers. I bet you can ask anyone and they would
be ecstatic if their portfolio gained at all last year.

But in 2009 gold has not only held firm in a deflationary environment but has appreciated to record
highs against major non-U.S. currencies in the face of a stronger dollar.

Indeed, fund managers said that currency volatility was a big factor to prompt investors to switch
to the gold market to avoid losses.

"It's a flight from all cash to gold in any currencies right now, because it becomes obvious that
everybody wants to inflate out of this problem," said Axel Merk, portfolio manager of the $310
million Merk Hard Currency and Asian Currency Funds in Palo Alto, California.

Merk said investors recently allocated more weight into gold because it has no counterparty risk,
unlike traditional asset classes.

Gold, which produces zero interest yield, also became more attractive as governments in the
industrial world slashed interest rates to the bone, Merk said.

Another testament to gold's strong investment appeal was the soaring popularity of gold-backed
exchange-traded funds. Bullion held by the world's largest bullion-backed ETF, New York's SPDR Gold
Trust, commonly known as GLD, said its holdings rose to a record 832.88 tonnes on January 26, up 53
tonnes since the beginning of the year. Gold ETFs in Europe also reported sharp increase. And they
have gone up further since then.

The Central Fund that I have suggested has just announced a $200 million offering to buy more gold and silver to increase it's size and this is the 3rd increase in the past two years.

There is some important observations on a chart of gold stocks, the Gold Bugs Index

1 year HUI Chart

Gold stocks should have never crashed as they did. It was a massive de-leveraged ignited by
government intervention. So you could call it fluke or unwarranted move. This point is further
proven when you look at the performance. Gold stocks have moved from a bottom of 150 to over 300.
This is over a 100% move. You do not see 100% plus moves in a bear market rally. You could call this
a new bull market, or gold stocks should have never dropped as low as they did. They probably should
have held around 300 level.

But that old support is now resistance and you can see all the previous trading around 300 to 350
back in 2006 and 2007. So it is no surprise that gold stocks are correcting back from the first test
towards 350. And this also is coinciding with a correction in gold and the bear rally in general
equities.

Another important point, we are also at the 200 day moving average, resistance if you remember what I talked about above with the S&P. However, the 200 day average will keep coming down and if we can
move above 350, then we will probably see the next leg higher with the 200 day average then turning into support.

This is what I am expecting sometime this year and it will probably happen as the markets turn south again and the negative news with financial crisis returns. This is when we will see gold move again, test $1,000 and probably go through that resistance on this next run higher, taking gold stocks with it.

So we want to remain long gold and gold stocks, maybe adding to positions if we see more weakness
and as we lighten up elsewhere.

Can oil and other commodities rise in a depression and deflationary environment?

The answer is yes!!

There is always an escalation in violence and wars with big economic declines. And this could be a
big factor in 2009.

There is reasons for this, governments find a war is a good distraction to poor economic
performance. The huge disruption in money flows and profits causes agitation. There is no better
example than the middle east, reeling from a huge drop in oil prices. Tensions are already on the
rise there and much could go wrong. We already have Israel and the Gazi problem, talk of Obama's
intention to pull back from Iraq, Iran is making threats with oil. Tensions in India and Pakistan
are on the rise, and so is Afganastan. Russia has caught off Natural Gas to some areas.

During the crisis the media has largely ignored this story, but it may be the largest indication of
an imminent MidEast war in the coming year, possibly with  tactical nuclear strike against Iranian
facilities. In the past couple months there is a massive deployment of aircraft carriers and
frigates arriving/heading towards the Middle East. All in all, when they arrive there will be a
strike group composed of over 75 elements, including 40 war ships joining what is already in the
Gulf area – 36 US and Allied war vessels, including frigates and submarines. This is one of the
largest concentrations of US and NATO naval power in recent history in one region of the world. Some say it is  the culmination of five years of Pentagon planning, according to public domain documents,
beginning with TIRANNT (Theater Iran Near Term).

And further on the topic of oil, problems are on the rise in Nigeria.

I have talked about the supply decline with oil&gas fields as exploration is being cut back and when
you consider all the potential for escalations and other oil producing areas, I think a driver that
could push oil back up, not to $200 anytime soon, but easily $60 to $100 could be supply problems
caused by drilling cut backs, war or other tensions. Right now the market is totally focused on the
drop in demand, but in 2009 this could easily switch to concern about supply. And maybe that is
another reason why oil prices were 50% higher a year out over current spot prices.

Oil chart

We can see what looks like a bottoming process in oil and a move higher. A move back to $60 to $75
would be a normal retracement and a point combined with a bear rally where I would take some
profits.

This is already getting long and more so with charts. Further updates will expand on some of these
points here along with the related actions we take in the market

(c) Copyright 2009, Struther's Resource Stock Report

All forecasts and recommendations are based on opinion. Markets change direction with consensus
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