The Rally That Wasn't There

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Schultz had earlier made his overview clear (I'm translating slightly from of his text-message style):

"Fed maneuver room approximately gone. Any $US injection big enough to avert a depression triggers runaway inflation. If not big enough: depression. US on knife-edge. Gold helps you either way.

"Which brings us to [Pimco bond king] Bill Gross. He went crazy last week, urging government to bail out everyone, to save the system. Either he is a closet socialist, a corporate fascist ... or just trying to get government to bail him out of 61% of his toxic waste mortgage backed securities."

Schultz suggests just two alternative scenarios, both equally appalling:

"If Bush bails them all out, the die would be cast for inflation unseen in the West since 1923 Germany. If no bail: Hello, 1929." Gee, thanks.

Schultz' apocalyptic style is easy to ridicule. Two generations of financial pooh-bahs (the sort of people who ran Freddie and their journalist groupies have been dismissing him. And Schultz is having a hard time right now. Over the past 12 months, HSL is down 14.4% by Hulbert Financial Digest count, vs. a loss of 10.1% for the dividend-reinvested Dow Jones Wilshire 5000. It's getting worse: Year-to-date, HSL is down 25.8% vs. a loss of 10.3% for the total return DJ-Wilshire 5000.

This is presumably because the great post-millennium hard-assets bull market has stumbled recently, albeit not for the first time. But the Aden sisters, Schultz protégés and publishers of The Aden Forecast, seem to have handled the stumble better, while remaining true believers. Still, over the past five years, HSL has achieved a 17.82% annualized gain, vs. 7.85% annualized for the total return DJ-Wilshire 5000.

And Schultz was quick to recognize the end of the last hard-assets bull market more than two decades ago. But he still hasn't called the end of this one.

Plus ... well, Fannie and Freddie have collapsed, haven't they?

In his latest issue, Schultz summarizes:

"Widespread stagflation will probably now build more inflation than stagnation, then gradually morph into more stagnation than inflation. Then, deflation takes over, and ultimately, depression. All this over next 9 years.