Today's comment is by David Newman, Market Analyst and Membership Director for The Sovereign Society.

Finally, stocks are rallying - a bit.

So we can all breathe a sigh of relief, forget about the market carnage we've seen for an entire year. We can lick our wounds and leap back into our favorite blue-chip stocks, without a care in the world... Right?

Wrong. Do that, and you're in for some sleepless nights come October and November. You simply can't trust this kind of market for long. We're in a secular bear market here - that means you're in for a lot more pain for your portfolio before this nasty bear really goes to sleep for the winter.

A Little Q&A with the U.S. Economy

It all goes back to the United States' fundamentals. You have to ask yourself: What's really changed since stocks started rallying last month?

Are the banks suddenly safe? How about the airlines, autos, homebuilders, insurance companies, and restaurants? Are consumers finally spending money again? Did everyone take their nice allowance checks from Dear Old Uncle Sam and go buy designer luggage, expensive Armani suits, new fishing gear or finance their weekend getaways?

(Answer: "Not really" - at least not enough to show a significant recovery.)

Have Freddie and Fannie suddenly made a miraculous recovery? Did Paulson's magical words somehow heal years of Freddie and Fannie's bad sub-prime loans?

(Answer: Not even close.)

Did the Fed heal entire financial system with their masterfully slashed interest rates and the ability to hold rates steady for months at a time?

(Answer: Nope, but good try Mr. Bernanke.)

Also, it's no secret that stocks rally months before a market actually bottoms. Stocks anticipate a recovery long before we actually see one.

No, in my opinion, we're all going to chew on a few more rolls of Rolaids before this bear is really laid to rest.

Need proof? All you have to do is pick up any newspaper, turn on any TV station, tune into the radio or log on to the Internet, and you'll find your evidence. In fact, I'll bet you can't go more then 30 minutes before you hear or read something like this...

"Fannie Mae, Freddie Mac shares plummet"

"Shares of mortgage finance companies Fannie Mae and Freddie Mac continued their plunge Wednesday (Aug 20, 2008) as investors became increasingly convinced that the stocks will drop to zero if the government bails out the troubled companies."

The Big Whopper of a Bank is Going Under Next

And this came across the wires earlier this week too...

"Kenneth Rogoff, the former chief economist of the International Monetary Fund, reportedly said Tuesday that a large U.S. bank will collapse in the next few months. We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks."

Did you hear that? It's not just the small Mom and Pop banks or even medium-sized banks that are in trouble. They're predicting the huge category five storm is going to hit one of the biggest banks in the market. It's just a question of which one...

And what about the homebuilders? Homebuilding was the first sector to fall apart when this uncomfortable bear market started to appear last summer. And you know what they say: "First in, first out..." So homebuilders should be improving right?

Wrong. How's this for a headline?

"Foreclosures smack home prices - down 29.3%"

--- San Francisco Chronicle, Aug 20, 2008

Meanwhile, mortgage applications just hit a six-year low. The Mortgage Bankers Association says it will take nearly 12 months to finally sell all the homes still sitting in the market.

Also, constructions plans, which indicate bigger building projects on the horizon, plummeted 32.4% since this time last year.

In other words, we need to build houses to help pull us out of this recession yet if we do, we'll increase inventory, depress prices and accelerate this snowball. How's that for a double-edged sword?

To recap, we're staring at bleeding sectors, more possible bank failures, a hemorrhaging housing market in a recession, and politicians who have NOT managed to fix the fundamental problems yet.

So is a little stock rally really supposed to make us happy? Not hardly.

Your Market Insurance While the Economy Heals

So what are your options when a crazy bear market rears its ugly head?

When the markets are this uncertain, one of my favorite strategies is investing with an "insurance policy." Let me explain. An "insurance policy" can be as simple as a buying both a beaten-down stock and a put option betting against it in the same sector.

This way if the sector starts to bleed once more, your put option hedges your position. On the other hand, if the stock rises, you'll more than recoup the money you invested in your "insurance policy put."

Let me give you an example and one I've recently used. A few weeks ago I thought that the financial sector may have hit at least a temporary bottom. So I recommended buying an ETF on the financial sector to our Sovereign Society members in The Sovereign Individual.

That's a fairly risky bet when the banks still need some time to dig themselves out of this hole. So I hedged the risk by recommending members buy one near the money put option, out about 3 months, for every 100 shares of the ETF. The option cost about 8% of trade.

We call this a paired trade.

If the financial sector rebounds, this ETF take off and members will grab 92% of the gain. If the sector crashes everyone has the put option to soften the blow.

The same strategy can work for you. Hedge your bets and we'll all make it out of this bear market without too many hits...

DAVID NEWMAN, Market Analyst

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U.S. Mint Says: "No More Coin Sales!"

Launched in 1986, the American eagle bullion program has grown into a popular way for investors to buy gold and silver coins. This strategy to collect and invest in bullion has morphed into an outright bonanza for coin dealers this decade as gold prices have soared.

But for the first time in almost 20 years since its inception, the U.S. Mint halted the sale of coins last Friday.

According to the U.S. Mint, inventories of gold and silver coins simply ran out on August 15. The institution has sold 311,000 ounces of the coins this year - about 50% more than in 2007.

Despite the big drop in gold and silver prices since July, buyers accumulated 63,500 ounces of the precious metals' coins the first two weeks of August alone.

If you check out the gold-lovers' blogs, you'll find that some investors and collectors think the government is behind a plan to hoard its inventory.

The ongoing credit crisis, now in its 12th month, shows no signs of stopping. Interbank lending rates remain elevated, housing values continue to plummet and bank lending continues to tighten.

So is the government anticipating a financial meltdown, and if so is banning physical gold ownership on the horizon?

We'll never know the motives behind last week's termination of gold coin sales. Government hoarding might be part of the mystery - but not the whole story.

I've got a feeling supply is a major problem, too. Global mine production has declined markedly since 2006. Major producers in South Africa and Australia are producing far less gold compared to just 10 years ago. And despite the big decline in Indian fabrication demand this year, net supplies are still tight for gold.

If you can't buy gold coins domestically for whatever reason, consider opening a foreign bank account in Switzerland or Austria and buy your gold and silver overseas. You can do this easily through the purchase of gold certificates or physical delivery, which is much more expensive.

Exchange traded funds (ETFs) are also convenient but don't provide direct ownership and leave the possibility open to confiscation. If you can only own gold through an ETF then do this in Switzerland where four precious metals ETFs trade in Zurich under the ZKB ETF umbrella.

Maybe the gold window is starting to close again. Tough economic times usually imply drastic measures. Before it's too late, make sure you have at least 10% of your net wealth stored in physical gold.

ERIC ROSEMAN, Investment Director

P.S. Gold mining stocks are another way to cash in on gold prices without actually owning physical bullion. Get a peek at my favorite gold plays in my newly updated report, right now.

The U.S. "Passport Card:" Your New National ID Part II

As I said yesterday, most states have rejected the Real ID Act that would have essentially transformed your driver's license into a National ID card.

Perhaps that's why the government announced that it's now producing something called the "U.S. passport card."

According to the news release,

"The passport card facilitates entry and expedites document processing at U.S. land and sea ports-of-entry when arriving from Canada, Mexico, the Caribbean and Bermuda. The card may not be used to travel by air. Otherwise, it carries the rights and privileges of the U.S. passport book and is adjudicated to the exact same standards."

Sounds harmless enough. But I think there may a hidden agenda.

First, consider that any company must now verify the identity and employment eligibility of all new employees. Wouldn't it be great if the new passport card could be used for that purpose? Well, it can...what a coincidence!

Second, consider that according to the news release:

"To facilitate the frequent travel of U.S. citizens living in border communities and to meet DHS's operational needs at land borders, the passport card contains a vicinity-read radio frequency identification (RFID) chip. This chip points to a stored record in secure government databases. There is no personal information written to the RFID chip itself."

So, what do we have here? Essentially, we have an identity document you can use both to confirm your identity in the United States and at U.S. borders. What's more, because it's equipped with a RFID chip, the government can add driver's license data any time it wants.

I wouldn't be surprised if after a decent interval - six to 12 months - DHS issues another press release to announce that the passport card can be used for all "federal purposes" that the Real ID initiative was supposed to address.

In plain English, that means you'll need Real ID compliant driver's license, a passport card (or an actual passport) to travel on an airplane or enter any secured federal facility, such as a federal courthouse or even a Social Security Office.

Of course, since the passport card is a federal initiative all along, there's no longer a need for a national interconnected database of drivers' license information. The feds will have something even more valuable - and dangerous - a national database they can use for whatever purpose they deem suitable without any state-imposed restrictions.

Should this scenario come to pass, the government will have effectively bypassed state opposition to the Real ID Act and imposed a national ID, in a very sneaky way.

I hope that I'm wrong, but if not, you read it here first.

MARK NESTMANN,
Privacy Expert & President of The Nestmann Group
www.nestmann.com

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