Dear Reader,

If you haven't yet reviewed the April 2008 EWR, please do so as soon as possible, especially if you are tempted to move all your money into US treasuries or bank accounts or CDs. The risks in these instruments have become extreme, as we shall see below.

This economic crisis is certainly the worst since the Great Depression, and it has the potential to be worse than the Great Depression. In the face of that, the decline in the Permanent Portfolio is remarkable for its mildness.

The Permanent Portfolio Fund (PRPFX) is down 8% from where it was two years ago, against 40% for the S&P 500.

I expect PRPFX to fall further before it recovers, but I have not sold any of mine and have no plans to do so. It's still the best strategy I've ever seen for protecting against deflation plus the much greater threat of inflation, which is what I will cover shortly.

Before we get to that, here is something that is on many of my readers' minds.

I'm always receiving letters asking if you should move out of the country and, if so, to which country?

Without knowing personal circumstances, it's impossible to say who should go and who should stay. If my wife and I were young, did not own a business, and had no close friends or family, we'd already have moved to New Zealand long ago.

This isn't to say New Zealand is Utopia, but on balance it's got more going for it than anywhere else we've ever been. The simple fact that it is geographically isolated is, by itself, a major advantage. Distance means safety.

We consider Switzerland, Canada and Australia to be good candidates, too.

Now let's get to the economics, specifically the question, when will the recovery happen?

Actually, there will be two recoveries. One will be in the investment markets, and the other in the general economy.

In all likelihood, the investment recovery will arrive first, because it's the nature of investment markets to look ahead and try to price financial instruments for what's coming.

To me, the crucial question is, will the recovery be V shaped or L shaped? That is, will we hit bottom and bounce back very quickly, or will we hit bottom and stay there for years?

I think V shaped. Here's why.

I'm looking primarily at three factors: unemployment, money supply and the real federal deficit.

The unemployment numbers are signaling disaster. Normally unemployment is what economists call a lagging indicator. The peak in joblessness arrives after the recession or depression has bottomed out. (A recession is generally defined as two consecutive quarters of decline in the production of goods and services.)

This time, unemployment has already hit recession levels (6%), and the recession has barely begun.

As for money supply, take a look at the Monetary Base at http://research.stlouisfed.org/fred2/series/BASE

The Monetary Base is the most tightly defined measure of money supply. This is where the Fed injects money first. Then the money flows outward to the other measures of money supply.

The Base is often called the most high powered money, meaning the money with the highest velocity.

As far as I know, no other government in history has ever suddenly gone this wild printing money. It probably has something to do with the fact that they no longer need to literally print the stuff, they can just create it with computer keystrokes.

They are doing it in hopes of stopping the sharp rise in unemployment. It's an attempt to prevent a depression.

Now go to the federal debt numbers at http://www.treasurydirect.gov/NP/BPDLogin?application=np, "Debt to the Penny."

In the past year, the real federal debt has increased $1.46 trillion. Yes, trillion.

They have only two ways to finance this. One is to borrow it, the other is to print it.

I believe they must be printing the entire shortfall because if they weren't, they'd be driving up interest rates at a time when they have been deliberately trying to drive them down.

So, federal officials are inflating wildly to try to stop the oncoming depression, and this, I believe is almost certain to bring a very serious decline in the value of the dollar, probably beginning next year.

But it won't stop the depression dead in its tracks. The monster has momentum. No matter how much they inflate, a lot of businesses are on their way to the graveyard or already there, and the rise in joblessness is sure to continue for many months.

I'm not absolutely certain, but my best guess is that this time next year we will see unemployment and prices (Consumer Price Index) both in double digits, that is, over 10%.

But the massive inflation of the money supply will also prevent a full blown depression and will insure that the recoveries — both investment and general economy — will be V shaped not L shaped.

I think the V bottom will arrive sometime next year. After it passes, we will quickly see new all-time highs in non-dollar assets, especially precious metals and other raw materials, as everyone around the world tries to escape from the dollar.

In other words, as the present deflationary conditions continue, they are creating a coiled spring effect. The rising money supply is trying to push non-dollar assets up, but these assets are being held down by the fall in velocity, caused by fear.

At some point, the spring will be coiled so tightly it will break loose and head for the stratosphere.

When? Impossible to say. When I think the turn has arrived, I will let you know in EWR or a Subscriber Access bulletin, but don't put much faith in my accuracy. I'll do my best.

The only thing I'm very confident about is that with the inflation of the money supply happening at such an extreme rate, buying non-dollar assets anywhere around their present prices will, in the long run (three years or more) be very profitable.

Don't buy more than you can comfortably hold onto, in case the decline continues for whatever feels to you like a long time. You don't want to buy low and then be panicked into selling lower.

Also, with these runaway increases in the money supply, the risk of owning US treasuries or bank CDs have become extreme. There is a very high probability now — I think more than 90% — that you will lend dollars that are each worth one loaf of bread, to the treasury or bank, and in a few years, get back dollars worth only crumbs.

If you absolutely insist on owning these dollar assets, then there is compromise, a window of opportunity, open at this moment. I don't know how long it will stay open. Here it is.

One of the finest silver stocks is Silver Standard (SSRI). At its peak last year, SSRI was $48. I recommended it at $1.44 back in 2000.

Now SSRI is $6.

I'm highly confident the government's panicky inflation of the money supply will drive it back to $48 and far beyond.

If you put just a small portion of your money into SSRI — not more than 10% — and I turn out to be right about the coming inflation and its effects on investments, then the skyrocketing of SSRI will cover you nicely even if your dollar assets lose most of their buying power, as I expect they will.

I will close this bulletin by asking you again, if you haven't yet reviewed the April 2008 EWR, please do so as soon as possible. Events are unfolding exactly as that EWR predicted, and my advice remains unchanged.

I think about you all day every day and will continue doing my best to get you through this historic catastrophe in fine shape and, hopefully, earn huge profits from it, too.

Happy holidays!

--Richard Maybury

P.S. In recent weeks, I've been gradually buying small amounts of non-dollar assets, in full confidence that the government will always find new and better ways to make things worse, and these assets will eventually be worth far more than they are now. I'm holding a lot of cash back, however, expecting to buy heavily after I'm confident the V shaped bottom has passed.

www.richardmaybury.com

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