THE COMING DEFLATION SCARE - Craig R. Smith, SATC

May 27, 2003

I believe soon the cry of deflation will become deafening as we get closer and closer to the real numbers in this economy.

Those cries will likely be accompanied with advice to sell everything you have in the anticipation of buying them all back at much cheaper prices than today. Also, to take the cash you get and reduce debt to zero and wait out the long recession/depression that "will soon be upon us."

While this may be a very accurate "conceptual" approach, it is by no means a practical approach because it would require perfect timing to be sucessful! According to Lenin, "Less than one-in-a-million can discern" the onset of inflation.

Therefore, I think it prudent to remind your clients that in a deflationary period you never know when the deflation will instantly turn to inflation -- and when you do, it is generally to late to do anything about it. Remember, one day late is still too late.

Therefore, our strategy of DIVERSIFICATION is going to be the winner in the long haul. Don't allow your clients to get sucked into the "sell everything" deflationary pitch...
* Prices are coming down.
* Unemployment will to continue to rise.
* Things are going to get worst before they get better.
* Many "experts" will say to sell everything: stocks,bonds, mutuals, collectibles, coins gold, etc.

This would be a big mistake. Certain stocks will survive this period and probably even do well. i.e.: financials, due to low rates. Gold and collectibles could explode upward as people look to find real value which they can hold in their hands. Bonds make sense during uncertain times.

Please let our clients know they must STAY BALANCED. It will be very tempting to cash out and wait this thing out, yet I believe it will be suicide financially. Stay Diversified. -Craig

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