Retirement Investment Sucker Rally: $800 Billion in ADDITIONAL Bailout Money Sending Dow Surging

Retirement investment money question:  Did the market hit bottom on November 20th… or is this recent rally a bear trap to beat all bear traps?

That is, indeed, the $6 million question.

The Dow Jones Industrial Average has surged 1,200 points in the past five days. It could surge another 1,000 points next week after the U.S. government announced that it would be spending ANOTHER $800 billion to bail out credit card companies.

That brings the total amount spent on this federal bailout to a staggering $5 trillion, roughly equivalent to what the U.S. spent fighting World War II.

Here is the breakdown:

Government Entity/Bailout BILLIONS
Term Auction Facility   $900

DISCOUNT LENDING WINDOW
Commercial Banks  $99.2
Investment Banks  $56.7
Loans to Buy ABCP  $76.5
AIG   $112.5
Bear Stearns   $29.5
(TSLF) Term Securities Lending Facility   $225
SWAP Lines $ 613
(MMIFF) Money Market Investor Funding Facility  $540
Commercial Paper Funding Facility  $257
(TARP) Treasury Asset Relief Program  $700
Automakers  $25
(FHA) Federal Housing Administration  $300
Fannie Mae/Freddie Mac  $350
Zero Interest Rate Policy (ZIRP)  $800
TOTAL: $5,084.4

The problem is, despite this sharp rally-back, the global economy appears to be growing worse by the day, not better.

Government officials from Treasury Secretary Paulson to President-Elect Barack Obama say we’re facing a “once a century” economic crisis:

Unemployment is skyrocketing: The Labor Department just reported that new claims for unemployment benefits jumped to a 16-year high 542,000 – the highest they’ve been in 20 years. That is 52% higher than they were a year ago. Just this week, CitiGroup announced it is laying off 53,000 more workers.

Foreclosures are going through the roof: According to RealtyTrac, home foreclosures soared 25% in October. More than 279,500 U.S. homes received at least one foreclosure-related notice that month. The outlook for 2009, especially in commercial real estate, is even more bleak.

America’s biggest companies are bankrupt: The latest companies filing for bankruptcy read like a “Who’s Who” of American business: GM… Lehman’s Brothers… Washington Mutual… Circuit City… Linens ‘n Things… Frontier Airlines… Kimbell’s… and on and on.

Federal spending has gone berserk: According to a recent tally by CNBC, the U.S. government is spending $5 TRILLION in a desperate effort to bail out bankrupt banks. Even that is doomed to fail: it would take $600 trillion to cover all the bad derivative debts that are wiping out the global economy.

Consumer spending has dried up: Consumer spending… the lifeblood of American business… has dried up. That’s why literally THOUSANDS of U.S. businesses are reporting their earnings are plummeting: Home Depot, down 31%… Target, Lowe’s, down 24%… Kohl’s, down 17%… GM down 36%.

Massive tax increases ahead: Federal, state and city governments are all flat-broke. They are victims of massive overspending, combined with plunging tax revenues. California Governor Arnold Schwarzenegger announced this week an estimated budget shortfall of $11 billion. The U.S. budget deficit this year could easily top $1 trillion. Virtually all arms of government are encouraged by the Obama mandate for “change.” They will quickly raise taxes through the roof. This will drive the current recession into a full-blown depression.

What Will Happen To Money in Investment Income Accounts?

If you have money in an investment account, 401k or similar retirement account, you’re probably panicking right now.

After all, it looks like the world’s central banks are running out of ammo! After dramatic interest rate cuts worldwide, global equity markets continued to crash Wednesday. The Japanese Nikkei Index fell 9.38% in a single day! The Hong Kong index dropped 8.17% overnight. The German DAX fell 6.25%. The British FTSE dropped 5.5%.

The world is panicking as it watches the entire global financial system grind to a dead stop. Stocks are in free fall all over the world! The Dow closed down 508 points on Tuesday but that barely tells the story. The S&P 500 has lost 21.4% in the past 30 days alone… 31% so far in 2008… and 36% since October 2007.

Worst of all, there is no sign the bloodletting is going to stop. Banks worldwide are collapsing. The global economy is grinding to a halt. Unemployment is rising.

Social Security will be there after the coming stock market wipe-out. So will government pensions. The Fed will see to that. Private pensions are a different matter altogether. You cannot count on them. During the 1970s and 1980s, pensions were grossly underfunded. Many major corporations had to put more cash into their pension funds, to bring them up to minimum standards. During the bubble stock market, companies were able to take out that cash, and put stock in its place.

People think their pension funds are solid. Nothing could be further from the truth. If your retirement plan is tied to stock or money market funds— and they all are — expect to take a big hit.

Consider cashing in your retirement or pension plan even if you must pay the tax consequences. Someone once said that money you can’t control is not your money. Get out of any IRA, Keogh, 10K, retirement plan or pension fund. Transfer the assets first into bank savings accounts and then quietly take it out and stuff some in your mattress. Remember, during the last stock market depression, people who had cash in their mattress were kings.

On balance, the dollar is going to continue falling for the next 20 years. America’s balance of trade disaster and the coming global stock market wipeout guarantee this. You absolutely should diversify into foreign currencies.

We are now entering a new era of massive deflation. Real estate, of course, is plunging lower and lower almost everywhere on the planet. Stock prices are in free fall. The prices of most commodities are dropping fast. The Dow Jones-AIG Commodities Index Total Return ETF (DJP) is down 37% since mid-July. Oil has dropped from $140 a barrel to under $90 today.

We’re in for a wild ride the next few months.