This is an article I didn't want to write. When considering a personal finance piece not connected to Wall Street's nefarious ways in the subprime market, swaps and derivatives or prime brokers (see past issues), I expected to write the usual, plain vanilla article about personal finance. After a 29-year career on Wall Street, I can pretty much write this sort of thing in my sleep—you know, the plain-talking article filled with the usual commonsense dictums about managing your money, a feel-good piece filled with the usual platitudes about empowerment and taking control, blah, blah, blah.

Well, a funny thing happened on the way to press time. The market collapsed.

Don't think so? Think again, boomer. Let's take a look at your investment options.

Stocks After rallying for a few hopeful months earlier this spring, last month was the worst June on Wall Street since the Great Depression (actually, the worst June since 1930). The Dow Jones industrial average went from flying above 13,000 to tumbling to under 11,345.

Just as a for instance, General Motors has plunged to its lowest in 34 years. Chrysler, which is now privately held, is denying rumors that it's going bankrupt. And that's just the auto industry. All 10 industry groups in the S&P 500 have fallen this year. All three major stock indexes are now down about 14 percent since January.

That translates into about a 14 percent haircut for your 401k's, IRAs and Roth accounts. Stocks are now officially entering a bear market. Make that a Bear Market with a capital B and a capital M.

Bear Markets don't last for mere months. Typically, Bear Markets last for 1.3 years and drop an average of 33.5 percent. Those averages exclude the Great Depression, when stocks declined 86 percent from 1929 to 1932.

Forget stocks, unless you're into some harebrained, high-risk dollar cost-average scheme. If so, you're probably also that knucklehead who always doubles down when playing blackjack at a casino.

Think bonds are safe? Think again, boomer.

Bonds Serious cracks are appearing once again in credit markets. The Federal Reserve Bank is bracing for another round of steep losses at big financial companies, like Citigroup. Another big financial company, Lehman Brothers, looks like it's about to be sold at a fire-sale price, much like Bear Stearns. The 24-stock KBW Bank Index is at its lowest in over a decade. And when the big banks that issue credit are in trouble, you can bet the rest of us are in trouble, too.

Also highly indicative of weakness in the credit markets, spreads in credit default swaps (swaps are "insurance" against bond defaults) have dramatically widened in the last month.

Think treasuries are safe? Oh, dear me. Think yet again, boomer.

Treasuries The biggest Bear Market in treasuries since 2004 is expected to get worse. "The treasuries market going forward into 2008 is an inflation story, plain and simple" says Colin Lundgren, head of fixed income at RiverSource Institutional Advisors, a big money-management consultant.

Let me make my point another way: two-year Treasuries are yielding about 2.6 percent. Treasuries are denominated in dollars, right? Well, don't you think it's a pretty good bet that the dollar will fall by more than 2.6 percent over the next two years, giving you a real loss in inflation-adjusted terms? This scenario gets even more insane. Ten-year treasuries are priced to yield about 3.95 percent right now. Don't you think it's a virtual lock that the dollar will fall by more than 3.95 percent over the next 10 years? Duh.

Here's a sobering fact: Treasuries investors have lost 2.2 percent since March, including reinvested interest, according to the Merrill Lynch & Co.'s Treasury Master Index.

Also, Federal Reserve chairman Ben S. Bernanke isn't giving any assurances that inflation, and not recession, isn't his biggest worry—which is more bad news for investors in treasuries.

How about real estate, boomer? That's always a safe haven, right?

Real Estate Don't even think about it, unless you're getting discounts of 30 or 40 percent or more from appraised values at the height of the market. Why? Because more foreclosures loom ahead.

There is no one road map to investing in real estate, because real estate markets vary widely from neighborhood to neighborhood and from city to city, but in general everything will be cheaper a year or two from now. There's a lot of inventory on the market, and banks aren't lending (that's two strikes!).

You say, "Well, commodities are hot. How about commodities?"

Commodities Too late, boomer. Commodities are a string of superbubbles right now. Speculation is pushing prices higher and higher. Let's take oil as an example. There isn't a scarcity of oil in the world right now. Sure, China and India have surging economies, but they can't account for the 53 percent jump in the price of oil during the last year.

What there is a scarcity of is rationality in the marketplace for oil. Eventually, rationality reasserts itself. Market efficiencies reassert themselves over time. Order is restored.

Chaos theory explains markets only for so long. Eventually, people—and governments—want rational, efficient markets. It's what makes the world go round, not speculators.

One other thing: In commodities markets, there is something called the "greater fool" theory. The theory says you can make money buying commodities in a wildly speculative market as long as there is a greater fool out there in the marketplace willing to buy your position from you.

But the question is, will you be the last fool with no greater fool waiting in line behind you?

Inflation vs. Stagflation A word about inflation. Commodities prices across the board are through the roof—like you didn't know—led by oil, of course. At the end of June, oil was trading at $140 a barrel. As mentioned above, that's an astronomical 52 percent increase in just one year. And everything else is more expensive, too, from corn to wheat to cattle to copper to iron ore to natural gas to lumber to cotton. The main reason is because commodities are priced in U.S. dollars, and the dollar is trading at close to its all-time low.

Lenin once wrote that for the rich to rob the poor, all they had to do was to "debauch the currency." I agree. No oppression is needed by the rich as they get richer. No armies. No police state. No marshal law. All the rich have to do is just debauch the currency. Inflation robs the working class. Meanwhile, the rich buy inflation hedges or move their money offshore.

One small correction here: I just noted that inflation was Bernanke's biggest worry. It's not. "Stagflation" is Bernanke's biggest worry.

Stagflation is as ugly as the name would imply. It is the sound of the world hitting a wall, a combination of no growth and high inflation. Stagflation is defined by economists as "a period of protracted recession, or stagnation, coupled with high inflation." That simple. That deadly. Like cancer.

The Federal Reserve Bank is powerless to act during periods of stagflation, because it is bracketed in this waffle: if the Fed raises interest rates, then the economy further contracts, and the Fed might push the country from a garden-variety recession into the next Great Depression. But if the Fed lowers interest rates, then we have a flood of new money and higher inflation, possibly hyperinflation. (Remember when you could get 19 or 20 percent at your friendly neighborhood bank on a CD during the Jimmy Cater era?)

The Fed funds rate—the rate at which the Fed lends to member banks – is now at 2 percent, and I predict it will stay there for a long time. We're going to have to ride this one out. Sorry, poor boomer.

Put it all together. Rising inflation, high oil costs and tight credit cause a long decline in both wealth and lifestyle. So what's a boomer to do?

The AARP Ack Boomers aren't doing well these days. Not at all. Especially young boomers, between 45 and 55 years old, according to a June report from AARP. You may still have a job, but the rest of your life sucks. And it will suck for a while.

According to this report written by Jeffrey Love, Ph.D., director of strategic issues research at AARP, economic woes are forcing more of you into foreclosure, choking off your discretionary spending and driving up your credit card bills. More boomers are postponing medical care, skipping prescriptions and raiding their retirement accounts. According to the report, as many as one in four young boomers are in trouble.

"This is a horrific scenario," says Tom Nelson, AARP's chief operating officer, when asked for comment about the report.

So what is a boomer to do?

Do What the Rich Do Here's what the rich do during times like these: Sell paper assets. Buy inflation hedges. Gold is the big hedge, in particular, gold mining stocks. Take special note of the "juniors," or mining companies still in the exploratory stage. That's where your value is.

There are other hedges and hedging strategies, too, of course. Things like contrarian funds, vulture funds, long-short funds, bear market funds, also some euro-denominated funds and emerging market funds, and a few select baskets of foreign currencies and baskets of commodities.

What to know more? Start by reading the "gold bugs" like Jim Sinclair and Rob McEwen. Both are wise men in a world of fools. Jim also has a nifty company called Tanzanian Royalty Exploration Corp. (ticker TRX). And Rob has an equally nifty company called US Gold Corp. (ticker UXG).

Also, read everything and anything by George Soros and Jim Rodgers (yes, they were once partners). More than merely two of the most successful money managers in the world, these two guys are deep thinkers. They are philosophers. In another time and place in history, they could have been fellow soldiers in the Knights Templar. Where bandits abound and pilgrims are slaughtered, they seem to tap into a secret wisdom.

Finally, I really like Catherine Austin Fitts. She is one of the most highly regarded women in global finance. You can find Catherine's blog at www.solari.com. Go there right now. Read. You can survive it, boomer. Goodness knows, you have before.

John Sakowicz is a Sonoma County investor and the cofounder of a multibillion dollar hedge fund, Battle Mountain Research Group. Arianna Carisella assisted with research for this article.

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