By Sean Brodrick
I’m very bullish on gold and silver. And at the same time, my target on the S&P 500 is 600 — a 24% drop from recent levels and 62% down from its October 2007 peak.

As far as the economy goes, I’m not looking for it to bottom before 2012 … if we’re lucky. While the market could bottom before that, I’m not seeing the light at the end of the tunnel. The good news is there are some trades and investments that will do well, even in these worst of times. Before I get into those, let me tell you about the 5 “Rally Killers” that will strangle any new bull.

Rally Killer #1 — Banking Crisis Will Likely Get Much Worse
Our biggest banks are fundamentally bankrupt; and Treasury Secretary Timothy Geithner’s “new deal” is to basically do the same thing Hank Paulson did. Two important parts of Geithner’s plan: “Stress testing” banks by poring over their books to separate viable institutions from bankrupt ones. This is akin to establishing an investment fund with private and public money to purchase bad assets.

The problem with this is that bank books are increasingly revealed to be shams and lies; and you can be sure that an investment fund is going to cherry-pick assets and leave U.S. taxpayers holding the bag.

The International Monetary Fund (IMF) did a study of financial crises from 1970 to 2007. When it came to forbearance, or delaying foreclosures and delaying writing off bad loans, the IMF said: “Providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often … take unproductive risks at government expense. The typical result … is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline.”

In other words, the kind of approach Paulson and Geithner have taken with the big banks is more harmful than helpful.

And the banking crisis continues to worsen … A staggering 2.3 million homeowners faced foreclosure proceedings last year, up more than 80% from 2007. Analysts say that number could soar to as high as 10 million in the coming years.

Already 1 million residences have been foreclosed on since 2006. What’s more, the problem should get worse through 2012, as the next wave of adjustable rate mortgages reset at much higher rates.

Rally Killer #2 — Real Estate Is Nowhere Near a Bottom
Home prices follow income. And we are in a deflationary spiral now, so incomes are going down. I expect we’ll see both incomes and home prices fall until 2012. The S&P/Case-Schiller Composite Index, which tracks home prices across the nation, says that home prices are off about 25% since the peak. The big problem is that the slide is ongoing and seems to be accelerating.

The National Association of Home Builders expects that home prices, on average, will fall 29% in 2009 alone. And remember, they’re supposed to be the optimists. How bad could it get? We could go into a decade-long deflation like Japan. Prices can overshoot to the downside as well as to the upside. And it should be bad news for any attempts at a sustained bull market.

Rally Killer #3 — The Great Unwinding
A government report showed that U.S. consumer spending fell in December for a record sixth consecutive month. Since consumer spending accounts for about 70% of total economic activity, these cutbacks are battering the economy. This trend is probably going to become more pronounced in the months ahead because consumers have a lot of debt to unwind and an average unwinding of debt would suck about $300 billion out of the economy. The debt of households has climbed much faster than their net worth in the last 50 years, according to data compiled by the Federal Reserve.

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