Jan 8 2010 12:54PM

In this essay, we review current news opinions and offer our predictions as to where things go in 2010-2012. Normally, we do these for only one year but some of the more important events will overlap from this year into 2011-2012. Also, certain current trends are difficult to date-pinpoint in 2010 with precision.

Please do not be despondent over these ideas as a few can bend your mind and produce sleepless nights. Rather, take them with a grain of salt and instead focus on the bright side. We should see the several years’ long messes eventually get cleaned-up simply because the sliding global economy will force those adjustments. For example, spend-thrift consumers will quit buying as they run out of allowed credit. Next, the same screws tighten on crooked bankers, congressmen and governments. We say the Sheeple pay the price but finally, those instigating scumbags will too. I suspect a larger list of politicians will enter forcible retirement this year and in 2012. Good riddance to them all.

Here Is The Larger View

The USA government bailouts including TARP and other specious global bank and corporate welfare programs placed a quick band aid on a strategic economic gaping wound. This post Lehman fix was only temporary repairing about 10% of all these problems. Now that big American business and her banks are partially fixed, these banker-idiots are back to their old games with derivatives trading, not making badly needed business loans, and stashing cash inside the guaranteed return nest of Treasury Department bills, notes and bonds. No loans for you or business but plenty for them.

In other words, the government hands banks’ almost free credit and then pays them the interest using the same funds. These banks are free to run recklessly with ironclad returns, not lend or be real bankers and, skim the bonus cream while backstop funding taxpayers are screwed three different ways.

We have never seen such open animosity within the U.S. congress and our two major political parties. They are openly fighting, lying, and deceiving. They are issuing false statements and attacks upon each other to the extent the people’s serious business both domestic and foreign has been relegated to the back burner.

The president’s chief press officer was more than rude to reporters this week  who were asking simple, straight-forward questions. His attitude was basically go to hell and next question. These jerks were elected and appointed to serve the American people and we are being denied the right to critical, accurate, timely information.

We know, for example, that government statistics, which are so important for commercial, industrial and military operations are fraught with miscues and lies. We cannot begin to depend upon key reports like the missing M-3, or unemployment, tax collections, debts, payments and proper systems for normal data discovery. Without this critical data we are all basically flying blind. We have more than once watched canny old television reporters scoff at the weekly sliced and diced employment data. It’s such a bad and readily recognized joke it’s pathetic.

The United States of America is bankrupt and the only way the game stays in play is to print money, lie about the amount of debt, play sleight-of hand with tax revenues and produce billions in new bills, notes, and bonds produced out of thin air each and every month. Foreign purchasers of our national debt paper are tired of it and now clearly recognize that their plans to escape must be accelerated. If not, they will be stiffed when all this junky stuff slides toward zero. This is why when nearly 200 tons of gold came on the market India snapped it up with a fast purchase beating China and other buyers to this opportunity. India paid a comparatively high price and was very happy to do so. We would suggest that any other similar chance to buy would result in the identical quick purchase.

The U.S. Administration’s health care, cap ‘n’ trade and other crazy fiscal destroyers will probably be passed in some meaningless form or another. United States commerce and small business owners are mortified and do not know what to do. They cannot reasonably plan to add and expand corporate enterprise as they have no clue as to what all of this foolishness will cost them. Meanwhile, nothing is moving as most types of credit are denied, for the most part.

We are frozen in time. We are paralyzed in an idiotic fiscal freezer waiting for the warmth of any honesty or sunshine on our collective situations. Don’t wait as it ain’t coming soon.

Inflation First-Hyperinflation Next? The inflation-deflation-hyper-inflation debate continues to rage. When we are asked our posture, our answer is as follows:

(1) Greenspan blew the housing-credit bubble with low interest rates from early 2000 until Chopper Ben took over his seat. This set the table for the housing debacle enhanced by some stupid congressional house reps forcing easy credit on new homeowners who could not afford to pay. As usual, they did this to buy votes. As usual, their plans failed.

(2) Years ago Enron got some key trading rules relaxed allowing them to go nuts with illegal energy trading. After Enron’s fall, those same idiot-lax trading rules were left in place and Derivative Land was born. Too bad it wasn’t still-born as it’s still around and still being nefariously practiced.

(3) This creates a set-up for Lehman Act II. Because of cycles and time, Lehman Act II can hit us in spring or fall of 2010 or, spring of 2011. We expect a drastic markets tragedy in May-July 2010 upon convergence of negative, multiple markets’ events.

We think by spring of 2011 most of the Phase One and Phase Two Crash Damage is complete.

(4) There would still remain a potential for Lehman Act III but we think that one would be milder and the next disaster (Lehman Act II) will finally and permanently ruin lots of banks and corporations. If true, this could destroy the derivatives buyers and sellers (5) This sequence installs new inflation this year with a strong first half and a spring crash.

 In the second half of 2010, we’ll see lots of stumbling and bumbling through the smoking wreckage followed by a weak recovery. Then we might see prolonged choppy markets into 2011. In this scenario, inflation-hyperinflation could appear in either fall of 2010 or spring of 2011. (6) After hyper-inflation crescendos and crashes, we go back into deflation and frozen markets until World War III (always the final solution for depressions) breaks open. (7) Then we begin the global shooting war for world domination with the winner being the nation in control of most energy- probably either Russia or the USA, or both.

Forecasting this series of events is not as difficult as you might imagine if you are a student of economic history. The hardest part of course is the timing; the actual when; and the when for those preludes leading-up to all this great fun. Your guess is as good as ours on that calendar but we would suppose we could be fairly close and probably have things in the right order.

20 Years Of Stagnancy Like Japan is the forecast offered by some smart analysts. This would depend, of course, on maintaining some semblance of economic control on an interconnected world of global economic snakes. Quite frankly we have no confidence in that one. However, if command-and-control fascism becomes pure, or a combo of communism-capitalism gains power as in China, all bets are off. Anything is possible. We like to think in maybes and probables with emphasis on potential Black Swan variables.

Retail Sales has three strikes against any major recovery. (1) Consumers and probable buyers are broke. Their credit is almost all gone. They will spend until it is but then the game is over. We are nearing game-over as $40 Billion of credit card failures are forecast by card lenders for spring 2010. (2) The internet is stealing sales from brick and mortar retail stores. It’s simply faster, cheaper and easier. That trend continues ruining more malls, strip centers and big box stores. (3) Credit card lenders are taking-away credit lines, or reducing them. This means fewer sales. (4) In a depression, weak income and no income make consumer’s stop spending and begin to make do and avoid new purchases. (5) There were way too many stores and malls built over the past 15-20 years. We are grossly over-stored. The result is thousands of empty buildings with no employees or customers and zero taxes for local governments. This game fell down with the housing crash. They took a dive together. We predict no recovery for years with some gone for good. A quick review of those major chains closed in bankruptcy would amaze.

Industrial Production is easily measured by the amount of goods shipped in trucks, by rail, and in ocean transport. We have a good reader friend in trucking dispatch arranging loads. His data says trucking reports are so bad you do not even want to know. Rail is way off due to cuts in commercial stuff, autos and others. Train transport of coal and grain will be strong as this continues on in any depression. You must eat and heat. There are so many parked ocean ships; some with loads and many parked empty; it is a near tragedy. Orders for new ships are shut-off but old orders remain in the construction process. When these boats are ready, many will be parked. Lots of older ships will be scrapped as they’re not operationally economical any longer. These older junkers would still have some useful life but they’re not competitive with modern, new ship inventory coming on stream especially from Korea.

How many auto plants are now closed forever? How many that had multiple-shifts are now on one shift, or on one slow shift? How many new commercial buildings are not being built? Answer: More than most would imagine.

Housing And Commercial Real Estate fell in the order we expected. (1) First condominium sales fell with single family not far behind. Now we are seeing higher vacancies in rental apartments as unemployment bites harder. In 2005, we did forecast this dilemma and said, “The housing crash would be so severe adult jobless children would come back to live with mom and dad as they still have a house, a pension and some modest income. We further said, “Families would be doubling and tripling-up beneath one roof for sheer survival.” This is happening now and gets worse over the next 2-3 years before a firm housing price-base is discovered. People have to live somewhere.

Now its commercial’s turn as office buildings, hotels, malls, strip centers, factories, warehouses and other commercial real estate go empty. Cash flow is either diminished or gone on many of these larger projects. This means, commercial mortgage defaults, sales and leasing vanish, building owners go broke and municipalities don’t get tax revenue. Hotels due to their business type lost business first. Some are already in receivership. It was reported yesterday that 2009 California hotel foreclosures quadrupled from 2008.

Following the gigantic slide in commercial real estate, we’ll see in a few months, the fall and foreclosure of these loans held by pension plans and insurance companies now depending upon those mortgage payments for income. It’s an extended daisy chain of failures, cascading throughout this giant industry. Recovery will take years.

Keep in mind, housing is very regional. Some states have already hit the basement and can’t fall much further. Others have a long way to go. Still others are actually in the buying mode if located near a stronger job market. The critical states are New Jersey, Tennessee, Kentucky, Florida, Arizona, Nevada, and worst of all California now reporting a state budget -$24 Billion in the hole and getting worse faster. We forecast the national housing price average falls another -30%.

Autos have been a larger portion of national expenditures spent by consumers in America, usually being the second most costly asset after a home. Since consumers are 70% of the U.S. economy and they going jobless at a terrifying rate, home payments are missed, and maintenance is skipped, with the end being repossession. Auto payments cannot be made without a paycheck. Those who have a car and a job are not buying new cars as they avoid debt risks. Dental and medical is eliminated or curtailed as health insurance is lapsed for no pay. Consumers are the key to the US national economy and that of other nations. None of this can be reversed until economic conditions allow employers to hire people. In the U.S., current administration policies are defeating employers large and small at every turn; at every decision. Increased taxes are job killers.

The fallout is horrific and cannot be stopped until new jobs are created. Our Northern Advisor told me today, there will be over 1mm new government temporary jobs for taking the national census. We expect the Obama Labor Department to chortle they will have produced many new jobs and they have,  but this census is strictly temporary and comes only once every ten years.

Food according to news reports remains in adequate supply and there is no problem. We disagree as (1) Weather will be upset for years causing growing problems. (2) Farmers are short on credit to plant as most of their planting costs like seeds, diesel fuel, and particularly fertilizer, are all high and going higher. Farm lending banks know the business and farmers cannot earn enough on sales to cover all these costs. So, many fields will stay fallow on lack of credit. (3) Asia and most particularly China are demanding better diets as they can afford to pay. This means more demand for meat, grain, bread, rice, sugar, and the energy expenditures to pay-move this stuff. While modern agriculture can produce massive amounts of food, demand is growing even faster and Mr. Weather, the largest equation Black Swan, is upside down. Next, U.S agriculture policies like ethanol from corn toss a wrench in supply (30% of corn to ethanol) and tree-hugging greenies bolstered by the EPA and stupid courts shut-off farm irrigation water in the vegetable growing belt of California. As if they don’t have enough problems.

Energy got cheaper on normal market cycles but with upset weather and more heating demands, oil and natural gas prices are higher. On this Thursday morning of January 7th, oil hit $84 on the most active futures. The price of $80 has been very strong resistance and it appears we have finally broken through. February crude oil futures have settled back at $82.55 and if they can close there and hang-on we may soon be pushing $90. Our 2010 high forecast is projected at $100 without any Middle Eastern or other interruptions that could easily add $10 on a price spike. Should Iran and Israel begin to fight, the oil price would skyrocket way beyond our forecast. Watch for energy prices to (1) First increase on basic fundamentals and then (2) increase even more on new inflation.

Bondland is moving toward the crisis stage all over the world. For many corporations and nations the ability to pay interest hits the wall. Japan is at the head of the line as they self-finance internally having few foreign nations buying their paper. The Yen is bought, sold and traded with vigor but JGB bonds are mostly bought and sold only in Japan.

Credit Paper problems next behind Japan would be the U.K and China. We suspect the U.K. has gone bad faster than China but so far has not been forced to deal with any severe pain. In a comparison of these economies, the Brits are an older, settled situation while China is more of a new international enterprise feeling its way along and through a massively forming, group of economic bubbles. Also, within the European economic theatre, we have the subset secondary story of Euro and non-Euro national economies in fights pitted against one another. Gross economic and GDP imbalances among these countries has created an untenable, unsolvable mess in our view. How can Greece compete and be like Germany for example?

Club-Med regional nations including Greece, Spain, Portugal and Italy are all suffering extreme un-employment, a host of credit problems and growing unrest and dissension exists among their citizens. Greece, by far is at the front of this line. The EU has been carefully monitoring their problems since last year. And, as one reporter exclaimed, “this has turned deadly serious.” We wrote in 2003 that the grand Euroland experiment would fail primarily due to misguided efforts to meld too many cultures, languages, economies and currencies; trying to making them all somewhat equal.  This was a bad idea from the beginning and now we are sadly being proven correct. We did forecast the Euros demise but it could take years considering its current importance within the world’s currencies.

Germany is the Euroland powerhouse. They are light years ahead of all the other Eurolanders in several departments. Now they are being pushed into the position of being the savior for this entire sinking swamp. German taxpayers will not stand for it and fully intend to let other nation states’ failures sink into their own problems. In our view, Mrs. Merkle, in Germany, has had the better ideas for making sense of this mess but she is being overwhelmed with the entire global event and German political in-fighting similar to our USA dust-ups.

Mexico is now on the front burner with new bonds sales, steepening their yield curve in a strain to cover a growing financial deficit. Obviously they are spending more but remember their government oil profits are falling with less field production from primary old crude oil sources. Mexico has new oil field discoveries but they are reasonably years from production. Meanwhile, their government money squeeze increases.

International Banks And Economic Heavyweights Meet In Switzerland.

Central bankers plan regulation talks with private bankers to review unsettled financial markets and determine an approach to reduce risk. Is this a panic mode meeting? We cannot tell but it’s ominous.

“Central bankers will hold talks with banking executives in Switzerland this weekend amid concern financial companies are rebuffing a push to increase regulation and temper risk-taking as the recent crisis ebbs. The gathering to discuss regulation will take place at the Bank for International Settlements in Basel, according to two Group-of-Seven central bank officials. The BIS invited commercial bankers, citing concerns that they are returning to the excessive-risk patterns that helped spark the global crisis in 2007, the Financial Times reported today. The meeting comes a month after the BIS urged central banks to take greater account of financial stability and published proposals aimed at forcing banks to hold more and better-quality capital and discourage leverage.” - Masahiro Hidaka & Shamim Adam Bloomberg.net

In our view, the global banks that produced the largest problems are doing it again to make money. Under current economic conditions these bankers have :

(1) not been corralled with new rules or controls

(2) they have been rescued and re-capitalized from the dead by central government bankers and taxpayers

(3) now that they’ve gotten away with the largest global robbery ever, we say they think they have no risk and if another bailout is required down the road they’ll receive help once again. The sad part is they probably will. 

Summary

We did a forecast on gold in spring of 2009 at a New Jersey conference and said $1250-1260 on the December, 2009 futures. I think we got $1226, which is pretty close. After our current correction is completed I expect $1325 to $1375 this spring. Trading ranges are going wider and faster. Gold can easily swing $50 in one daily session.

After our new corrective base for silver is established at $16.48-$17.48, we forecast the March, 2010 silver futures reach a new intermediate high of $21.50-$22.00. Higher is possible.

The XAU shares index should easily rise up to 220 resistance after correcting down to 165 index support. For the fall of 2010, we are in a brand new and unknown XAU era.

The U.S. Dollar Index normally has the worst month of the year in December. Last month the selling was not as severe as one might have expected. For now, the March, 2010 Dollar futures are in a trading range of 77.50 to 78.50.  The broader, longer term range from now through May, 2010 could be 72.50 to 80.00. Following May into next summer, the dollar sinks steadily and gradually toward the 72.50 price. It should be under 70.00 but other nation’s currencies are falling even faster and some of those trades are causing investors to move into dollars. On the other hand, dollar inflation could drop the index price further.

Be very careful as we move forward in time. Trading is going faster and more volatile with wider trading ranges in precious metals and other markets. Try to be in position ahead of time rather than locking yourself into trades at the very last minute. Futures traders should always use stops and shares traders as well.

Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert. –Traderrog.

Roger Wiegand
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com

*****

Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information

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