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Sunday, January 2, 2011

2011 Predictions

Each year I do this, I am learning more about mankind. First, it is more apparent than ever to me that people in general always choose the way to avoid pain today, even if it means much worse pain tomorrow.

Unfortunately, my worst fears about this entire situation is coming to bear. The world is not taking effective, proactive steps to avoid an all out disaster in the world economy. Instead of dealing directly with the issues at hand, every step the short-cut to avoid pain today is taken.

In effect, we are kicking the can down the road, and making sure the fix will be much harder than if it was dealt with upfront.

Again, this isn't a dig on Obama, European union, China, or anyone. It is a lesson on humans. Finding true leadership to do the right thing seems impossible to find. Maybe revisionist history presents a false image, and such a thing doesn't exist until no other options are left.


So with this in mind, my predictions are based upon my opinion that real change to improve the situation will NOT occur until crisis happens. The kick the can policy, started with Regan on China financial relations and the Federal Reserve Bank paper games will continue until it isn't possible. No matter how grim the situation looks, I have full faith for the wrong decisions to be made, if they are available and less painful than the right ones.


2011 Predictions

1) Entering 2012, the public won't look at state and township bonds the same as they do today.
The State and City budget crises are here and now. We cannot get into 2012 without some precedents being set. Due to courts and the kick the can, we will have cities and states entering into bankruptcy-type scenarios but likely not resolved in 2011. The exact prediction is multiple cities and states will enter into financial heart-attack type crisis mode. The Municipal bonds will be in turmoil. Due to kick the can, I don't know if the federal government will step in and back everything or let this play out as it must. Because of these crisis, government unions will get attacked on multiple fronts.

2) European Union will enter into crisis mode in 2011.
The world of international finance smells blood in the water, and they are biting at Ireland, Greece, and eventually Spain. The European union will have to face an all in by Germany and others to stop their collapse in 2011. This of course, will not work. But in 2011, we will have our answer if there is one more big kick the can attempt or not. I don't think the European union will fold in 2011. and the euro will stay in tact. The main reasoning is, there is plenty of options for more can kicking.

3) China will have some turmoil beyond what is expected.
China's policy of currency manipulation and not allowing their fiat currency to float is already backfiring. This policy allows America to do whatever they want, and China has to buy US debt. The severe inflation pressures China is already facing is starting a put-out-the-fire game, where new fires pop up as the central China planners try to put out old ones. I don't think China will melt down in 2011.
Again, plenty of room to kick the can for them also. The stage will be set in 2011 for the main event in 2012-2013. Prediction: The world view of China as leader into the next decade will get tarnished in 2011 as their massive fraud creates havoc for their financial bubble.

4) Canada, Australia, and other countries that avoided a real estate blow out in 2008-2009 will now get their turn.
The cracks are already forming. The world will learn that Canada is not different, and is more like other western countries for financial fraud and reckless loans. Australia and Canada will enter 2012 joining the western world financial turmoil, and lose their status as "better than the rest". At least one major bank in each country will have a crisis moment, resulting in their governments following America in socializing the private debt with public debt.

5) Gold, oil, and other resources will see unbelievable turmoil in prices in 2011.
The price volatility will be amazing to look back this time next year. Individual commodities will get insane spikes as crisis occurs.
I actually have zero prediction if gold will end higher into 2012. By end of 2012, gold will be significantly higher. But since this is a 2011 prediction, I am going with higher, but I won't say 100% or 1%. The politics of 2011 will determine that.

6) Food riots in certain countries will occur in 2011.
As resource prices destabilize, there will be civil unrest as the masses barely able to keep up with their bills have problems buying basic resources such as food and energy. Again, no global apocalyptic predictions. Just setting the stage for 2012-2013 with destabilization.

7) US bond rates stay within tolerance in 2011 as a guess, but if not all bets are off.
If US bond rates break out of the range established since Volcker in the mid 80's all bets are off. Once the US government loses control of it's credit worthiness, the entire shebang is thrown in the air. Anyone who knows how the politics will play out is fooling themselves or you. 2011 will be defined by the ability for the US government to keep its debt rating in this channel. Click here to view. The optimism comes into play as other countries have issues, making the US situation look less-bad.

8) The best place to be, all things considered, will be commodity stocks or related investments for 2011.
But I am not committing to a buy and hold until 2012. Just that as this unfolds, there will be spikes higher before the game changes. The percent gains from now until the "top" in 2011 will be best in commodities.

9) US Dollar and stock market pricing I can't make a prediction on this time. There is so much at stake, so much at risk, so much global tensions building. I can't even guess at how the dollar and the market fares. I can say both will see significant volatility, and the market won't march up back to old highs UNLESS it is accompanied by resource prices soaring. If the market makes new all-time highs, in nominal terms of living standard, it is really a new low.
SPX won't go lower than 500, or higher than 2,000 in 2011. Best I'll do for a prediction. ;)

10) More countries will fail or enact protectionist measures, exasperating volatility.


Well, thats my top 10. Pretty freaking scary really. Notice in 2010 predictions some make a comeback for 2011. Mainly since things are playing out slower than I expected. I am still bullish on commodities, but recognize as the crisis unfolds, resources will be volatile.

2011 will be volatile, and it will set the stage for 2012-2013 when things will get ridiculous.
So enjoy 2011! :)

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