http://www.goldstockbull.com/articles/10-predictions-for-2010-economy-dollar-gold/
By Jason Hamlin
December 28th, 2009
It has been said that “the only thing constant is change.” While
this is true, the rate of that change is anything but constant. If you
pause to reflect on how rapidly things are changing all around us, you
will realize that momentum is building and the change is picking up pace.
While some may view this phenomenon with fear, I welcome it and believe
that although difficult times are ahead, the accelerating change provides
an opportunity to transition into a better societal structure. Not only
will the economic and political breakdown clean the slate and allow
for a better system to be built, but the rapidity of this change means
that we may actually be able to see the changes manifest within our
lifetimes. While this is exciting to think about, it makes predictions
such as these a bit more difficult to pen.
I’ve managed to get about 8 of 10 right in the past few years, but
admittedly did not anticipate how quickly or strongly the stock market
would rebound in 2009. I was also early to predict that deflation would
subside and inflation would materialize, although there are some signs
of the coming storm.
Here are my 10 predictions or best guesses for what will transpire
in 2010:
1. Deflationary Pressure Continues
I know this may come as a surprise to gold investors, but I believe the
U.S. and world economy will likely experience a continued deflationary dip
during 2010. Banks are still not lending and the expansion of the monetary
base is not keeping pace with the massive contraction in the credit
markets. With the commercial real estate shoe yet to drop and a glut of
production capacity, deflation is the more likely and immediate threat to
the economy. I believe the Fed and government pull out all of the stops
to fight the deflationary threat. With new consumer stimulus programs,
tax rebates, government lending, pressure on the banks to lend and the
printing presses running overtime, all of the newly-created money will
eventually work its way into the system and as the velocity increases,
deflation will subside and inflationary pressures will materialize. This
could easily spiral out of control and lead to hyperinflation during
2011-2012, as no matter how confidently Ben Bernanke speaks of his
abilities, once the money is created and flows into the economy it
multiplies via fractional reserve banking and becomes very difficult
to soak back up. So while I view widespread inflation as inevitable,
I don’t think it will happen in 2010.
2. Stock Market Rangebound
I believe the plunge protection team will continue to support the stock
market during 2010, although the growth will slow considerably. As
stocks are mainly a cash market, the deflationary impact felt in the
credit markets will have little impact on stocks. The market is due for
a correction and there may be short volatile swings as investors lose
confidence, but I think the market will end the year little changed
(+/- 5%). The market is on life support, with a fat IV injection of
liquidity via the government and Fed. Absent this meddling, the market
would currently be much lower and I would be predicting new lows for 2010.
3. Fed Funds Rate to Remain Near Zero
While many are anticipating a rise in rates during 2010, I believe the
Fed will be forced to keep rates low due to deflationary pressures. Any
rate increase would wreak havoc on the markets and this is the Fed’s
biggest fear. At most, a small increase could occur towards the end of
2010. Higher rates are certainly on the horizon, but I think we need to
see much higher inflation before the Fed changes course.
4. Real Estate Prices Flat to Lower
Real estate prices are likely to flat-line or decline during 2010. As
real estate is heavily reliant on the rapidly-contracting credit market,
deflation will trump any inflationary pressures created from the expansion
in base money. There is an over-supply of housing and the high rate of
foreclosures is likely to continue or increase during 2010. I believe
real estate will be an excellent buy at some point in the next 5-10 years,
but it is nowhere near a bottom yet.
5. Unemployment Remains High
Officially-reported unemployment (U-3) will hang around 10% for most
of 2010, but could rise to as high as 12% nationwide. Of course, true
unemployment that counts marginally employed and discouraged workers is
closer to 20% currently. Government will be the major source of any new
jobs, as private enterprise and small businesses continue to struggle. Of
course, any wealth or jobs the government claims to create is really
just a wealth transfer and not true or sustainable growth.
6. U.S. Dollar Rallies, but Drops to New Lows by Year End
With rates likely to remain near zero, I anticipate more dollar weakness
during 2010. The Fed doubled the supply of base money during the past
year, deficits are at record levels and Asian countries have already
begun diversifying out of dollars. There have also been reports suggesting
Arab countries, China, Russia, Japan and France want to end oil dealings
in dollars. If the dollar begins to lose its status as world reserve
currency, look out below! The current bounce could continue a bit longer
before the plunge, but by the end of the year the dollar index will be
at or below 70.
7. Gold and Silver to Make New Nominal Highs
While some are claiming gold has peaked, I believe gold is nowhere
near a top and will reach a new nominal high between $1,300-$1,500
during 2010. Silver will outperform gold reaching $24 or higher as
the gold/silver ratio dips towards 55. Remember, gold can perform well
during periods of inflation or deflation. While I believe deflation is
the greater threat during 2010, this will occur primarily in credit-based
markets such as real estate. Cash-based markets such as precious metals
are likely to experience inflation as record amounts of new money have
been printed during the past year. Look for more central bank purchases
during 2010, as well as significant purchases from China and other
countries that are eager to diversify away from dollars. The gold/silver
suppression story will continue to gain steam and with more and more
investors demanding delivery, pressure will increase on shorts and COMEX
regulators. There will be some type of rule change or restructuring at
minimum and the potential for default is possible. Lastly, the Dow/Gold
ratio will decline after bouncing in 2009.
8. Energy Prices to Push Higher
With the strengthening economy, increasing demand from China and India,
plus declining supplies, I expect energy prices to move much higher
during 2010. Oil will trade most of the year in the $75-$100 range, but
will break above $100 for some time. I think natural gas will generate
even greater returns than crude oil as it bounces off oversold lows. In
addition, I expect clean energy companies to rebound during the 1st
half of 2010 and think lithium and rare earth miners will benefit from
this trend.
9. Agriculture Prices to Rise Sharply
One thing that is certainly not in over-supply is agriculture. With
a very poor harvest season, lack of water in key agricultural areas
and exploding demand from a growing middle class in China and India,
I believe prices for many food items will shoot dramatically higher in
2010 and subsequent years. Investing in quality fertilizer companies
should prove very profitable over the next few years.
10. More Bank Failures, Political Tension, Voter Discontent
I anticipate more banks will fail during 2010, allowing the largest
banks to scoop up smaller competitors at bargain prices. Tensions will
increase in the Middle East and between the U.S. and China/Russia. A
major attack will be attempted on U.S. soil, the electorate will turn
against corporatist politicians of both parties and a third political
party will begin to emerge. Faith in the political system will continue
to wane causing a growing movement towards restructuring society
under a better system. People will become less apathetic as government
meddling and banker exploitation will finally begin to hit everyone
in the pocketbook. Look for more frugality, local buying, community
organization and a move towards becoming self-sustaining.
While many are fearful of the political and economic climate at the
moment, I remain optimistic that the current crisis is a necessary
cleansing of the system and will allow for the rebuilding of a better
society. The transition will undoubtedly be difficult as jobs become
scarce, prices rise and crime and civil unrest flourish. However,
there are common sense steps that you can take to protect yourself and
your family. Besides diversifying out of dollars, moving your money out
of banks and owning precious metals directly, you should also consider
becoming more self-sufficient, learning to garden, stockpiling food and
supplies which might become scarce, continually educating yourself and
encouraging others to stop supporting a failed ponzi-based system. As
it collapses under the weight of its own hubris and corruption, there
will be enormous opportunities to profit individually and collectively
as a society. The better prepared we all are to weather the storm and
facilitate the transition, the better our future promises to be.
By Jason Hamlin
December 28th, 2009
It has been said that “the only thing constant is change.” While
this is true, the rate of that change is anything but constant. If you
pause to reflect on how rapidly things are changing all around us, you
will realize that momentum is building and the change is picking up pace.
While some may view this phenomenon with fear, I welcome it and believe
that although difficult times are ahead, the accelerating change provides
an opportunity to transition into a better societal structure. Not only
will the economic and political breakdown clean the slate and allow
for a better system to be built, but the rapidity of this change means
that we may actually be able to see the changes manifest within our
lifetimes. While this is exciting to think about, it makes predictions
such as these a bit more difficult to pen.
I’ve managed to get about 8 of 10 right in the past few years, but
admittedly did not anticipate how quickly or strongly the stock market
would rebound in 2009. I was also early to predict that deflation would
subside and inflation would materialize, although there are some signs
of the coming storm.
Here are my 10 predictions or best guesses for what will transpire
in 2010:
1. Deflationary Pressure Continues
I know this may come as a surprise to gold investors, but I believe the
U.S. and world economy will likely experience a continued deflationary dip
during 2010. Banks are still not lending and the expansion of the monetary
base is not keeping pace with the massive contraction in the credit
markets. With the commercial real estate shoe yet to drop and a glut of
production capacity, deflation is the more likely and immediate threat to
the economy. I believe the Fed and government pull out all of the stops
to fight the deflationary threat. With new consumer stimulus programs,
tax rebates, government lending, pressure on the banks to lend and the
printing presses running overtime, all of the newly-created money will
eventually work its way into the system and as the velocity increases,
deflation will subside and inflationary pressures will materialize. This
could easily spiral out of control and lead to hyperinflation during
2011-2012, as no matter how confidently Ben Bernanke speaks of his
abilities, once the money is created and flows into the economy it
multiplies via fractional reserve banking and becomes very difficult
to soak back up. So while I view widespread inflation as inevitable,
I don’t think it will happen in 2010.
2. Stock Market Rangebound
I believe the plunge protection team will continue to support the stock
market during 2010, although the growth will slow considerably. As
stocks are mainly a cash market, the deflationary impact felt in the
credit markets will have little impact on stocks. The market is due for
a correction and there may be short volatile swings as investors lose
confidence, but I think the market will end the year little changed
(+/- 5%). The market is on life support, with a fat IV injection of
liquidity via the government and Fed. Absent this meddling, the market
would currently be much lower and I would be predicting new lows for 2010.
3. Fed Funds Rate to Remain Near Zero
While many are anticipating a rise in rates during 2010, I believe the
Fed will be forced to keep rates low due to deflationary pressures. Any
rate increase would wreak havoc on the markets and this is the Fed’s
biggest fear. At most, a small increase could occur towards the end of
2010. Higher rates are certainly on the horizon, but I think we need to
see much higher inflation before the Fed changes course.
4. Real Estate Prices Flat to Lower
Real estate prices are likely to flat-line or decline during 2010. As
real estate is heavily reliant on the rapidly-contracting credit market,
deflation will trump any inflationary pressures created from the expansion
in base money. There is an over-supply of housing and the high rate of
foreclosures is likely to continue or increase during 2010. I believe
real estate will be an excellent buy at some point in the next 5-10 years,
but it is nowhere near a bottom yet.
5. Unemployment Remains High
Officially-reported unemployment (U-3) will hang around 10% for most
of 2010, but could rise to as high as 12% nationwide. Of course, true
unemployment that counts marginally employed and discouraged workers is
closer to 20% currently. Government will be the major source of any new
jobs, as private enterprise and small businesses continue to struggle. Of
course, any wealth or jobs the government claims to create is really
just a wealth transfer and not true or sustainable growth.
6. U.S. Dollar Rallies, but Drops to New Lows by Year End
With rates likely to remain near zero, I anticipate more dollar weakness
during 2010. The Fed doubled the supply of base money during the past
year, deficits are at record levels and Asian countries have already
begun diversifying out of dollars. There have also been reports suggesting
Arab countries, China, Russia, Japan and France want to end oil dealings
in dollars. If the dollar begins to lose its status as world reserve
currency, look out below! The current bounce could continue a bit longer
before the plunge, but by the end of the year the dollar index will be
at or below 70.
7. Gold and Silver to Make New Nominal Highs
While some are claiming gold has peaked, I believe gold is nowhere
near a top and will reach a new nominal high between $1,300-$1,500
during 2010. Silver will outperform gold reaching $24 or higher as
the gold/silver ratio dips towards 55. Remember, gold can perform well
during periods of inflation or deflation. While I believe deflation is
the greater threat during 2010, this will occur primarily in credit-based
markets such as real estate. Cash-based markets such as precious metals
are likely to experience inflation as record amounts of new money have
been printed during the past year. Look for more central bank purchases
during 2010, as well as significant purchases from China and other
countries that are eager to diversify away from dollars. The gold/silver
suppression story will continue to gain steam and with more and more
investors demanding delivery, pressure will increase on shorts and COMEX
regulators. There will be some type of rule change or restructuring at
minimum and the potential for default is possible. Lastly, the Dow/Gold
ratio will decline after bouncing in 2009.
8. Energy Prices to Push Higher
With the strengthening economy, increasing demand from China and India,
plus declining supplies, I expect energy prices to move much higher
during 2010. Oil will trade most of the year in the $75-$100 range, but
will break above $100 for some time. I think natural gas will generate
even greater returns than crude oil as it bounces off oversold lows. In
addition, I expect clean energy companies to rebound during the 1st
half of 2010 and think lithium and rare earth miners will benefit from
this trend.
9. Agriculture Prices to Rise Sharply
One thing that is certainly not in over-supply is agriculture. With
a very poor harvest season, lack of water in key agricultural areas
and exploding demand from a growing middle class in China and India,
I believe prices for many food items will shoot dramatically higher in
2010 and subsequent years. Investing in quality fertilizer companies
should prove very profitable over the next few years.
10. More Bank Failures, Political Tension, Voter Discontent
I anticipate more banks will fail during 2010, allowing the largest
banks to scoop up smaller competitors at bargain prices. Tensions will
increase in the Middle East and between the U.S. and China/Russia. A
major attack will be attempted on U.S. soil, the electorate will turn
against corporatist politicians of both parties and a third political
party will begin to emerge. Faith in the political system will continue
to wane causing a growing movement towards restructuring society
under a better system. People will become less apathetic as government
meddling and banker exploitation will finally begin to hit everyone
in the pocketbook. Look for more frugality, local buying, community
organization and a move towards becoming self-sustaining.
While many are fearful of the political and economic climate at the
moment, I remain optimistic that the current crisis is a necessary
cleansing of the system and will allow for the rebuilding of a better
society. The transition will undoubtedly be difficult as jobs become
scarce, prices rise and crime and civil unrest flourish. However,
there are common sense steps that you can take to protect yourself and
your family. Besides diversifying out of dollars, moving your money out
of banks and owning precious metals directly, you should also consider
becoming more self-sufficient, learning to garden, stockpiling food and
supplies which might become scarce, continually educating yourself and
encouraging others to stop supporting a failed ponzi-based system. As
it collapses under the weight of its own hubris and corruption, there
will be enormous opportunities to profit individually and collectively
as a society. The better prepared we all are to weather the storm and
facilitate the transition, the better our future promises to be.