We like gold and silver this year along with few other markets. Most stock indexes in the western world should rally for the first quarter of 2009 and that event we call the Obama bounce. After that, some world’s champion stock shorting opportunities could appear. In a couple weeks we’ll endure a few million more wasted dollars on the inaugural party. Kind of reminds me about somebody fiddling while Rome was burning. This festive atmosphere might last 4-6 weeks and then reality hits home like a ton of bricks. Our new, youngster president could turn into an old man over night. We wish him well and do not envy his position in any respect. The US and world at large is moving into the unknown.
Prediction One: Here Comes The New Presidential Pork Barrel Just As We Forecast
“President-Elect Makes New Pitch, Promises on Job Creation Including 600,000 New Government Employees. “In his radio address today, (1-3-09) President-elect Obama uses some new language when discussing what he wants the stimulus package to achieve in terms of jobs. First off, he has a name for the package -- the "American Recovery and Reinvestment Plan."
We renamed it: “The American Pork Pile Handout Waste More Taxpayer Trillions Scheme.”
“The president-elect says he wants to "create three million new jobs" -- this is a change from a few weeks ago, when he said he wanted the plan to create OR SAVE two million jobs. He says the "No. 1 goal of my plan ... is to create three million new jobs, more than 80 percent of them in the private sector.” If you do the math: 20 percent of three million means 600,000 new government employees.” –ABC News, JBT (Editor: Last we checked the private sector was rapidly shrinking. The only new Obama jobs we see are the make-work government type.
Our math says 600,000 new government employees and those suggested bucks of several bailout billions is just Act One. These handout boyz have hit the mother lode to print cash and toss it out all windows with new abandon buying more votes and solidifying their elected stature.
However, soon-to-be, former President George Bush has Obama beat on this money wasting record by a country mile. When Bush created the Homeland Security Department, he initiated a new tax burden of $50Billion per year in new spending. One reporter suggested in lieu of this monster pork waste, airplane cabin door locks would have cost $800,000 for the entire flying fleet and if using the government $1,200 toilet seat comparison, the entire cost would have been $20,000,000. We suggest $20mm is certainly cheaper than $50b per year each and every year. This next Obama handout is just more of the same. Watch for additional larger-then-life job creations as the pork barrel grows ever larger. Life just goes on as we spend ourselves into oblivion.
Prediction Two: Inflation Pressures Escalate With Rapidity
In the first Great Depression, (we are now entering the second Greater Depression) FDR was castigated for his make-work ideas and spending. Comparing his efforts to our current mess, old FDR was only a third string beginner. While the USA has had nasty bouts with inflation in our history, I cannot remember a super-hyperinflation event like the one lurking in the road just ahead. This one will not only be a Doozie but should out perform Tulipmania, The South Sea Bubble, Enron, Mr. Madoff, and a host of other financial bubble-disasters all rolled into one.
One analyst was trying to measure something like $500 Trillion in derivatives including real estate and other corporate credit default swaps! Yikes!!
Yes Virginia, they sold tulip bulb futures in the 1600’s.
An allegory of tulip mania by Hendrik Gerritsz Pot, circa 1640. Flora, the goddess of flowers, is blown by the wind and rides with a tippler, money changers, and a two faced woman. They’re followed by dissolute Harrlem weavers, on their way to destruction in the sea.” -Wikopedia
To summarize this inflation prediction we suggest readers do some research on the German Weimar 1921-1922 hyperinflation event and check out Zimbabwe’s current mess in Africa. Further, there is a longer list of similar events that arrive with unfortunate regularity in South America. In the USA, our Federal Reserve can produce massive inflation by printing money and creating bonds out of thin air, but they cannot induce a recovery. The ending is going to be beyond ugly and 2009 could get the brunt of it all.
Prediction Three: Unemployment Sets New Records For The Numbers And Duration
If you believe the official unemployment statistics offered by the Bureau of Labor Statistics (BLS or is it uh, BS), for our nation or, in fact reported by the states, I’ve get a neat bridge for sale in New York.
These stats boyz love to play with numbers and continuously move things around with seasonal adjustments, or whether the birds are flying north or south; or whatever. We’ve learned by watching this stuff and reading the very accurate and elegant work of John Williams, at Shadow Government Statistics, you can just cut the crap by doubling official negative numbers.
Our doubling formula answer is rough but good enough for trends and horseshoes, which is our primary trading objective. We haven’t figured how to roughly reduce government Pollyanish exaggerated stuff, like jobs growth, but we will. For the refined answers again read John Williams.
My home state of Michigan is currently posting unemployment numbers between 8% and 9%. So, we just double those to 16% to18% determining we are rapidly closing in on 20% statewide jobless. In the first Great Depression, official unemployment at its worst was 25%. For this crazy cyclic episode we suggest USA national real unemployment will be between 30% and 35%. Michigan should achieve 40% unemployed for sure; as we see it. Understand the official stats will be no where near reality. In my state once a person uses up their 26 weeks of unemployment they get nothing but food stamps from the federal government. And, all this is before the Big Three fires hundreds of thousands more when they enter bankruptcy. The crime fallout, especially in big cities this summer will skyrocket.
One cannot begin to measure the seething anger here among consumers, taxpayers and business owners. Our clueless state administration continues to offer simply stupid ideas and band aid repairs that can never get to the heart of these problems. The governor once had the audacity to say earned private payrolls were not the property of wage-earners but were to be “shared” according to need. She went to Harvard where Obama was schooled. Do they all major in Communism? Why have these people never held a real job in their lives?
The big three auto companies are going down and nothing can stop it. Yes, the pain can be drawn out over months but we clearly see the end of this road. We predict Chrysler is sold off in pieces; GM files bankruptcy and moves overseas; soon followed by Ford on the same path. They can still retain an American presence but their foreign corporate address and new changed names could enable them to dump the UAW and legacy benefit costs onto US Government taxpayers.
Prediction Four: The US Dollar and Treasury Bonds Take a High Dive Into Oblivion
Immensity of our US Dollar and Treasury Bond markets causes slow changes. For example the long bond chart has been showing a gradual up-escalator for several years. However, the tipping point has been reached and the faster moving of the two, the dollar, has fallen first and hardest. We tried to short the dollar when it was 122 with a put option strike at 116 and couldn’t even get a fill. The money boyz are way ahead of stock traders, analysts and investors for the most part. If you want the real story watch as Chicago bond traders determine market values 90 days into the future. Their market is 70 times larger than shares and they’re trading controls everybody’s destiny.
We’ve agonized over whether to believe the US Dollar will eventually vanish. The more we look the more we think it survives but not without a magnificent pummeling. The end of the dollar began when the Federal Reserve was born in 1913. Too bad it wasn’t stillborn. Comparisons of valuations on both currencies and shares from that date tell the tale. Today, the dollar is valued at some where between -95% or -97% of its pre-Federal Reserve birth date. For all intents and purposes with new dollars being grossly over-printed they are basically worthless or worth less.
Government bonds are suffering the same fate. The auctions keep coming and the old buyers are either more reluctant than ever, or continue to retreat. We saw an email from Japan this morning saying a retired Chinese official has called for the off-loading of US Bonds. We know they have been doing this for months if not years in our recession but this is the first in-print statement stating that fact.
It may not totally arrive in 2009 but the US Dollar Index is over 84.00 this morning and could support at 46. Keep in mind this is from a few years’ ago high of 121-122.
The 30-year US bonds were recently trading above 140.00 before this latest waterfall selling reversal. Our forecast is an interim bond support at 80.00; considerably lower than today’s price in the 130’s. Can this happen in 2009? We give one of out of four chances right now. The forecast of 80 might be 2010 or even 2012 but we are headed to that destination.
Prediction Five: The USA Quit Buying Stuff-This Means Asia is Through Exporting and Selling
In the US 70% of market action is the consumer. In China 40% of trade is from commercial exports. Since most everyone except New York banksters are broke (those guys stole the TARP), empty container ships are idled over the world. Even the Middle Eastern oil tankers are fully loaded and parked as energy demand skidded world-wide on recession induced falling oil and gas usage. The only good thing coming out of this crisis is the US government is refilling its Strategic Oil Reserve on the cheap after emptying it post Katrina.
Americans think they have it bad now, wait until the second half of this year. However, as difficult as our economy stands today, Asia and others will fall further and faster. For now at least in Europe, Germany continues to hang on trying to rebalance messed-up markets. They are more stable and in control than most.
Canada was hit throughout their Ontario Province, which is heavily biased toward manufacturing like the rustbelt USA Midwest. But, the remainder of Canada should fare better, especially in the western provinces with grain, precious and base metals, fertilizer, and a smaller rebound in oil and gas. Quebec is a real comer in mining with the resurrection of old productive fallow mines and stepped-up operations in some existing older ones. Watch Quebec emerge with some outstanding trades in 2009 and 2010. The Quebec authorities there have taken a proactive stance to help miners succeed.
Prediction Six: Banks are Not Going to Lend the TARP Money
They are keeping it to cover their prior mistakes. First they destroyed billions with derivatives then, they stole more to cover their messes. The anger is building across my country and is not going away soon.
This bailout cash was designed to be loaned out for economic stimulus. The money will not get out in any great quantities as the stolen cash is needed to plump bank balance sheets, or they fail. Further, the unqualified borrowers cannot obtain loans and those who are qualified will not borrow. Catch-22 prevails and those billions in bailout cash are stalled on bank balance sheets.
Fannie and Freddie have been seized by regulators as they are bankrupt. Their previous operating banksters took the millions in salaries and bonuses and fled. Watch as more cash goes down this rat hole. Resurrection of the F&F’s is a disaster. They should have been permitted to die a natural death with any remaining loans shifted over to FHA-VA where normal underwriting standards prevail.
The hedge fund community is shrinking after losing billions in 2008 but a few players will remain to trade markets short, along with buying and selling commodities in stronger markets. Fund operators will also be bottom fishing for a few super cheap beaten-down assets that might have a future at the end of this train wreck several years out in time.
Prediction Seven: Social Problems will Escalate Quickly
In nations where the standard of living was low, it’s just more of the same. However, spoiled Americans will disobey the law in ever increasing numbers. The long hot summer will be shocking in 2009 and on into 2010.
A laid-off auto worker with expired unemployment insurance and family bills to pay will be in big trouble. Houses are foreclosed, cars and trucks repossessed, while health and educational needs become neglected. Angry people with too much time on their hands in larger urban areas produce a volatile situation. Crime and primarily robberies of all kinds go off the charts. Formerly law-abiding citizens will turn into desperate animals. This is going to get very ugly for a very long time.
Survivors and Those Who Win Buy Gold And Silver
We think the secret to getting through this is to hunker down, eliminate debts, keep a low profile, trade in gold and silver shares during this first quarter along with futures, and then adjust in April when stocks sell off. Gold topped out near $850 years ago right where our price is today. We forecast 80% of the gold upside is still ahead in these markets. Silver is behind gold for now but will catch-up. They never trade like twins most of the time. We think the worst silver could do is $50; but expect much higher prices.
We look forward with anticipation to some great fun in these markets. If you are not in position now-hurry-up and get it done. The door is open for all the shares markets including our precious metals. Futures traders in gold and silver have been trading this past week in large size. It seems the new trend is established and our long awaited rallies are underway.
In Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management. Visit our website at webeatthestreet.com for more information on our spectacular futures and commodities trading record.
Whatever you do, make a concerted effort to stay with our trend and hang onto your core holdings of favorite shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan.
Recent news says you cannot find any coins or, others. We see delays and back-orders but some dealers have goods in hand right now. Go shopping. Should you have difficulty buying physical metals, we suggest placing an order and being patient. Big traders are always ready to buy the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy.
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.
Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a free 30-day trial subscription 718-457-1426 Monday through Friday, 9:00am to 5pm or, e-mail Claudio at [email protected]