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2009 Forecast

Posted some time in 2008

1. Muddling and high volatibility of most financial markets until the end of December 2008. The indication of the first changes will probably be visibly end of the month: change in Dollar trend, stock market trend, Gold trend, etc.

 2. An (hyper)-inflationary depression will be evident before or by the end of 2009.

The massive de-leveraging by huge financial entities which are selling off everything from stocks to commodities to accrue cash and stave off bankruptcy is what Talking Heads and Politicians are incorrectly defining as the current “deflationary” economic environment

As the trillions of dollars and Euros flood into the economy, that condition will change. If they report the statistics properly, then we will see a contracting economy or a depression (measured by GDP) coupled with rising prices or (hyper)inflation. The odds are that the inflation rate will be at least 20% by the end of 2010.

A good example of this is Venezuela where the economy is struggling while their inflation rate is currently over 36% (as of October 2008). Another extreme example of disastrous economic conditions and a hyperinflation is Zimbabwe.

During this coming depression, the price level of HOCG (High Order Capital Goods – as Real Estate) will continue to fall in nominal but also in real terms. At the same time, nominal inflation figures will pick up like never seen before. This will happen as soon as the Velocity of money picks up and the savings rate falls again.

As the inflation rate rises, so will interest rates. Because of the depression, the dollar will come down as the American authorities try to improve the Exports and squeeze the imports.

An additional incentive for a lower dollar is that the Chinese have started to push down the Renmimbi in an effort to reflate their economy. (We classify China as a HOCG country – and for this reason it will – like India - suffer more under the depression than the Western World). Last but not least, as a result of the depression, China (and Japan) will buy less and could even be forced to sell US Treasuries, Bonds, Dollars; this action will increase the pressure both on US and the US dollar.

What we expect: 

  • A weaker Dollar.

  • Rising and higher interest rates.

  • Lower Bonds prices (incl. Treasury lower Bonds). If wrong they will default or Authorities will put a moratorium on them. In other words, Bonds are a loose-loose investment.

  • A recession becoming a depression

  • Lower Real Estate prices and lower prices for all HOCG.

  • Rising unemployment

  • Higher inflation and possibly hyperinflation. Hyperinflation can unfold in in a week’s time.

  • Higher prices for LOCG and many commodities (food)  Commodities will be in the next leg of their long-term bull market starting in 2009. Commodities such as oil, grains, precious metals, etc. had a great upleg in early 2008 and then had a brutal correction during the second half.

  • Mixed stock markets with new leadership. However NO NEW HIGHS in REAL TERMS and probably NEW HIGHS in NOMINAL TERMS.

  • The potential beginning of a Zimbabwe effect on the Stock markets. This implies that although Earnings will come down but equities will trend up as the result of the huge creation of additional Fiat Money, the intervention of the Authorities in the stock markets (PPT and  similar) and the flight out of Fiat Paper money into Real Assets.

  • Higher prices for Gold and Silver

  • We have peak oil and this will become more evident next year. Oil will bounce back to $ 145 and higher.

  • A reversal of Globalism because of expensive energy and government intervention to push up local employment. Your hamburger will be made locally instead of in China..

(HOCG = high order capital goods; LOCG = low order consumer goods)

What we do advice: 

  1. Buy physical gold and silver bullion and coins. Store them away in a safe place out of reach of the Authorities.

  2. Keep a limited amount of cash on hand.

  3. Change the horses of your portfolio towards LOCG (food, energy,..) and away from HOCG (financials, banks, real estate, car manufacturers, cyclical,…) and high ticket items.

  4. This list however does not range out certain Real Estate opportunities, especially Agricultural objects.

  5. Make sure part of your assets are stored with a financial institution out of reach of the authorities and your shares are registered in your name and not in the name of a financial intermediary. [Authorities have together with the banks adjusted the legislation so that all Securities must be kept electronically with a financial institution. Don’t count on the fact that by pushing ‘Enter’ on your computer, your portfolio will be transferred from one financials to another financial institution without any problems. Authorities also are aware of this and will stop it]

  6. Because of High Inflation, Bonds and similar instruments will be the surest way to loose your savings.

  7. Avoid all Money market, Hedge and Common funds. Certainly all those which are not transparent and you don’t understand. Stop trusting your banker. If you didn't get it yet, he hasn't got a clue of what is happening.

  8. Be extremely careful with insurance policies. Make sure you fully understand them. Read the small caps.

  9. Be extremely careful with Pension plans. Authorities can (They did in Argentina: a bill transferring $23 billion in private pension funds to the state has been published in Argentina's official gazette, meaning the nationalization is now law. ) seize them.

  10. If you want to invest money in real estate, make sure it is out of reach of the authorities and only buy ‘special opportunities’ and know Rents can and will be blocked and Real Estate taxes increased.

  11. Start to make your arrangements right NOW. Don’t wait. Don’t gamble and don’t believe what the authorities, banks and Talking heads are telling you. The odds you will be notified a week before government blocks some of your assets, are ZERO.

Politically and socially:..click here to read what Ambrose writes  (see how the HOCG-countries are affected)

  • In the EU, The deficits in Greece, Spain, Italy, Portugal and Ireland are just too much for the lending markets to bear when it comes to rolling over sovereign debt and certainly too much for Germany to step in. The only way out is for these countries to leave the euro and let their own sovereign currencies float to its true market value.

  • Mass unemployment in Europe will lead to violent street riots. Once you see the security forces shooting people dead in the street then you know that things are seriously headed downhill. This already happened end of 2008 in Greece.

  • Because China is a HOCG country and employment is highly leveraged, more factories will close, more people will move out of the cities back to the farms. The frequency of riots will increase. We have a potential economic and political war on hand as the Chinese start to be unhappy about The West closing down their Chinese factories hereby creating huge unemployment.

  • Pakistan, India and Afghanistan will become more and more unstable and we could see a political clash.

  • A similar risk exists in the Middle-East (Israel/Iran).  Today Oil is what Coal and Steel was prior WW II.

  • Countries with little or no manufacturing facilities left (i.e. the UK) will suffer most. Remember, real wealth comes from manufacturing and not from the Service sector.

  • Russia braced for unrest.

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