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2012 Expectations for the Market

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Before I get to my RANT topic, “2012 EXPECTATIONS,” I want to go over today’s list of “horrible headlines,” which surprisingly is VERY LONG considering we are amidst the seasonally slowest week of the year.  Clearly, bad news does not go away during Christmas, but the fact that so much has been reported indicates how dire the situation is, whether or not the PPT is able to close the S&P 500 in the black for the year (up 0.3% as we speak).

Nothing in Asia, but TONS in Europe and the United States of Corruption, not to impugn University of Southern California alumni by associating “USC” with the vileness of American bankers and politicians.  First off, look at these two headlines, highlighting European trading yesterday and today, obviously influenced by the same bonus-hungry, PPT-supported bankers as in the States.  Stocks rally while sovereign bonds continue their plunge into the abyss – makes perfect sense, at least in the Bizarro World of manipulated markets.

European Credit Weakens As Stocks Rally

European Stocks Surge As Sovereigns Slump

Next up, the continuing mad dash of European bank funds OUT of the banking system and into the relative safety of the ECB itself.  Ladies and Gentleman, THIS is what a freeze-up in interbank liquidity looks like, and I assure you it signifies one thing, and one thing only – surging recognition that “the system” is insolvent, on the verge of COLLAPSE any minute, supported ONLY by exponential growth in ECB and Fed money printing.

European Banks Close 2011 With Near Record Cash On Deposit At ECB, €9 Billion Overnight Increase

If you want to see what I mean graphically, take a look at this chart, showing how 12 of the 17 European Union members are ALREADY above the “austerity” limits proposed by the new “treaty” discussed at the failed EU summit on December 8th, not uncoincidentally the same day “OPERATION PM ANNIHILATION II” commenced.  The austerity limits of the 1992 Maastricht Treaty were butchered beyond recognition, yet we are expected to believe these imploding, squabbling nations will all of a sudden find religion (let alone CAPITAL)?  ROFLMAO.

New Fiscal Compact, Or More Of The Same For Europe?

And speaking of Fed money printing, it looks like its “swap facility” has reached $99 billion in just four weeks, ten times larger than initially anticipated, as banks AROUND THE WORLD desperately grab at the essentially free, PRINTED money.  And what’s this – the BANK OF JAPAN was a major borrower this week?

Just wait until the new year, my friends, just wait…

Fed Swap Lines Jump 59% In A Week As Japan Shows Its Hand

Back to the U.S.C., I have a long trash list to share.  As in Europe, I’ll start with trading activity, highlighting how prevalent the government’s various PPT groups are.  As noted above, U.S. Treasuries continue to soar despite record foreign selling, care of MASSIVE, largely COVERT money printing care of the ongoing, unreported, accelerating QE that keeps the Fed’s “digital printing presses” running 24/7.

Similarly, the Dow is the ONLY major stock index on the planet to rise in 2011 (by 6% as I write), thanks to the most MASSIVE, concerted, sentiment-protecting, Dow-supporting PPT activity of ALL TIME.  Can you imagine, during the worst economic crisis since the Great Depression, with the public withdrawing $135 BILLION from the equity markets, the Dow RISING?

In PPT land, anything’s possible.

$135 Billion Redeemed From US Equity Mutual Funds In 2011, 34 Of 35 Consecutive Weekly Outflows

And how about this brain-dead article, suggesting the market is “pricing in” upcoming QE announcements.  Yes, by taking down GOLD $230 in three weeks, absolutely.

Is Today’s Market Pricing A Forthcoming Reactionary-QE By The Fed?

In geopolitics, the war drums beat louder.  Sorry if I keep bringing this up, but clearly Iran’s Straits of Hormuz war games, prompting yesterday’s U.S. retaliation threat, is quite ominous.  Here’s another prediction, free of charge – if ANY violence breaks out in Iran, World War III is right around the corner.  And you can bet TPTB – bankers, politicians, and the military-industrial complex alike – are licking their chops at the prospect.

Jim Rickards – US to go to War with Iran, Oil & Gold to Spike

As for the U.S. economy itself, despite the unrelenting “economic recovery” headlines permeating the airwaves for the past three years, the situation grows more dire each day.  Today we see Sears/Kmart announcing 79 store closings, yielding thousands more layoffs, particularly in the financial war zone of Florida.  Another prediction preview – data fudging or not, REAL unemployment will soar in the coming years.

Florida hit hardest by Sears store closings

And don’t forget American Airlines – you know, the world’s fourth largest airline – which announced BANKRUPTCY last month, with 76,000 employees.  No need to worry, the Dow is UP!

NYSE to delist American Airlines parent next week

As for the accelerating downward spiral, no one will feel it worse than municipalities, which spent like drunken sailors for the past 20 years, and now will need to be bailed out by the bankrupt, but still money-printing capable, Federal government.  This story below is sickening, as Michigan is one of 27 States owing a cumulative $39 billion to the Federal government for borrowing money to pay extended unemployment benefits, which will have to be extended indefinitely, per my prediction above.

More appalling is that Michigan, perhaps the worst basket case of ANY U.S. state, with crumbling cities and median home prices under $10,000 in its largest city, is able to borrow at a rate of 0.24%, underwritten by “quasi-Federal agency” Citibank.  NO ONE in their right mind would invest in two-year Michigan bonds at 0.24% unless they were backstopped by the Federal government, in my view suggesting yet more COVERT money printing, right under our noses, without any public outrage or even recognition.

Michigan Borrows Record $3.3 Billion in Debt to Repay Unemployment Costs

Speaking of weak home prices, here’s an interview with Robert Shiller, co-producer of the Case-Shiller Real Estate Index, which earlier this week showed yet another significant decline amidst a four-year bear market destined to last deep into the decade, if not longer.

Case-Shiller: Housing Downturn Could Last Years

And finally, the “granddaddy of data manipulation experts,” John Williams, discussing the U.S. governments’ $100 Trillion of debts and unfunded obligations.  Which, by the way, includes $5+ trillion of REAL, CURRENT debt by the nationalized real estate sewers Fannie Mae and Freddie Mac, conveniently kept “off balance sheet” so the U.S.’s published (i.e. fudged) debt/GDP ratio remains at 100%, instead of the monstrous 133% it should be shown as.

John Williams: The US Has $100 Trillion in Debts & Obligations

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How exciting, I get to make 2012 predictions, and some of you might even pay attention.  Not that I’m unqualified to make educated guesses, but I’ve never had a fondness for rote forecasts of what will happen next year.

I mean, who knows what will happen?  There are simply too many moving parts to gauge, as the global economy is a “living system” comprised of volatile, unpredictable human beings and, in today’s world, increasingly dangerous computer algorithms capable of reeking incomprehensible damage by accident.  Thrown in the wrath of Mother Nature, who in recent years has been on the warpath, and the largest unknown of all, that of collective human confidence, and such forecasts become comical at best.

Billion-dollar weather disasters smash US record for 2011

Will 2012 top 2011 for record weather disasters?

Nearly all “2012 forecasts” I’ve read are simply extrapolations of what we see today, a psychological trait common to all human activity, particularly in financial markets where for centuries investors have bought high and sold low, following the near-term trend instead of understanding the bigger picture.

Given these constraints, and exponential growth in government market intervention, both OVERT and COVERT, I will not attempt any wild predictions, “pulled out of my arse” as some might say.  Instead, I will cite general trends that I expect to continue, if not accelerate, in the coming 12 months.  Forgive me if I too, fall victim to the “extrapolation bias.”

And here they are:

1. The European debt crisis will dramatically deteriorate – No matter what TPTB say and do, and how much they manipulate the markets and media, European sovereign yields will continue to rise, pressuring the entire, worldwide banking sector.  At some point in 2012, I expect the first dramatic action to be taken, potentially the expulsion of one or more of the Euro Currency Mechanism’s weakest links.  Such events will have dire ramifications due to the monstrous size of the CDS “insurance” market and the risk of hyperinflation in the expelled countries.

2. The U.S. Economy will weaken­  - Holiday season BLS employment report trickery will quickly die on the vine, as U.S. housing and manufacturing activity faces the strongest headwinds since the 1930s, only this time such forces are GLOBAL, with all fiscal and monetary weapons exhausted except the pure printing of money.

3. “Global QE” will become increasingly OVERT - Facing rapid economic deterioration, Central Banks such as the Fed, ECB, BOE, and BOJ will be forced to stop “pretending” they are holding back, announcing broad, forceful QE measures aimed at buying enough time for more draconian power grab initiatives to be drafted.

4. Gold will rise for the 12th straight year  - Gold is ending 2011 up 11% despite the most vicious Cartel attacks in the eleven year bull market.  Gold has risen in each of these eleven years, up against essentially ALL global currencies and stock indices, and given the “OPERATION PM ANNIHILATION II” attack this month, to a level below gold’s 200 DMA, a 12th straight gain in 2012 is all but assured.

4. Gold will not remain below its 200 DMA for long – my only short-term prediction, I find the concept of gold remaining below its 200 DMA for more than a few weeks to be ridiculous.  Gold has only been below its 200 DMA 17% of the time over the past 11 years, and 5% or more below its 200 DMA just 5% of the time, the last time being the BOTTOM of Global Meltdown I in late 2008.  Given increasing stresses on the global financial system, and rapidly declining confidence in its viability, it is hard to believe gold will trade at this extremely depressed valuation for a material period of time.

5. The gold/silver ratio will decline – Given that it is a far smaller market than gold, and thus more manipulatable, silver will continue to be more volatile than gold.  However, physical tightness is becoming more acute, and in a rising gold price environment, it is hard to believe silver will not again outperform, as it has in essentially all rising gold price environments over the past decade.  Moreover, at any time such tightness could yield a price explosion, and if and when silver pushes its way past the all-time high of $50 an ounce, we could see the most explosive “triple top breakout” in financial history.

6. Market volatility will EXPLODE  - Since the U.S. debt downgrade in August, equity market volatility has doubled, the result of heightened fear and exponential growth in HFT algorithms, the large majority of which emanate from government computers seeking to manipulate markets and thus, investor psychology.  Invest in the financial markets at your own financial – and mental – risk.

7. “Survivalism” will grow, worldwide  - Propaganda or not, the innate survival instinct is powerful, and will express itself fully in the coming years.  Precious Metals, “guns n’ ammo”, emergency food provisions, and electric generators – you name it, and sales will be up.  Social unrest is here to stay, and in time – perhaps 2012 – it will become a dangerous, ubiquitous part of American society.

8. The 2012 U.S. elections will break all records of campaign contributions, lies, smear campaigns, and SURPRISES – Due to rapid deterioration of the U.S. economy, which should considerably worsen in 2012, the rift between Democrats and Republicans has NEVER been larger at any time in the nation’s 236-year history.  With both the Presidency and Senate up for grabs, I cringe at the thought of how ugly, ruthless, and nationally divisive the 2012 campaign will be.  The wild card in the equation is Ron Paul, who at 77 years of age is attempting the nearly impossible, which in my view is quite possible if the global economic crisis accelerates in the first half of the year.  That said, even if elected, it is hard to see him command the respect and co-operation of the vultures circling him in Congress and the media.

9. Most investments will be deadly – Continuing a theme I have written about for some time, I believe the HFT-dominated, government-manipulated stock and bond markets are disasters waiting to happen for investors, both on the long and short sides.  Additionally, I expect unrelenting pressure on real estate prices, and losses on the great majority of illiquid, “alternative” investments.

Readers, enjoy your weekend and the New Year’s holiday.  It has been a privilege writing for you in 2011, and I look forward to doing so in 2012.  I will continue to focus on the need to PROTECT YOURSELF, i.e. to lower expectations regarding your finances and standard of living, prioritizing decisions enabling you to SURVIVE what could be the most important inflection point in human history, and hopefully to THRIVE in its aftermath.

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