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2012 Expectations for the Market

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Published : January 03rd, 2012
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Category : Market Analysis





As I walked into the gym this morning, lo and behold gold was UP, a rare occurrence in recent weeks.  But then I saw it was up 1.95% and had to laugh, as I knew I had likely seen the high for the day, just minutes after waking up.  Thanks to Cartel-imposed limits, gold is rarely up more than 1% in a day, and has been held below 2% gains for 99% of ALL TRADING DAYS over the past decade, per the excellent work of GATA icon James McShirley, who submitted his final 2011 post yesterday, below.


The methodology is the thing


On December 29th, 2010 Comex silver closed at $31.03, and the CME's spec margin was $10,462. Exactly one year later we now have silver at $26.70, with spec margin at $24,975. While silver dropped 14% y/y the CME actually raised margin by 246%  Or put another way leverage has been reduced by 64%, from 14.83-1 to 5.34-1. This alone is the principal reason why paper silver has been so so easily pushed around lately. One should be looking at the methodology and tactics of the cartel, rather than the current price. Judging by the CME's brutal de-leveraging they are very much terrified of physical availability. The MF Global swindle proved too that when push comes to shove they'll just walk away from any physical obligations.


The only purpose for the CME ever allowing higher silver leverage has been to lure in gullible spec longs to be crushed. There has never been a time that I recall where higher leverage ever worked out for the longs. Now that the whole physical supply has dried up it is more prudent for them to just de-leverage and force everybody out. You'd have to be insane to carry margin funds for silver futures contracts not knowing if your money, or even physical silver was safe. You'd also have to be insane to not keep physical PM's as your protection against Wall Street thieves and scurrilous banksters. Judging by the cartel's scare tactics we must be getting close to an explosion in PM's. Let's all raise a glass and toast to that happening in 2012.

How many times have we seen the typical "up day pattern," which we are all supposed to celebrate about, with gold first being stifled at EXACTLY 3:00 AM EST as it attempts to make an early parabolic move, then again stopped cold at a 2% gain, sometimes before the COMEX open if gold attempts to spike further as it did today...



...followed by a WATERFALL DECLINE the second the COMEX opens, no matter what is going on the world (today = NOTHING).


And don't forget the typical Cartel tactic of making sure whatever outperformed the prior day - in this case silver - all of a sudden contracts cancer the very next day.  Since "OPERATION PM ANNIHILATION II" commenced December 8th, to the minute the mysterious, later retracted headline that the Fed, BOE, and BIS were selling gold, PMs have been walked down EVERY DAY right after the NYSE close, in the absolutely thinnest market hour of the day, when literally NOTHING is open anywhere.


Remember that the Dow fell 139 points on Wednesday, then recovered 138 yesterday based on absolutely NOTHING, while silver recovered just half of Wednesday's whopping $1.60/oz, or 5.5% loss, also based on NOTHING.  Note the red line below at EXACTLY 4:00 PM EST, when suddenly silver started falling, losing more than half its $0.80 gain in the two thinnest hours of the day, as gold ROSE by roughly $5.00/oz!  THIS is how the Cartel has been able to destroy PM sentiment this month, to the point that such indicators suggest the highest level of PM pessimism since the BOTTOM of Global Meltdown I in late 2008.

Think about it, the BOTTOM in late 2008, after gold had fallen 30% to $700/oz, silver 60% to $8/oz, and the Dow 40%+ to 8,000.  Today, gold is just 18% off its ALL-TIME HIGH, 11% higher than a year ago.  Silver, though down sharply from its ALL-TIME HIGH care of the "SUNDAY NIGHT PAPER SILVER MASSACRE" on May 1st, is just 7% below last year's level, and more than 3.5x higher than the 2008 low.  The PPT-supported Dow is actually UP for 2011, and oil prices are flirting with $100/barrel despite the worst global recession in generations, getting worse each day.  Yet PM sentiment is so low, by all measures, that "Mr. Gold," Jim Sinclair, has been forced to do more handholding than I can remember in ten years.


The Depth Of Despair In The Gold Community


When I say "sentiment indicators" are at lows, I am referring to surveys regarding investors' general PM outlook, such as the "MarketVane's Bullish Gold Consensus," regularly highlighted by MarketWatch's Peter Brimelow...


3-Year Low in Gold Sentiment


...and stock specific indices such as the "Gold Miners Bullish Percent Index," which fell to a shockingly low 10% yesterday, 65% BELOW the low registered at the depths of Global Meltdown I three years ago.  Wow, that is bearish, occurring during perhaps the most gold bullish fundamentals in memory.



By the way, the key to understanding gold and silver suppression is NOT in the price levels themselves, but the RATE at which such price levels are achieved.  In other words, the Cartel couldn't care less if gold reaches $2,000, so long as "gold mania" doesn't set in, the most dangerous outcome for a group of "elites" interested in controlling the masses with an oppressive, inflationary, fiat dollar-based currency system. 


As long as the "dollar index" is stable (no problem when the Euro is on the verge of collapse), the Dow steadily rising, price inflation not eminently visible, and "Ministry of Truth" propaganda unchallenged, the price of gold is not an issue.  However, as Richard Russell repeatedly reminds us, "there's no fever like gold fever," a unique, self-perpetuating condition fed by both GREED and FEAR.  Once it starts - and I assure you it WILL - it will be GAME OVER for the Cartel, just as the London Gold Pool in 1968, EXACTLY why they cap gold's daily gains and closely monitor indicators that public sentiment is getting too bullish.


For instance, I came across this chart yesterday, measuring the amount of Google searches for the term "gold price" this year, using the January 1, 2011 level as the baseline.  Notice that each major Cartel attack occurred when this level rose, starting with the "SUNDAY NIGHT PAPER SILVER MASSACRE" when this "Fear Index" rose in late April.  Of course, in late April the PM rise was clearly silver-led, not due to a "crisis" that caused either a major gold spike or Dow decline, so that smash was focused principally on silver. 



Next, the Fear Index surged in late July during the "debt ceiling debacle" (ah, the "good old days" when a $14.3 trillion debt ceiling was a concern, compared to the complete lack of interest in today's $16.4 trillion ceiling).  Gold surged during August in this environment, aided, of course, by the impact of GATA's London Conference on 8/04 - 8/06, which I was privileged to attend.  However, the Fear Index subsided in late July and early August as maniacal QE operations, both OVERT and COVERT, caused Treasury Bonds to surge despite the debacle and subsequent S&P rating downgrade.  You know, the same QE operations that have Treasury Bonds priced at ALL-TIME HIGHS as we speak despite the largest foreign dumping last month EVER.


Foreigners Dump Record Amount Of US Treasurys In Past Month


In the latter half of August, the European financial crisis EXPLODED, causing the Fear Index to rise coincident with gold surging to a new ALL-TIME HIGH of $1,920/oz.  Thus, the Cartel was forced to mobilize "OPERATION PM ANNIHILATION I" just minutes after the Labor Day weekend ended, ironically minutes before the Swiss National Bank devalued the Franc.  PM's fought through two months of hell before surging anew in late November and early December, causing the Fear Index to again rise as gold fought back to $1,800/oz.  Thus, the commencement of "OPERATION PM ANNIHILATION II" on December 8th, perfectly timed to coincide with the quietest, most uncontested period of the year, when most market participants are on vacation and/or have closed their books for the year, focusing principally on tax loss selling and NOT taking new, major positions.


The funny thing is that my PM sentiment has never been higher, the secret being I no longer own MINING SHARES, the most manipulated securities on earth with the most enemies, the most volatility, and the most potential hazards.  I KNOW bullion is going higher, so this drop - while being 100% IRRITATING - provides me an opportunity to POUND THE TABLE on PHYSICAL gold and silver, particularly gold as - SNEAK PEAK at my 2012 predictions - it will NOT remain below its 200 DMA for long.


Moreover, given yesterday's Japanese tax law change, requiring bullion dealers to report all gold and platinum transactions of more than $25,000, I am even more motivated to pound the table to potential U.S. investors, as at some point in the future such laws will obviously be passed here (and in fact, were openly discussed a year ago). 


Japan's new tax law


I believe this week's holiday-thinned news flow and trading activity is congruent to what we experienced in late August, just before market participants (the few that haven't been wiped out) returned from summer vacations, and when they do, CHAOS is likely to return to global markets, focused anew on Europe, which I do not believe will have the same governmental structure a year from now.


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


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.


And finally, I want to present, as an addendum, the year-end forecast of my good friend and fellow economic commentator Bill Holter, of GATA fame.  No one crams so much opinion into so few words, and his 2012 forecast does it as well as anyone I know:


To all, 


It has been quite a year, next year will in my opinion be not only quite the year but the "wrap up" to the global fiat system as we have known it nearly all of our lives.  Basically, governments have spent all year (most all of the last 3 years) digging financial holes for themselves.  These financial holes are now too deep for any country anywhere to escape.  As it turns out, recent news of "payment of interest deferrals" in various Chinese entities highlight the "not so miraculous" escape from the laws of financial gravity.  My point here is that even China, the deep pockets of the world, is now succumbing to the natural laws of finance.


Global equity markets this year are basically flat to down (hard in the case of China).  Gold is up nearly 15% or so, Silver is flat while the mining shares have taken a drubbing with a few being bought out at substantial premiums.  The sentiment amongst precious metals investors is dreadful, maybe the worst I have seen since the bull market began back in 2001.  Think about it, Gold was $900 and Silver $14 just two years ago yet many PM investors are ready to jump out of tall buildings.  It does not make sense to me but it is what it is.


We have spent nearly the entire year going from one proposed bailout to the next, none have really been implemented because none have a chance at truly working.  The bailouts have also gotten more comical with time, the latest proposed Euro bailout takes the cake.  This one proposes that the overindebted sovereigns make payments into a pool that can be leveraged and then lent back to the insolvent entities that loaned capital in the first place.  This is beyond farce and unbelieveable that investors still keep their heads in the sand.  Even more unbelieveable that precious metal investors are living in fear of loss, do they not know why they invested in this sector in the first place?


Silver has been smashed hard at least 3 times this year with the help of margin hikes while Gold was taken down when central banks decided to PAY borrowers to lend them metal.  This was and still is hilarious!  Sprott management has proposed adding $1.5 Billion more Silver to their ETF, this amount is more than the COMEX even purports to have for delivery.  With a mere $5 Billion, the COMEX inventories of both Silver AND Gold would be wiped clean of inventory.  To put this number in perspective, the U.S. borrows roughly$4 Billion per day to keep the doors open, in less than 2 days worth of federal deficit, the COMEX shelves would be stripped bare.


I mentioned "purported" inventories above because we don't really know.  Kyle Bass wanted to view his COMEX held Silver and was pushed back on until he insisted, the to find out that his Silver is not even held together in one place.  Treasury Gold has not been audited in nearly 60 years yet we are told "don't worry, trust us".  Trust has had a serious haircut this year and will not in my opinion carry all the way through 2012.  Thank you MF Global, investors have found out that their funds were co mingled and even if you had non margin accounts and/or warehouse receipts, your funds and or physical holdings disappeared!  So while the PPT has done a fabulous job scaring the bejesus out of precious metals holders, MF Global has knocked another leg out from under the "stool of trust".  Short term, what the PPT has done has and still is working, medium term, trust will collapse taking everything fiat with it.  How long will it be until investors start pulling everything they have from the brokers?  I don't have the answer but I cannot imagine it will span more than a season or two now that investors have seen others liquidated. 


As I have said before, trust is very easy to lose and nearly impossible to gain.  Trust is the ONLY thing left holding the system together.  Trust is the only reason a Ponzi scheme can ever exist, once lost the game is over.  Now that MF Global has occured, where are the regulators?  Who has been arrested?  This was not some liquor store holdup or breaking and entering, this was outright fraud AND theft.  I read recently that the authorities are fearful of  doing their jobs because they might start a panic or "bank run" so to speak with investors yanking deposits from fiduciaries of all sorts and types.  This may very well be true but isn't there supposed to be confidence exactly BECAUSE of laws, regulators, punishments AND the enforcement of these?  Again, this tactic may work short term but I cannot see people remaining in their complacent cocoons while they watch as other peoples accounts get stolen from, zeroed out and the regulators just shrugging their shoulders.


Many times over the last few years I have said that no solution would work because mathematically the debt cannot be paid back.  "Officially" the U.S.  debt has just recently surpassed 100% of GDP, in reality it is probably 600-700%.  In other words, game over.  While reading Zerohedge yesterday I came across the following brilliant way to look at the situation.  I am somewhat pissed at myself for not thinking of this on my own since I have said so may times that the addition of "zeroes" is where we are headed, why I didn't think of subtracting a few zeroes for an illustrative way for the human brain to wrap around this, I don't know. 


"Problems explained / Simplistic view"


This rather brilliantly cuts thru all the political doublespeak we get.

This puts it into a much better perspective .


This shows how long daddy government can still fund the banks messed up behavior:


* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385".


Simple huh?  But wait, there's more!  This uses the total debt figure of $14 Trillion (now over $15 Trillion) but in reality if you include the "off books" debt, the total is over $100 Trillion.  So using this example above, the family making $21,700 per year has a credit card balance of roughly $1 Million!  Of course the credit card's interest rate is at the very low current "teaser rates" but what will happen to this family ( US, as in all of us!) when the teaser rates expire and are replaced with modest market rates of say...6 or even 7%?  At 7% interest rates, a full one half of government tax revenues will go to paying off interest...and ONLY INTEREST!


Now do you see why I have sounded like a broken record and written at least 100 pieces over the last few 5 years stating that "mathematically there can be no solution"?  The Treasury debt and thus the U.S. Dollar is backed by this  "full faith and credit of the U.S. government", so where does that leave us?  Where does that leave the rest of the world's central banks and currencies that are backed by these Treasury securities and Dollars?  This is like 2 drunks holding each other up telling each other that they will take the breathalizer test for the other and "everything will be fine".  How can anyone look at this budget situation and come away with anything other than "game over" while wondering how we could have gotten here in the first place?  This is where we are right now, FLAT BROKE, anyone saying differently are either living in a fantasy world, lying or just plain ignorant!   


Fraud and deceit have become the normal way business is done and regulators look the other way.  When the situation becomes untenable, the government steps in with promises of a sleeping taxpayer's future burdens and makes good right now.  If the problem is too big?  "No problem", just change the rules!  If your assets have dropped in value?  Don't mark them down, mark them UP as they did in 2009!  With the previous in mind, you know that it is only a matter of time before the ship hits the sand, I personally don't believe "it will just all of a sudden happen one day".  No, the powers that be will need SOMETHING to point their fingers at so as to deflect the blame from where it squarely belongs.  I am speaking here of some sort of "false flag" event that will be called a 100 sigma black swan event that surely "no one could ever have seen coming". 


As for the coming year, I have read many prognostications both bullish, bearish and extremes at both sides.  I do not believe 2012 will pass much if any past midyear without the banking and monetary systems having a total seizure.  I continue to firmly believe that we will have a "banking holiday" that will last at least a week or two and maybe even for 6 months or more.  If I absolutely had to guess what the "black swan event" will be?  It would be the supply of oil.  This would surely do it AND appease the hawks who stand to gain from more war.  One thing I can say with 100% confidence is that we will see more QE (the printing of more and more unbacked currency) in amounts not previously seen.  This is not a bold call, QE MUST expand exponentially OR the system dies.  QE will expand up until the investor population shuns this currency or that one and finally shuns the Dollar.  The funny thing here is that the final "shunning" (that of the Dollar) will probably be the result of another bailout announcement where QE is the tonic.  Ironic?  No, but mathematically predictable.


We are directly in front of unprecedented times, never before have ALL governments (and thus currencies) on a global basis been strapped and insolvent at the same time.  There are no "White Knights" left to save the day this time around, that scenario has already played out and been proven false since 2007-08.  The problem is that "stuff", even at these artificially low and nonexistent interest rates will no longer pay for themselves.  The bubbles have just gotten too big to be carried, even by sovereign governments.  While all this is going on, precious metals investors have gotten sick to their stomachs and gone through another regurgitation.  It is so sad to watch because they are running 180 degrees from where they should be.  Investors are being given a mathematically sound gift, yet they are too scared and overcome with their stomachs to use their common sense and minds!


This is it folks!  2012 is exactly 99 years after the creation of The Federal Reserve, I don't believe it will take until 2013 for the last remaining vestiges of "perceived" value to  evaporate.  The Dollar has been a 100% fiat and unbacked currency for 40 years and the world went along with it.  Those left holding this hot potato when the system resets will start over with only their mental or physical abilities as their capital will have vanished.  You can try to out think this and be 100% physical metal or 100% mining shares going into the reset.  I say and have said, "don't try to be a hero" and figure out what will make you "King or Queen of the world", own both and spread your risk around geographically.  I have also espoused "going into a shell" and to stop trading.  Yes there are those who can do it successfully, then there are the other 99% of us.  DO NOT trade and suddenly find yourself out of place at the very moment that you need to be 100% invested.  What is coming will defy ALL technical indicators and "conventional wisdom".  What is coming, is and has been for quite some time now, 100% mathematically predictable.  Policy response cannot be 100% assured because the "chauffers" are human and as they say "desperate people will do desperate things".  What is assured is that the current monetary system will not survive in it's current form and that Gold (Silver) will again attain monetary status and in some fashion "anchor" whatever new currency(s) that are put forth.


I think it best, right now to prepare mentally for even more volatility than we have already experienced.  Volume, though contracting steadily throughout this year will probably explode at some point with people either rushing the exits in panic or the entrances should currencies implode.  Nothing, and I do mean NOTHING that happens this year should shock nor surprise you.  This is especially so for the precious metals.  You can bet that every kitchen sink in existence will be thrown at the metals.  Please keep firmly in  mind that even though your butcher may advertise .99 cent per lb. filet mignons, this doesn't mean he actually has them to sell to you.  The very same phenomenon will in my opinion become public this year with both Gold and Silver.  Just because there is a quoted price in the newspaper or on TV doesn't mean there is any real metal available for sale at these prices (or maybe any price?).   These markets are "fractional reserve", this in reality means that when a fraction (maybe even less than 1%) ask for their metal, there is no more.  The other 99% are just plain out of luck.  Once this gets going, the panic for delivery will put any and all bank runs throughout history to shame. 


The entire system is a fraud, scam and sham, at the very epicenter of it all is the fact that physical metal has been sold over and over again to the point where there are maybe 100 claims to the same ounce.  Maybe 2% of the population has invested in either Gold or Silver.  Of this tiny portion it is highly probable that 98-99% of these investors have paper promises that will not be fulfilled.  You have the opportunity to be 1 or 2% of the 1 or 2% who believe they have invested in precious metals to actually have a real, touchable, very rare and valuable holding.  DO NOT under ANY circumstances, let market action seperate you from your insurance.  Gold and Silver will be the only insurance left standing!  


One last area that I would like to touch on is that of "society".  2011 saw civil unrest, protests and even riots make their way around the globe, I believe 2012 will see much much more of this.  In fact, I would give it better than 50/50 odds that we see a literal breakdown in the coming year.  100 years ago the worlds' population knew how to hunt, fish and grow crops.  Barter was done on a regular basis and the banking system was a place to "save" because you knew that your currency would not be debased.  Your only worry was the potential failure of your bank.  Today and 180 degrees away, no one can hunt, fish or grow crops. Barter is mostly unknown and people now "save" in the stock market.  Today, banks are a huge part of everyday life and has it's fingers in everything from the "fields to your local grocery shelves", distribution cannot happen without the banks.  The banks are everywhere you look and society cannot survive (immediately) without them.  The banking system has already failed and only breathes daily breaths because governments have bankrupted themselves to prop up and prolong the banks.  Once the banks fail...and they will, "every man for himself" will take on a new meaning.  Please make sure that you are prepared for this type of event because 2012 is more than ripe for it to occur.


I wish everyone a healthy and safe New Year, I will resume commentary next week.  Best regards,  Bill H. 



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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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Events That Could Affect Gold and Silver Prices in 2012
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Something more can be said about the potential bank collapses. Many on the extreme portray an international misery that will be used to frighten all but the informed. To the contrary I believe this would be an occasion of great celebration. It doesn't really matter upon which Friday we call the banking holiday. What matters is the nature of the message on the following Monday. I expect the typical smug belligerence when the public is advised that the collapse of the Euro and undermining of the US dollar by a Chinese devaluation (act of war?) has necessitated ........................., or some such bullshit intended to further socialize losses.
I hope people would be more accurately informed that this occasion is simply a byproduct of a greedy and manipulative banking industry that has brought ruin upon itself. People should be prepared to demand that the bank assets be fairly valued and the resulting losses credited to the account of the shareholders and bondholders. They can take the derivatives contracts home for wall paper.
Imagine a 10 story bank building and suddenly the lights go out on the seventh through tenth floor. Now realize floors one through six represent the human beings that 95% of customers deal with on a daily basis. We need and want those bankers to come to work on Monday morning and they will operate as efficiently as on Friday. The seventh through tenth floors will simply be remembered for their curious relationship to the banks old balance sheets.
By no means should a banking failure be an international catastrophe, but rather, a financial rebirth. Life with real arithmetic.

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ChasVoice - 1/3/2012 at 11:26 PM GMT
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