2012 Predictions

I think this annual pontificating is pointless – after all who knows the future except God? So my ’2012 Predictions’ are trends that should become mainstream knowledge in the next 12-24 months but again, they may not. Without further ado let the guessing begin…

#1 Mexico descends into chaos. The greatest security threat to America is Mexico’s political instability. While many are leaving Mexico, we could see a million women, children, fathers and mothers cross the border all at once, a mass exodus. Timeframe: 6-24 months.

#2 Nuclear war in the middle east or preemptive attack by Israel on Iran. The Arab Spring was a lose for democracy and Bush’s/Obama’s middle east muddling has (is) radicalized the region. The radical Muslims are sweeping into power and will act against Israel as a united force behind Iran’s nuclear power. Iran’s goal is simple: eliminate Israel. Oh, and the US is a target too. BTW, Iran nukes are not a concern, what concerns the US is that Iran is trading oil for other currencies and the dollar is losing it power as a reserve currency. While Israel’s concern is Iran is the leader whom the other Arab counties, post-Arab spring, are looking to for guidance. The theory is take out Iran and you’ll kill two birds with one stone but it’ll piss off China and Russia…

#3 So, after #2 happens a 7 year peace agreement will be brokered by someone from the Greece/Macedonia/Asia Minor area. Greece has experienced riots and this will escalate because the country is soon to be no longer in control of its budget. Germany and the EU will be approving Greece’s budget resulting in tremendous backlash against Germany…now what was that country that was at the center cause of WWI and WWII…hmmm?

#4 Market crashes after an inflationary run through 2012. Over the next 12-30 months the March 2009 SnP low of 666 is breached. Deflation ensues but that won’t last forever as a hyper-inflationary depression follows in 3-6 years. Food becomes very expensive as the dollar loses its reserve currency.

#5 Over the next 12-24 months governments around the world become more authoritarian as citizens become more fearful and willing to abdicate power to central authorities for government protection.

Dec 21st 2012 isn’t the end of the world; we’ll still be here…the political landscape may change but life on earth will continue.

Don’t be scared, be prepared. Preparation is important but knowing God’s reassuring grace gives a peace that can’t be bought.

The BEARS Strike Back – Global Recession Underway?

Lately I’ve seen “recession” and “crash” headlines everywhere and maybe that’s what will happen but I wonder if that bearish side is getting crowded…then I see this:

Global Recession Supporting Data-Points

  • Euro zone’s manufacturing purchasing managers’ index fell to a two-year low of 49.0 in August, down from a preliminary reading of 49.7. (Business Insider)
  • PMI’s contractions seen in Ireland, France, Italy, Spain and Greece. (Business Insider)
  • Germany’s manufacturing PMI slowed to its lowest level since September 2009, slumping to 50.9, well below an initial estimate of 52.0. (Business Insider)
  • US Manufacturing ISM ex-inventory Growth is in contraction (Mish)
  • Japan’s PMI fell at three-month low (Financial Times)
  • PMI readings in Switzerland and Sweden dropped (Financial Times)
  • British manufacturing PMI fells 49, hitting a 26-month low (MarketWatch)
  • Germany private consumption fell for first time since Q4 2009; Manufacturing growth slowest in 23 months (Reuters)
  • Japan capital spending plummeted 7.8%; In Q2, expectations were for 1% increase (RTT)
  • US construction declines 3.5% vs. same period in 2010 (US Census Bureau)
  • China exports to US contract, PMI is barely above contraction (Reuters)
  • Container traffic at Port of Long Beach drops 3.17%, smack in face of normal Christmas season ramp-up (Bloomberg)
  • Canada GDP unexpectedly declines, led by a 2.1% drop in exports (Bloomberg)
  • Brazil unexpectedly cuts interest rates .5% to combat recession; 62 of 62 analysts miss call on rate cut (Mish)
  • Taiwan’s PMI dropped to 45.2 in August, the lowest reading since January 2009 (Reuters)
  • German economy grew just 0.1 percent in the second quarter (Reuters)
  • Switzerland economy grew at its slowest pace since 2009, as a record strong Swiss franc bites into exports. (Reuters)
  • Retail giant in Australia warns of massive price deflation and falling sales, “Hardest Christmas in Retailer Lives” coming up (Mish)
  • US see zero jobs growth, unemployment rate remains flat at 9.1% (Mish)

Source: http://www.minyanville.com/businessmarkets/articles/global-economy-global-recession-economic-analysis/9/2/2011/id/36708

Now Mish has been bearish for a long time. If you are bearing for long enough you’ll eventually be right but that’s not helpful when trading.

What we are seeing is either a fake bounce into year end and then down in 2012 or some think it’s the start of a bull market wave 3.

One person who is still bullish (on the market, not the economy) is Nadeem Walayat at Market Oracle. It appears a couple of others are too, such as Tony Caldaro. I don’t see anything that could take us to new highs except an (almost) unlimited supply of cheap money (devaluing everything – which is nothing new).

The Bullish Case for the Economy

“The Fed actually has one lever left in its bag of tricks: the reverse repo market,” Hackett tells me.

As he explains in his most recent client letter:

The definition of a reverse repo transaction is as follows: A purchase of securities with an agreement to resell them at a higher price at a specific future date. This is essentially just a loan of the security at a specific rate also called reverse repurchase agreement. Through QE-1 and QE-2 the Federal Reserve has helped re-liquify the banks and helped support runaway government borrowing at rates far below the true market rate by printing money. What quantitative easing did not do was get the fractional banking system going through the typical money multiplier effect. Banks are afraid to lend, borrowers are afraid to borrow and zombie loans remain in decay. This has kept the key housing asset market stuck in reverse.

The result is that the banks have deposited at the Federal Reserve 1.8 trillion dollars of unlevered capital better known as NBR’s (Non Borrowed Reserves). This is a massive amount of capital that it sitting there idle doing nothing and earning next to nothing. The Federal Reserve and the U.S government want this money to move into the system to help roll current government debt coming up for maturity and for future borrowings as well as for other bond asset purchases for states and municipalities and to help supply and expansion cheap mortgage loans.

These NBR’s can be levered 10:1 in the fractional banking system that we have today. This opens the possibility of extending bank credit by up to 18 trillion dollars without printing any more money or reserves by the Federal Reserve. That is a lot of money and a huge expansion of money supply.

Source: http://www.minyanville.com/businessmarkets/articles/jackson-hole-qe3-federal-reserve-bernanke/8/22/2011/id/36491

Practical Insight:
1 – This economist’s bullish case isn’t about private sector growth but just “there’s more money to lend.” A key piece to growth is available credit (at least it has been) but how is this any different than where we are today? As stated, at best it kicks the can down the road.
2 – For this “bullish case” to work, there must bean increased demand for debt. The supply is there but the demand has been lacking. People want to pay off debts not accumulate more of it. So good luck there.
3 – Perhaps how this could play out is deflation first, thru 2013 and then (hyper?)inflation starting in 2013 and lasting until…2016/2017 (or later?) as trillions of dollars funnel into the market.
4 – We are between a rock and a hard place, there are no easy answers – only politicians who place their reelection efforts above the citizen’s best interests believe in easy answers. At some point we have to drink the medicine and it will be bitter.


Heavy stuff but critical to key an eye on for those who have IRAs, EFTs, stocks and those who want to save their cash. Economic cycles are part of life, until 2008 we’ve had it good for a long time, the next leg down of the bear market is coming.

John Mauldin writes:

It was relatively easy for me to forecast the recessions of 2001 and late 2007 over a year in advance. We had an inverted yield curve for 90 days at levels that have ALWAYS heralded a recession in the US. Plus there were numerous other less accurate (in terms of consistency) indicators that were “flashing red.” (For new readers, an inverted yield curve is where long-term rates go below short-term rates, a [thankfully] rare condition.)

And since stocks drop on average more than 40% in a recession, suggesting that you get out of the stock market was not such a challenging call. Although, when Nouriel Roubini and I were on Larry Kudlow’s show in August of 2006, we got beaten up for our bearish views. And you know what? The stock market then proceeded to go up another 20% in the next six months. Ouch. That interview is still on YouTube. Timing can be a real, um, problem. There is no exact way to time markets or recessions.

…page 3…

Think about this. The Fed announced this week that it would extend low rates until 2013. They are practically pushing people into higher-risk assets in a search for yield, at PRECISELY the time we may be slipping into recession, which will put those assets at their highest risk (Mike’s note: for example many government retirement accounts are behind so higher risk funds is a way they think they can catch up). I think this could end in tears and land those who are close to retirement in even worse shape.

If we are headed into recession, and I think we are, then the stock market has a long way to go to reach its next bottom, as do many risk assets. Income is going to be king, as well as cash (and cash is a position, as I often remind readers).

If we go into recession, we’ll know several things. Recessions are by definition deflationary. Yields on bonds will go down, much further than the market thinks today. And while the Fed may decide to invoke QE3 to fight a deflation scare, the problem is not one of liquidity; it is a debt problem.

So, I guess I am going out on a limb, without any help from an inverted yield curve, and saying that we will be in recession within 12 months, if we are not already in one. This will be unlike any recession we have seen, as there is not much that can be done, other than to just get through it as best we can. Sit down and think about your own situation and prepare.

Source: http://www.minyanville.com/businessmarkets/articles/john-mauldin-us-economy-recession-recession/8/22/2011/id/36465?page=1

Also from Toby Connor:

As I have been warning investors for many months, stocks have now entered stage III of the secular bear market. Gold on the other hand is now in the final parabolic phase of a 2 1/2 year C wave advance.

My best guess was that we would see a Dow:gold ratio of between 5-6 before this C wave ended. The ratio was at 5.71 as of today. For reasons explained in the nightly reports I think we may still have a little further to go on the downside for stocks and a little further upside in gold. So it’s entirely possible that we could see a Dow gold ratio of 1:5 before the trends reverse.

Stocks on the other hand, after what should be a very convincing bear market rally, will roll over and continue down into a final four year cycle low, probably in the late summer or early fall of 2012.

Depending on whether or not the Fed tries to fight the cleansing process stocks should either test the March 09 lows, or if Bernanke tries to stop the bear market with another round of quantitative easing, we could see the March 09 lows breached.

Either way I expect that 2012 will go down as one of the worst years in human history. Certainly in the same category as 1932 if not worse.

Source: http://goldscents.blogspot.com/2011/08/dow-gold-ratio-secular-bear-market.html

Practical Application:
1 – Save your cash
2 – Bank at a top rated safe bank
3 – Pay off debt
4 – If possible, hold off on that large purchase
5 – Exit any high-risk stock positions

Eurozone’s Lehman Brothers

Does the Eurozone have its own American International Group (AIG), or worse, its own Lehman Brothers when it comes to Greece?

I believe it does.

Why else would the European Union have bent over backwards to “save” a member nation that: A) accounts for 2.01% of the EU by trade volume; and B) would essentially be like letting Montana go out of business (no offense to the state and its residents).

What the ECB President Knows That You Don’t

Now let’s chat for a minute about what else I think Trichet (ECB President) has figured out — namely that the risks to U.S. financial institutions are significant and that these same risks may actually outweigh the costs of the last global bailout should Greece fail.

I believe that Trichet has very quietly communicated this information to US Federal Reserve Chairman Ben S. Bernanke, who looks and sounds defeated and who appears to be telegraphing one or more black swans on the horizon — even as he publicly downplays the possibility.

At the same time, regulators who have probably not been explicitly told what’s at stake are wising up, which is why they’ve been “probing” US financial institutions with regard to direct and indirect Greek exposure — especially when it comes to details on the credit default swaps they may have written on Greece, Greek debt, and European banks.


Throw in private liquidity pools, the rest of the US money market universe, and European money market funds denominated in dollars, and you could easily hit another $2 trillion to $5 trillion in risks that are not yet factored into the financial system — probably more.

But you know what?

As problematic as that sounds, I am actually more worried about something we’ve heard with increasing frequency over the past few weeks — that the Fed and Wall Street are both optimistic that they understand the risks involved.

Anybody besides me want to call BS?

I think we should, because the mere fact that they think they “understand” the risks involved practically guarantees that they don’t. And really, we have the right to know if there’s another Lehman Bros. lurking somewhere in the eurozone.

Source: http://www.minyanville.com/businessmarkets/articles/eurozone-european-banks-lehman-brothers-european/7/14/2011/id/35725

We remember during the financial crisis of 2008 lawmakers claimed to “fix it” to “understand it” and that “it is contained.” The reality is we socialized the risk, privatized the gains and didn’t fix the problem. There are two ways out of this mess. 1) to declare a year of Jubilee (all debts are forgiven) or 2) to allow the system to self-correct, meaning LOTS of job loss and LOTS of failed corporations and bankrupt governments. The chance of #1 or #2 happening are about 5%. Federal bank officials think they can CONTROL the economy (notice how unemployment hasn’t changed, they can control the stock market but not the economy) but they cannot. So they will keep printing dollars through the purchase of deflating (toxic) assets extending the 2008 theme of socializing the losses and privatizing the gains. We are marching to a higher and higher fall. The only question now is how will the music stop? Is Eurozone’s Lehman Brother’s the first domino of ECONOMIC CRASH – ACT II?