What will 2010 bring for gold and the markets

This week, along with almost everyone else, we surmise about what’s likely to come our way in 2010. ‎As usual, it’s reasonably clear what will happen, but who knows when?‎   We’ll cover…

• Grain shortages
• Nation state defaults
• Individual US state defaults
• Municipal defaults
• Mortgagee defaults
• Commercial real estate collapse?‎
• Rising interest rates?‎
• Terror 2010 – courtesy of Gerald Celente‎
• Whither the US dollar?‎
• Many more bank failures
• Gold and silver volatility

‎ First, a quote from Niall Ferguson, Laurence A. Tisch Professor of History, Harvard University.‎

‎“Mr. Obama is slowly pushing America toward financial ruin. His $787 billion stimulus failed to ‎regenerate the economy. His health care reform bill will cost taxpayers nearly $2.5 trillion. He has ‎effectively nationalized the automakers, the financial sector and the banking system. His environmental ‎regulations will stifle industry and manufacturing. Unemployment is high. The housing market ‎continues to sag. Inflation is increasing. The dollar is plummeting. The nation’s infrastructure is ‎crumbling. ‎
The budget deficit for 2009 was over $1.4 trillion. It is scheduled to be $1.5 trillion in 2010. Under his ‎administration, the national debt is projected to explode by more than $10 trillion in 10 years. He is ‎burying America under a mountain of debt. We are becoming the United States of Argentina”. ‎

• Grain shortages

Some recent work of Eric de Carbonnel of Market Skeptics suggests that there could be widespread ‎grain and soybean shortages in 2010. World grain stocks are at multi-decade lows and the latest ‎harvests around the globe have been affected by bad weather and are patchy at best. Look for rising ‎grain and soybean prices and concomitant rises in the prices of downstream food products.‎

• Nation state defaults

Several European nations and indeed the entire European Union are at a crossroads. The EU is coming ‎under pressure as individual member states such as Greece become effectively bankrupt.  Look for a ‎wild ride in the value of the euro this year. The UK is also in a parlous financial condition. ‎

• Individual US state defaults

We know about California’s huge and ongoing budget shortfalls. Look for other states to follow in her ‎footsteps. More layoffs, cuts in services and increased taxes are coming.‎

• Municipal defaults

Ditto individual cities. ‎

• Mortgagee defaults

We’re not in subprime Kansas now, Dorothy. We’re in prime ARM-land.  The next big swathe of ‎ARMs (Adjustable Rate Mortgages) is coming up for resetting in 2010, in many cases resulting in doubling or more of monthly ‎repayments. If long term rates are forced to rise further as a result of the insatiable borrowing ‎requirements of the US government, the reset rates would become even more stringent, meaning more ‎mortgagee defaults would ensue.‎

• Commercial real estate collapse?‎

We expected a collapse in commercial real estate in 2009. I happened to be in St Louis from February ‎through June of 2009.  My local (39000 sq ft) Circuit City store became vacant in February. It was still ‎vacant when I left in June.  There is massive overcapacity across the US, and commercial real estate is ‎often more highly leveraged than residential property. The crash is coming – but this year? We can’t ‎say for certain, but we do assign a high probability to this event. ‎

• Rising interest rates?‎

As we noted above, there is likely to be upward pressure on long-term rates – but what about short-‎term rates? The Fed is between the proverbial rock and a hard place – raise rates and choke off a ‎nascent “recovery” – or keep rates low and watch incipient inflation or a renewed dollar decline. Our ‎guess is that they will keep rates near zero.‎

• Terror 2010 – Courtesy of Gerald Celente (Trends Research Institute)‎

Look for a follow up to 9/11 in 2010.  If this were to happen, it would almost certainly result in a Bank ‎Holiday, amongst other consequences. Make sure you are prepared for an extended period (weeks) of ‎bank closure.‎

• Strengthening, then weakening US dollar

The US dollar is currently strengthening against other fiat currencies. We view this as a temporary ‎phenomenon – look for a continuation of its secular decline later in the year.‎

• Gold and silver volatility

Well, is it gold $2000 and silver $50 in 2010? Or gold $800 and silver $10?  Who knows? We don’t. ‎But what we can say is that volatility in the precious metals markets is set to increase markedly this ‎year. We have seen signs of this in the latter part of 2009. In 2010 we could see both $800 and $2000 ‎for gold. Hold on to your hats. It’s going to be a wild ride! Don’t buy on margin and use price ‎decreases to dollar cost average your position in the physical metals.‎

And finally to finish is this brief comment from Mike “Mish” Shedlock which is a nice summary of just some of the global problems still to be resolved…

Global Imbalances Mount

  • Global imbalances are cropping up like weeds in places like Greece, Spain, Vietnam, Iceland, Vietnam, Latvia, and Lithuania.
  • There are massive property bubbles in China, Canada, the UK, and Australia.
  • Japan is in a foolish fight against deflation and sinking further in debt
  • Commercial real estate in the US is on the verge of bringing down hundreds of regional banks.
  • Cities in the US are under massive pressure because of unsustainable pension plan promises.
  • Global terrorism is on the rise

How long this mess hangs together without a huge crisis in a major currency is the question everyone should be asking. Sadly, most are oblivious to the widening structural cracks.

So be thankful that you are part of the well informed minority!

Best wishes to all for 2010. Live long and prosper!‎

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