Happy New Year! 2011 Predictions

Bloggers certainly are opinionated, especially those who think they know what’s going on with the economy. With a million different opinions out there how do you know who to listen to? One way is to examine what they said in the past and see how it stacks up with the reality of the present. In the time-honored tradition of self-proclaimed prognosticators, it’s time for some New Year’s predictions from Liberty Insight.

As a new blog, I can’t point to any predictions from last New Year’s Eve (although you can read my economy paper from April and see how that panned out), but let’s throw some out there for 2011.

Predictions should be bold. Nostradamus didn’t get famous by predicting sunshine in San Diego. They should also be at least somewhat original. If everyone is picking the Patriots to win the Super Bowl, who the hell cares. And finally, they should have some evidential reasoning behind them. Even a blind squirrel sometimes finds a nut, but if he did so based on deductive reasoning we can hardly call it an accident.

The problem with putting bold and original predictions in writing is that you’re setting yourself up to look like a jackass. Oh, well. Fukkit.

1. The big battle in Congress will be whether or not to bail out the States.

Ok, probably the biggest battle in Congress will be about repealing Obamacare, but everyone sees that on the horizon and it won’t have nearly as much impact on our economy as the decision to bail out failing States. I believe 2011 is the year where the reckless spending of many states and municipalities will hit the fan and splatter all over the economy.

So what will Congress do? Well, last year I would have said hands down they would moan and groan and then cave and bail. 2011 is a bit trickier to predict as the Tea Partiers storm the House with an anti-bailout mandate, and the Republican majority in the House will take pleasure in watching the blue states like California, New York and Illinois, who are in the most serious trouble, squirm.

The Dems will say we need to bail out the States or the economy will completely collapse. The Repubs will claim that the States were reckless and dramatically need to cut their spending and that bailing out the States will only prolong the problem. (Ironically, they’re both right.) In the end, the Dems will propose a really big number and the Repubs will cut that in half and go along with it. Both sides will say that the compromise was “essential” and “temporary” and “targeted” and “avoided an economic calamity”.

But that’s not all. My hunch is that the Federal Reserve will look at it and see the bailout as insufficient to prevent an economic collapse and provide their own State bailout. Technically, they’re not really allowed to do this, but that hasn’t stopped them before. Bernanke will declare “emergency powers” and use the Fed’s printing press to buy Municipal bonds or give state governments cheap loans or some other sort of shenanigans.

2. Ten out of ten experts agree, the stock market is going up in 2011. In my non-expert opinion, they’re drinking some tasty cool-aid.

USA Today recently posted an article titled, Experts agree: Get over your fear and get back into stocks. A recent show on CNBC recently polled thirteen stock pickers and they were all bullish for 2011. According to this article, the “Herd Indicator” which measures the percentage of bulls on Wall Street just hit its highest mark since right before the crash of 2007. As the saying goes, when everyone on Wall Street thinks stocks are going one way, it’s a sure sign they’re about to go the other.

OK, so not everyone is bullish. There are some, like Robert Prechter, who think the market is set up for a serious crash as banks and investors are forced to de-leverage and we get a deflationary crash. Other bears, like Peter Schiff, think the US stock market could rise in dollar terms (due to Fed money printing) but will fall in terms of purchasing power or in terms of gold.

My hunch (and admittedly this is a guess) is that negative forces in the economy will cause another market panic in 2011, a “double-dip” if you will, and the Fed will scramble to keep up. Eventually, the Fed printing will catch up and cause stocks to shoot back up as the dollar crashes, but we’ve got some de-leveraging to do beforehand and my bet is stocks will not only fail to keep up with inflation, but also will be lower in nominal terms at the end of 2011.

There are a few bullish signs for stocks, most notably QE2, (and potentially QE3 and QE4), as well as Obama’s apparent openness to lowering corporate income tax rates while closing loopholes. But the big picture items point towards more failing banks, failing cities, and perhaps failing states. Governments, banks and consumers are still sitting on a mountain of debt and if rates rise, the cost of servicing that debt will be catastrophic. Commodity prices are likely to continue to rise which means lower profit margins for companies selling to strapped consumers and eventually rising prices. In 2011 the baby boomers start to turn 65 and will be required to take money out of their 401Ks. Housing prices could continue to drop as this article claims.  Skate at your own risk.

If I were to handicap it:
Chance of stocks beating gold: 15%
Chance of stocks beating oil: 30%
Chance of stocks going up in dollar terms: 49.9%

3. China will allow their currency to appreciate 20% against the dollar.

For the past few years, China pegged its currency to the US dollar at 6.83 Yuan per dollar. In June of 2010, under pressure from the US and other countries to let their currency appreciate, China agreed to remove the de-facto peg and let the Yuan float more freely. In the six months since then the Yuan has moved up a whopping 3.4%.

China likes to keep its currency low to increase its exports. They do this by using their excess dollar reserves from their trade surplus to by US Treasuries. This Treasury buying also props up the dollar which keeps the value of their large US dollar holdings from tanking. However, 2011 is the year that the Chinese bite the bullet and begin to bail out of the dollar in earnest.

Inflation rates are skyrocketing in China across the board. They’ve been trying to fight this with half measures like creeping up interest rates and increasing banks’ reserve requirements and implementing mild price controls. However, as inflation continues to rise they will need to let their currency appreciate or face civil unrest from a billion citizens who can’t afford their groceries.

Why does this matter to us? In short, it will ship the inflation we’ve been exporting to China back to our shores. Consumer price will rise substantially as the cost of Chinese labor rises and we compete for commodities on a global market with a billion Chinese who are now 20% richer.

4. Gold and silver will beat their impressive 2010 performances.

2010 marked the tenth straight year that the price of gold increased. I believe 2011 will be the 11th. I’ve been saying gold and silver would continue to rise, but for prediction purposes it’s time to put a number on where I think they’re going this year. In 2010, gold rose 29% and silver rose 82%. I believe in 2011 the shiny metals will beat those numbers! That would put gold above $1833/oz and silver above $56/oz.

5. And the Oscar for best female actor in a leading role goes to…

In a normal year Anne Hathaway would happily take down the prize for best actress for her role in Love and Other Drugs. Big star in an independent film? Check. Wholesome, all-American girl shows her boobs in a non-gratuitous way that is essential to the integrity of the movie? Check. Convincingly plays a character battling a debilitating disease? And, check. Ms. Hathaway gives a terrific performance as an emotionally hardened woman who slowly peels back the layers of her guarded exterior to reveal the deep insecurities and fears she faces as a person living with Parkinson’s disease.

But as the first sentence suggests, this isn’t a normal year. In 2010 the gods of the silver screen assembled to create a veritable tsunami of Oscar cred for The Black Swan.

The Academy loves when a big hollywood star slums it with an artsy independent film, especially a dark and twisted one a la Monster’s Ball. They are mesmerized when an actor transforms herself into something unexpected.  In 2003, Charlize Theron transformed her body by eating cheeseburgers and transformed her face by piling on the ugly makeup. Then she sealed the Oscar gold by kissing a girl (before it became not that big of a deal). The following year, Hillary Swank one-upped her by transforming her body through hard work and training to become believable as a boxer and then tugged at our heart-strings by dying. While both roles screamed Academy Award, (Or so I’m told; I didn’t watch that Monster crap.) they are child’s play compared to the role of the Black Swan played by Ms. Portman.

Apparently, Nathalie trained for two years with a ballet coach, while she was making other movies, to not only transform her body, but to learn dance to the point where she could pass for a world-class ballerina on screen. Portman is both fragile and creepy as a demented and tormented starlet. Her performance alone could bring her the statue but then this wholesome, all-American-girl throws in a lesbian make-out scene (we’ll leave it at that), and two masturbation scenes for good measure.

The climactic dance scene where she becomes the black swan is simultaneously breathtakingly beautiful and hauntingly powerful. (Add that to the list of things that I never thought would come out of my mouth.) Some actresses can cry at will; Nathalie Portman grows feathers out of her freaking arms. And then, to top it all off, the movie ends with a cherry on top of Oscar gold that I won’t reveal so as not to spoil the movie.

This is my A#1, Five Star, ultra-lock of the year. Take this to the bank. That is, unless the Academy voters’ self-importance prevents them from picking such an obvious choice.

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2 Responses to Happy New Year! 2011 Predictions

  1. Ben Kadlec says:

    I predict that gasoline will hit $4 a gallon. We just had an economist from BofA in our offices predicting that “core” inflation will be around 0% and therefore the fed will keep rates (ie print money) low. See the disconect here???? I love economists

  2. Pingback: Happy New Year and Predictions for 2012 (Part 1) | Liberty Insight

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