Happy New Year everyone! The first full year of blogging is under our belt here at Liberty Insight. It’s been a great experience and I’ve really enjoyed researching and writing about the economy and political events. My goal for 2012 is write a bit more and to really crank up the pageviews for the site by leveraging the networking power of the interwebs. I hope you’ll help me by sharing articles you like through facebook, email, or however you like to share. Thank you all for reading and best wishes for 2012.
2011 was a another crazy year in the socio-economic landscape with the Arab Spring, the Tsunami and nuclear meltdown in Japan, a contentious debt ceiling debate in Congress, the killings of Osama bin Laden and Gadhafi, the sovereign debt crisis in Europe, and Occupy Wall Street, to name some hi(low)lights. As crazy as 2011 may have been, in the words of Al Jolson, “You ain’t seen nothin’ yet.” I believe 2012 will be bigger, badder and crazier than ever- bigger protests/riots, badder economies, and crazier people. With that in mind, it’s time to make some big, bad, crazy, predictions for 2012.
But before we do that, let’s look back on the predictions I made for 2011 on this very site. Some were spot on, some weren’t even close. In general, they were directionally right, but I got a little carried away with the magnitude (or perhaps the timing, as only time will tell). It’s definitely a bit humbling to put a prediction out there and have it fall flat on its face, but I’m not scared to admit when I’m wrong (or early). As I said last year, “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.” Here are my 2011 grades.
Prediction 1. “The big battle in Congress will be whether or not to bail out the States.”
Grade: D. This never really came close to materializing and the big battle turned out to be the debt ceiling debate. However, if you change “Congress” to “European Parliament” and “states” to “member nations” it was spot on. I believe the problems in Europe are a foreshadow of what’s coming to American states. The problems are the same– too much debt in relation to revenue, huge deficits, woefully underfunded pensions, and no way to print their way out of it– just a little further off in the future. To be sure, the situation for the states and municipalities got much worse in 2011 as revenues failed to meet expectations. However, the states were able to delay any bailout talk with employee layoffs, cuts to programs, and “borrowing” from their pensions. I believe a state bailout of some type (overt or stealth) is coming, but I’ve learned my lesson on putting a timeframe on it.
Prediction 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.”
Grade: A+. At the end of last year, analysts from the top investment firms like Goldman Sachs, JP Morgan, Morgan Stanley, Blackrock, etc., predicted the S&P 500 would end 2011 at between 1350 and 1500 for a 7%-19% gain. I called bullshit and summed up my best guess like this:
Chance of stocks beating gold: 15%
Chance of stocks beating oil: 30%
Chance of stocks going up in dollar terms: 49.9%
How did I do? Gold finished up 9%, oil up 8.2%, and the S&P was dead even (minus a few cents). Can’t get much better than that, even if they were just guestimates.
Prediction 3: “China will allow their currency to appreciate 20% against the dollar.”
Grade: C. Another case of directionally right, but too bold on the magnitude of the change. The Chinese Yuan was up 4.8% for the year on a steady, controlled appreciation. My reasoning for such a big number was a hunch that 2011 would be the year that China finally throws in the towel on trying to keep their currency artificially low by propping up the dollar. I think two main factors prevented a bigger rise. First, the strong dollar due to the european debt crisis. Second, the deflation of the Chinese housing bubble reversed inflation which had risen to 6.5% in June, and fear of a hard landing prevented the government from allowing faster currency appreciation. However, several moves by China in 2011 hint that 2012 may be the year of the great Chinese currency capitulation. These include establishing bi-lateral direct currency trade agreements with several key partners including Russia, Japan and Iran; opening their bond markets to foreigners despite having no borrowing needs; global accumulation of natural resource companies; and a recent sell-off of U.S. Treasuries. The USD/CYN will hit 5.5 at some point; just not 2011.
Prediction 4: Gold and silver will beat their impressive 2010 performances.
Grade: D. Why not an F? Clearly they didn’t beat their 2010 performance with gold up only 9% and silver actually down 8% (by far my worst call). Well let’s look at what I said:
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.
I predicted gold would rise (which was right) but, in an effort to make a bold prediction, got waaayyyy too aggressive with how much, predicting outlandish gains of 29% and 82% respectively for gold and silver. But, my guesses were actually closer than they may seem. Gold did go above $1833 to $1900 in September. (Alas, my prediction was for the year end price.) I believe the main cause for gold’s year end reversal was a need for European banks to raise capital and gold was one of the few, liquid winners they could sell. Silver almost touched $50 in April and seemed headed higher until a ridiculous series of margin requirement raises by the COMEX smashed it down. Then with the MF Global scandal in the fall, silver got beat down again, as many margin traders were scared out of the market and the paper price was smashed in low volume trading. I am more convinced than ever that the paper silver price is manipulated, and we will see a divergence between the price of physical metal and the paper derivatives such as futures. In fact, we are already beginning to see that divergence as the physical silver ETF (PSLV) has outperformed its paper counterpart ETF (SLV) by 5.2% in the 2 months since the MFing Global debacle. Undaunted, my prediction for silver in 2012 will be even bigger, badder and crazier, but you have to tune in to Part 2 to find out what it will be.
Prediction 5: And the Oscar for best female actor in a leading role goes to… Nathalie Portman.
Grade A. Too easy, but it’s the rationale that counts.
In Part 2 of my 2012 predictions post (coming soon) I will actually make some predictions for 2012. Stay tuned.