2012: The Year of Massive Price Increase in Metals

I've been following multiple investment newsletters and blogs from people who all have very different ideas as to why the prices of precious metals and other commodities are the way they are.  Some think there is a big conspiracy out there of big banks pushing down prices, others think that it's just a part of a much larger centuries old global economic cycle, and others just follow their own technical chart analysis.  Usually, these people tend to conflict as to what is going to happen next until recently.

All of them say that this year 2012 is going to be a spectacular year in terms of price movement of metals and commodities to the upside.  Could it be?   The last time I saw this agreement across the board was back in 2010 mid year when Andrew Maguire first broke the news about the CFTC meeting affirming that bullion banks were ridiculously over leveraged.

Without listening to anyone else, my guess would also be yes simply because the Fed stated that in 2014 they will let the interest rates rise and the massive rounds of money printing.   I think a lot of people are going to be hesitant about what those 2014 interest rates will bring and this will cause a dramatic shift in prices everywhere. Whether prices go up or down,  I don't think the impact will be light.  One thing for sure is I expect a wild ride for the next few years!   If interest rates do rocket to 20% like they did in the 1980s, then bonds are going to start looking mighty attractive even if the threat of hyperinflation becomes more real.

Another interesting thought that occurred to me recently is how the idea of the world returning to a gold standard seems less and less probable.  Some people argue that there simply isn't enough gold out there for gold to be a global currency which I don't agree with.  This argument assumes that literally people are going to need a piece of gold in their hands.  A more likely scenario of a world on a gold standard is that currency would be based off of some fraction of gold but to me even though it is technically possible to return to a gold standard, it would not be in China's best interest.   The biggest most powerful player in the world won't let anything happen if it's not in their interest.  If the rumors are true that China has only a tiny amount of gold compare to its fiat currency holdings then returning to a gold standard would mean disaster for them because Western central banks hold a lot more gold than they do. China would be right back at square one economically.

Instead what China will do and has been doing since 2009 is to continue to push for the reminbi to become a global currency and continue international trades without the dollar as a middle man.  From the looks of major trade dealings going on between the Asian countries it looks like that may soon become a reality.  This means good bye dollar value!!  Forget conspiracy theories about big banks pushing down metal prices, you should diversify away from the dollar anyways because it's no longer going to be the world's reserve currency.  This is not something that can be voted on and debated on.  If countries don't want to trade in dollars, there's not a thing the US can do about it.  The US used to be able to bomb those countries who didn't want to use the dollar but not anymore. The US is broke.

NY Times: The True Story of Japan's Economy

I love it when I read articles that state the same things I've been suspecting myself.  For a long time, I've been wondering why the US media always talks about Japan's economy in a negative light.  Despite all the negative portrayals of Japan's economy, when you set foot in Japan as an American what the media says just doesn't add up to what is actually there right in front of your eyes.

If you compare the average Japanese citizen to the average American citizen, Americans are paupers in more ways than one. The average Japanese has a better lifestyle, luxuries, eats out more, dresses better, has better public services and facilities, more advanced buildings, technologies, etc...   Why is this never talked about or considered when discussing how well Japan is doing as a country?   I agree with most of what the article posted below says, although I disagree with why the population birth rate is so low.

I think that has to do more with cost and being physically unable to raise a family of more than 2 kids in terms of living space and transportation.  I've seen moms ride bikes with their kids to get around.  The most you can fit on a bike is two which leaves little room for groceries.  Where would you stick the third or fourth kid?  On your back? Your head?  It may seem silly that I would use a bike as a reason for the low birth rate, but when you look at how majority of the people in Japan get around, very few people have personal cars and even if they do have cars they don't use them as regularly as someone in America.  Why?  It's cost prohibitive and where would you park the thing even if you could afford it?  Few people have houses, much less have a house that can accommodate more than one car.  Most families live in flats the size of shoeboxes.  Those lucky enough to get a house have to take out multi generational loans which is unheard of in America.

Anyways, enough of this. Here's the article. Enjoy!

  http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japans-economic-success.html?_r=1&pagewanted=all

Collapse of Bank of America?

Has anyone been keeping up with Bank of America lately?   I couldn't help noticing rather alarming developments.   After acquiring Country Wide, Bank of America has been faced with a bunch of lawsuits from multiple entities ranging from the states of Nevada and Arizona, AIG, and a group from Country Wide financial over the past year.    It looks like Bank of America is not only trying to stem the losses from soured mortgage loans as evidence by its recent attempt to sell off its toxic securities to BlackStone, but that it's also trying to raise cash as well by selling off a large portion of its stake in China Construction bank, selling of 5 year bond notes, and its international credit card business all with in a matter of a few months.  This is all occurring AFTER the supposed weak economic recovery and the repayment of all the bail out money to the big banks.  Usually, when a bank is not in keeping with a healthy banking ratio they start selling a lot of their assets both god and bad to raise enough cash to keep going.   If they are unable to do so, they may go the same way of Lehman Brothers.  Let's hope Bank of America does not go the way of the dinosaur, but I'm not holding my breath. 

Can Bank of America stem its losses from soured subprime mortgages and resulting lawsuits?  If news about BAC selling more and more of its good assets continue to hit the headlines, I'm going to be seriously doubtful about its future.  I really think that if Bank of America falls we will experience another global financial meltdown.  The next few months are going to be very interesting to see.

Update:  Looks like BAC already got its bail out package from the government already since 8/10/11 in the form of a $500 million dollar sale of its troubled assets to Fannie Mae and Freddie Mac which are both government entities.  With buddies like that, who says you need congressional approval or the Fed to bail you out?    It does appear though that those assets are rapidly deteriorating in value and that government isn't so happy with the deal in the end.  Hmm, what to do. 

Zero Interest Rates Until 2013?

Hmm, now that the Fed has made the unusual announcement that they were going to keep the interest rates at near zero until mid 2013, that might be enough to buy the banks some time to get rid of their US debt.  That may mean there may not be as severe a crash as last time.  Plus, now that I think about it, since banks have been receiving bail out money and still are not lending and even calling back loans.....  that probably means they are in much better shape and not as over leveraged as they were in 2008.    If that's the case, then this recent downturn may not be as bad as the 2008 crash because the banks aren't as desperate to raise cash to stay in business.  I wonder....   I really hope there is a another "mini" crash though so I can buy more stuff.

Another Crash?

Well, as predicted the week of Aug.2  was indeed very interesting.  I'm guessing that since the US' downgrade in credit rating a lot of big banks found themselves in possession of large amounts of now increasingly illiquid bond/treasuries.    If that's the case then this sell off in the stock market comes as no surprise for the banks now need a source of liquid cash to stay in business.  Best way to raise cash is sell off your assets on the market, both the good and bad until you have enough cash to stay in business.  I wonder how much of a hit precious metals will take this time?  Will it be like in 2008 where financial institutions were chucking out everything and the kitchen sink?   If so, then that presents a rather golden buying opportunity.   Monetary debasement ultimately does not make prices of real assets cheaper after the dust settles and we just got more debasement the second Congress decided to raise the debt ceiling.  Fear and panic do lower prices though and that's only transitory.  My guess is that this sell off may last another 6-9 months and once again the Fed will be called upon to dump cash into the system via Q3. I wonder if this fear and panic will put the brakes on industries that were barely trying to get up off the ground for a few years?  In any case, the dollar is about to crash even further thanks to the raising of the debt ceiling and lack of fixing the debt related to social security and medicare/medcaid..  Interest rates are going to finally rise which will crush the bond market soon.  Actually, I think it started about a week ago already. Eh, that's just my thoughts.   Looks like it's going to be another wild ride again over the next 9 months.  I'm going to stick my neck out here and make a prediction.  I predict further stock market crashing over the next 6-9 months followed by a huge rally that may rival 2009's stock market rally and a giant rally in precious metals once again.  Let's see if I'm right or not.

The College Bubble

I laughed with glee when I heard that the NIA thinks that the US is in a major college education bubble.  Finally, there is someone else out there who thinks so too.  I predict that if things continue with the way things are now, ie the Fed constantly putting more money into the system, foreign countries getting fed up with the Fed's tactics and demanding the US sell its gold/silver piles and doing international trade without the USD, the US will see Greek style riots at public universities and maybe even government establishments.   If the NIA is correct,  then the riots at the universities have already begun.

Spend to Revive the Economy?

Perhaps I'm just crazy but I disagree with the Fed Head Bernanke's thinking that it is consumer spending that is the key to pulling us out of this recession.   I may not have the piece of paper (AKA finance degree) that says I ought to know about finance, but I do have a brain and can not understand why the Fed thinks that spending more money when you already have a huge deficit will pull you out of a recession.    I thought by now the Fed would have slowed down it's printing and not promise anymore bailouts but they said they were going to do just the opposite at the last hearing.   I believe the bailouts and all this government spending in 2008 helped slow down the speed at which our economy is falling into recession but it did nothing to bring us out of one.  Deficit spending does not allow for a country to grow economically and improve it's productive capacity.   To think so is pure madness. Why?