2012 Predictions, Guesses and Stuff

I have to say I’m really quite surprised at the resiliency in the system, or rather the lengths that the Powers that Be will go to in order to wall paper over the non-repairable cracks in the system. In truth nothing has changed over the last couple years, government and personal debt is higher, the production of phantom money continues, housing has not been allowed to discover its real bottom due to the lengthy foreclosure waits, the lack of clarity on title fraud and the huge inventory of houses on the market and hidden by banks. So while things have not unraveled as quickly as I believe they should I have seen nothing that says the problems are solved


Gold

The Euro is risky because of government debt, the spectre of QE and the huge possibility that it could soon be a splintered into several or many new currency.

The Dollar is hugely overvalued vs its risk. You have insane debt levels, nearly free Fed money, default risk on State and Municipal paper and the ever present danger someone with large Treasury holdings will put spite and vengeance ahead of self interest and torpedo the dollar. Personally I believe putting the dollar down may as well happen now as later.

Gold/Silver is the only real alternative to a dangerous currency market and with the exception of trapped money in RRSPs I’m nearly all bullion/cash. Being Canadian I have a little faith in our currency right now but were I American I’d be 100% bullion. What RRSP money I can’t move is largely into mining shares and energy

It’s my belief that we already seen the 2012 low for metals and I believe a conservative prediction for gold is $2100. Being an U.S. election year I don’t think panic mode will kick in this year, 2013 however will be madness.


Silver

I expect big things for silver this year at $70+ in large part do to the pressure of existing physical investment demand as seen in record sales for American Silver Eagles and Canadian Maples, both of which appear to have surpassed the domestic production of Silver. While neither country’s are top tier producers they are both industrialized countries that consume a great deal of silver all of which must now be imported.

Silver also has Eric Sprott to contend with and between his open letter to silver producers to abandoned cash savings for storing company value in physical silver and his 1.5 billion dollar prospectus to add 40-50 million ounces of silver to his fund, Sprott is going out of his way to squeeze the market. Savvy investors will jump at the chance to buy a better managed and fully accounted fund and drop the much maligned SLV trust. The current premium on the Sprott fund shows that a goodly part of the market sees SLV as a scam.

I’m particularly pleased to see some miners are fighting back, I hope that more companies hold onto their product until the price reflects a fairer value

While I’m stating $70 as my prediction for 2012 I would not be surprised to see Silver test $100 before some panicked manipulation slaps it back towards my goal.

Oil

We still have tensions in Nigeria, Iran, and Iraq so disruptions are quite possible, also Mexico is still on track to become a net importer instead of a net exporter (should have been last year but I don’t have the stats). Yes more heavy oil plays are being developed but nowhere near as fast as the better quality oil fields are depleted. I don’t see us going below $85 this year and we should see peaks north of $130.

U.S. issues


Food stamps and poverty

While the numbers don’t always show us the truth about inflation everyone who’s been grocery shopping the last year or two has noticed that prices are increasing and pre-packaged foods have shrunk in volume or weight. Examples are easy to see, lighter loafs of bread, smaller jars of coffee, butter tarts and cupcakes now come in 10 packs instead of dozens. Food, energy and a weakening U.S. dollar should raise U.S Inflation to at least 4% reported and closer to 8% real.

Despite the slight decrease in food stamp recipients in Dec I still expect that the 46.3 million currently on subsidies will grow to 49 million by the end of 2012. Don’t however expect the $ value of food stamps to rise to offset food inflation. [ Please people if you have any gardening skill and charity in you at all either start gardening and donating foot to people who need it or adopt a family in need and teach them to grow their own. Poverty and hunger hurts young kids the most delaying their metal development and reducing their chances of succeeding at school. Unless you want even more poorly educated underachieving citizens don’t let kids go hungry. ]

It is my belief that government unemployment numbers like U6 are still not broad enough to capture all those wanting work. It’s damn hard to make a prediction when you can’t trust the measure you’re guessing against, that said I suspect the U6 will stay in the 15% range while the Shadow stats SGS Alternative measure will hit about 24%

Housing

Being an election year I don’t expect anyone will have the balls to propose a law retroactively legitimizing all those questionable mortgage documents and titles. I do however expect such a law to be slammed though shortly after the election regardless of who’s wins because lets face it, the banks are in charge! While it would be suicide to legalize hundreds of thousands extra foreclosures during the election cycle it would quickly become business as usual after the vote when favours are called in for all those big gooey campaign contributions.

This means foreclosures will continue to drag out in the courts and banks will continue to hemorrhage as additional people decide not to pay their mortgage, even when they can afford to. While clearly unethical who wants to pay $300k for a house valued at $200k? With their equity all eaten away people may as well stop paying and squat for 2-3 years while they build up a nest egg or pay off other debt especially student debt which can’t be ditched in bankruptcy. Many will eventually walk away from their homes with enough money stashed to start over again.

For 2012 housing will continue to teeter in the worst of the bubble markets but may strengthen slightly in other areas. This is not because of overall economic health but opportunity buying in depressed regions like Florida by a new wave of speculators. There is also significant pent up demand from Canadians looking for vacation properties down south.


Bank Failures

While the pace of bank failures has fallen off from previous years there were still 92 FDIC insured bank failures in 2011. Banks are under conflicting pressures as they can’t quickly or cheaply foreclose on defaulted homes, when they do foreclose they may be leery of selling that home and watering down the market further, if they do sell they must admit the loss. If they sit on the house until the market improves they risk squatters and people stealing copper pipes and fixtures which often creates far more damage than the thieves recover and the banks can tolerate.

Really it looks like a no win for banks unless a sudden turn around raises home prices by 10-20% while employment rates soar. It’s not going to happen and another 100 banks should fail this year.


State and Municipal failures

There is no doubt in my mind that the trickle of municipalities filing or attempting to file for bankruptcy will both continue and turn into a raging torrent in 2012. There is also reason to believe certain U.S. states could default this year, key among those are Illinois, Jersey, Michigan, Nevada, New York, and California. This will mean hair cuts for investors and creditors, destruction of medical coverage, jobs and pension plans which will send these states into serious regional recession. The credit agencies will probably panic and lower other State credit ratings which will increase the chance of more defaults. Few if any states can maintain their debt and continue to honour all their existing obligations unless the economy turns around and as I’ve said before, it won’t.


Canada

With our high rolling commodity based currency inflation in Canada will rest almost entirely on the cost of energy, if Oil and gas stay in range this year inflation will stay modest under 3%,

Employment will trend up from its current 7.5% largely on austerity measures by the federal government destined to kill 50-60,000 jobs. This will be devastating to Ontario in a general way but will absolutely decimate employment in Ottawa. These job loses will weaken consumer confidence and retail and service jobs in the Ottawa area perhaps doubling the job losses.

Canada’s current government refuses to see the dangers of Dutch Disease as higher commodity prices drive the Looney and kills manufacturing. Rather than hoard vital resources for the long hall Canada’s all out race to produce everything for immediate export will ensure poorer quality jobs for the majority. Eventually it will also mean Canada won’t have saved any of our resources to ensure Canadians have those things we need. 40 years of exports vs 200 years of domestic consumption, which will be better for Canadians in the long run, especially once peak oil hits?

Canadian housing is far from affordable and cannot maintain these prices indefinitely, despite tight supply something has to give soon. I think and hope we will see price stagnation for the first ½ of the year followed by a slow and orderly price decline in the second. We don’t need a U.S. crash but we do need price moderation to ensure affordability. With the government austerity Ottawa will probably be the first market to slump.

Other risks

Greece, Spain, Italy, Hungary, Ukraine - Unless the monetize everything and destroy the Euro a default will happen and probably this year.

EU solidarity- IMO Greece is as good as gone, it’s just a shame I can’t short the new Drachma now. If one goes the precedent will allow it to unravel.

Chinese Banks- a soon to pop housing boom and many factories operating at or below break even means bad loans will abound.

Climate change. -

It’s late January in Toronto and I’m worrying about where my umbrella is rather than the need to shovel so I can’t help but believe the real consequence of climate change are finally being seen. So far this winter we’ve had no snow to build up the water table and fill the lakes, there have been winter grass fires in the prairies, no ice fishing, no skiing, and no severe weather to kill off agricultural pests.
I know the metals community is rife with those who don’t believe in this issue but where I sit this region is changing and changing quickly, hell last year I saw my first possum in Canada, which just isn’t right. You may argue we didn’t cause it but I don’t believe anyone can honestly claim something isn’t happening. Who caused it is irrelevant but there will be financial consequences like the destroyed forests of BC, the droughts and fires in Texas, Floods in Australia and the recently unpredictable monsoons in the Indian Ocean. Climate change is a wild card that’s going to hurt someone this year, we just don’t know who and there’s SFA we can do about it.

Quickie 2011 prediction recap

I’m behind in my work, my life and next years prediction so I’ll quickly gloss over my failure and hype my success(s) from last years predictions

Gold

I called for a high of $1800+ and floor of $1300, I have to say I’m pretty freaking close on this one, I made my minimum high and beat it by $100.30 and my kept above my low by $14.90

Silver

I was disappointed by silver this year missing my estimated high of $50 by a mere $1.30. The bigger surprise was how the corrections held and eliminated the entire gain for the year. Silver still has a strong story but far too many dealers and investors are hanging on to the belief that paper silver which is over leveraged and in all likely hood undeliverable for all but 1-2% of the contracts issued is the same as owning bullion.

Oil

I expected that false tales of growth, enthusiasm or shortages to pop oil to $120 early in the year and I was wrong. We did hit $120 late in the year with Brent but it has not held long enough to cause a recession, of course its kind of irrelevant because European austerity measures in response to their debt issues will eventually drag the world economy towards stagnation.

Housing

U.S house price declines continued in some regions but there has still been no fix for the electronic registry issues, no way to fast track foreclosure and no way for banks to clear inventory without taking huge loses and causing bank failures. All this adds up to an issue that can’t yet be settled, the rot continues. I was expecting an unconstitutional law to retroactively legalize the electron registry issues and enable quick seizures; this didn’t happen and with an election in 2012 cannot happen until 2013.

Unemployment and poverty

Food stamp use continue to grow as predicted to a whopping 46.3 million or 15% of the population but did not hit my expected 48 million goal.

U6 unemployment has dropped to near 15% which is way off my 19%, I don’t believe the government numbers but my prediction is way off as I can’t prove otherwise. I will note that John Williams alternative unemployment measure which used to mirror gov stats )just many points higher) deviated up from the government trend. Someone is wrong!

Canadian content

While cracks are appearing things have not deteriorated as quickly as I expected in Canada, Inflation was moderate at just below 3% largely because my expected peak in energy was late in the year and largely unaccounted for yet.

Housing is holding fast due to a lack of a U.S. style glut of homes and rampant speculation, but how long can this shortage prop up a clearly unaffordable market in Toronto and BC?

Unemployment is 7.5% trending up

I would say my Canadian expectations are about 6-8 months ahead of reality, the economy is slowing and Conservative austerity in all things not war related will begin to bite the job market hard soon.

As in most years I think my sense of the trend is accurate but my timing sucks.

I'll have my 2012 predictions out by early next week,, I promises not to look at the papers until then ;)

Silver at $30, Am I buying?

It looks pretty obvious that after two crashes $30ish is the new floor for silver and as such it is an excellent time to buy. Unfortunately for Canadians our dollar has taken a shit kicking over the last couple weeks so today’s silver sale is a little less sweet than it should be. (With a lower price and a higher currency Americans should definitely be jumping back in with both feet.)

What I can’t understand is the flood of money from the Euro to the U.S. dollar. That’s really akin to changing your cruise booking from the Titanic to the Lusitania, either way you’ll end up taking a bath. Regardless of reality, the trend toward the U.S. dollar and weakening commodities will continue to hurt the Loonie until such time as something major and disastrous hits the U.S. market, BOA failing perhaps? All we can do for now is ride it out.

So in answer to an email that asked if I'm buying? Hell yes!

But what to buy?

At the beginning of my silver investing I was overly concerned about the premiums on small bars and ended up with two many large bars, mostly 100s added to the junk I had already collected. While logical in that I was getting the most for my money I believed and still believe that fiat currency is destined to be destroyed and that silver and gold would once again be circulated as real money, in that situation the big bars I have aren’t very practical. Face it, when silver goes up to $200 dollars an ounce it’s going to damn hard to break a 100 ounce bar at Tim Horton’s or barter at the farmers market with a Kilo of silver.

With this in mind I’ve been focusing my purchases on smaller and infinitely more practical 5 and 10 oz bars as well as many 1 oz rounds which were generally the smallest sized silver you could find. Recently however a wide range of smaller sized pieces have been coming to market including ½ ounce rounds, 5g, 10g, ¼ oz and ½ oz bars from NorthWest Territorial Mint, both in their own brand and for Pan-American Silver. At this time the premiums on these tiny bars are quite high making an ounce of silver in ¼ oz bar form just shy of $48 us, or the ½ bars $36.66/ounce vs a full ounce round at $34.33. For Canadians there is also the issue of cross boarding shipping combined with the possibility of wrongly assigned duty because people don’t know their jobs. Curious if anyone else had new products I also checked out first Majestic Silver who now have their own ½ round (also from NWT Mint) at $35/ounce. Available in a previously hard to find size, under a 5 dollar premium, in country and quite pretty too, This is what I’m buying!



Added Oct 11

Ok I have recieved my 1/2 oz rounds last week and they are nice enough that I've reordered the maximum 10 rolls, plus some more 1oz rounds. I wish First Majestic Silver had an associate plan of some sort, I'd proudly sell these.

So we’ve had a correction, so what! There are bigger stories.

While I only posted it on Facebook (I was too busy working an election campaign to blog) I mentioned a number of weeks ago that we had gone too far too fast and I suggested selling silver equities between $45-50 silver and waiting for what seemed a guaranteed and much needed correction. It turns out I was correct in theory but was once again too busy to fully execute my devilishly cleaver (dumb luck) plan. I started to get antsy about $47 and pulled the trigger on my silver Wheaton, Arian, and a couple others but I didn’t get around to selling everything. Still it was a decent call and while fearful of catching the falling knife I re-entered the market and rebalanced my portfolio on the way up at about $35. I’m relatively confident we’ve seen the worst moves the year and it’s mostly up from here but this correction may not be the most important story of the year. I believe the bigger but largely ignored story is the state of the COMEX stockpiles which highlights two important trends


Total silver

While the total amount of silver in warehouses fluctuates as you’d expect, the total of silver on hand continues to trend lower. I believe total silver stocks will break below the 100 million ounce mark this year, a move which should be a major psychological milestone bringing much more ignorant chatter about industrial shortages to market.

Deliverable silver

The other trend has been the shift in delivery status of COMEX silver to a point where only about 30% of their stocks are in the registered category, the category that’s available to fulfill contracts. This is a strong signal that the owners of silver are either not interested in selling their silver at today’s price or perhaps not interested in delivery at any price. This reduction in deliverable silver will eventually be a big story, one which relevant or not will push the next wave well past $50 oz.


Reality vs….

Of course any talk of absolute shortages at this point would be total gibberish as smart silver users would have looked into direct mine/smelter purchases or created a large enough SLV position to demand delivery from London some time ago. As long as SVL is actually backed by bullion(?) and the rules allow large baskets to be delivered there will be no real shortage. This situation could however create additional hurdles for manufactures in both costs and complexity. Any COMEX shortage story will not necessarily indicate a real shortage but could in time turn into a self perpetuating prophecy as large players and greedy speculators (us?) start hoarding.

All said it could get nauseatingly volatile in the next year or so if you must speculate do so in cash and only in equities, hold on to your physical silver so tight your fingers bleed.

There will be a time to sell physical silver but not below triple digits or a Mad Max scenario.

10 Beautiful Silver Products

I thought I’d do something different for a change and discuss what I think are the most beautiful silver products. After all it might be many years until we hit our personal target prices so why not have an investment product whose beauty we can appreciated while we wait. This also gives us all a chance to see a few things not in our own collections. I encourage you to comment with links of beautiful things I’ve missed.

I’m not going to put these 10 items in any particular order as that just leads to petty arguments.


Scottsdale Silver’s Stacker-

I think this is a relatively new product and I can’t tell you how much I love the bevelled shape and utility of these uniform stacking silver bars. These are available in both a 10 and 100 oz bar and I’d love to add either size to my collection. I do wonder however if there is any wear or abrasion between the bars when you stack them, or do they have an adequately loose fit.

First Majestic Silver- 1 Kilo

You might not want an entire collection of these matt finished bars but as a contrast to all the high gloss products you already own I would highly recommend this product with its subdued sandblasted finish. The quality of First Majestic products is excellent but this is the only piece they make that stands out in terms of design and looks. I own many of their rounds and a few small bars but I’m not that in love with their design, this bar is the exception.


Wall Street Mint-

I can’t say that I add any extra sentimental value to this product due to the Twin Towers on the New York sky line but this is still a pretty bar. They came in 10 and 100 oz bars.


Mexican Libertad

Americans have far more exposure to the Mexican mint products than we do here in Canada and that’s a shame. The Mexican mint has quality products and absolutely stunning designs such as the Silver Libertad shown here. I’m sure it varies by year and demand but they have been released in 1, 2 and 5 ounce sizes as well as normal finish and proof.

As you can see here there is also an older design Libertad and while not anywhere near as attractive it’s certainly worth having both to compare.


Silver Canadian Maple

The Maple is a high quality coin with a simple bold image that is not lost in the clutter like many other coins or rounds. Production began in 1998 and coin has the distinction of a higher face value ($5 Canadian) and higher purity than many of its contemporaries 99.99%. There have been 3 different images of the Queen during its years of productions, small runs with special privy marks and 1 year where a 10oz version was sold to commemorate 10 years of production. sadly I missed one of these 10 oz coins on an eBay auction a couple of years ago failing at the time to realize how rare they were.



Australian Kookaburras

This is a nice series of coins with different Kookaburra images each year available in 1oz, 10oz and 1 kilo sizes. Some years images are better than others, premiums on this side of the ocean are high but it’s still a great addition if you want to enjoy the beauty of your investment

Silver Britannias

Some years I really like the images on these coins, other years not so much. I do however like coins that change it up and give you new images even if they can’t get it right every year.


Sunshine Mint

These bars have a good bulky look and a nice design that contrast the detailed coin like area with the brilliantly shiny back ground

Pan American bars/rounds

I really like the simplicity of design and the fetching contrast between the matt and shiny finish. It’s interesting to note that Northwest Territorial Mint makes these lovely Pan-Am products yet their own NWT branded bars/rounds are not attractive at all. In the end manufacturing quality does not matter if the design sucks.

Eagle/Peace Dollar

I’m not adding the American Silver Eagle and I know readers will shit all over me, too bad! I know it’s very popular and many people talk of its beauty but I just don’t like the design. I find the Eagle cluttered around Liberty’s head because of the flag and the bundle of crap over her left shoulder and to my eye they never look struck quite deep enough to give adequate contrast unless you get the proof coins. The proof works the normal coin does not. I also begrudge praise to a high end coin that wimps out by only using 99.9% silver.

Now a Peace Dollar with a nice patina is a beautiful coin suitable to be on the list, to bad you have to pay such a premium to buy one. Perhaps they should revamp the Eagle with this old image. The bird side of the Eagle is quite nice, just replace the cluttered Liberty



Beauty is in the eye of the silver-holder

When it comes down to it, sometimes it’s not the perfection of design that makes a particular product your favorite. While I see the beauty in all these products some of my favorite hunks of silver are odd shaped hand poured ones or the rare 10 oz Bache bar I picked up on EBay very early in my silver fixation. The Bache bar was uncommon, somewhat different in shape and was a piece of the Hunt Brothers story making it a favorite even if its not as shiny and pretty. I’ve never taken a good picture of my Bache bar but I found this little thumbnail online.