Wednesday, January 21, 2009

Canadian Silver Bug 2009 Predictions

I guess I’ve stalled enough and should record my predictions for this year and get it over with. My predictions this year will be two fold, first I will give prediction 1 which is the bare minimum of what I expect to happen this year and prediction 2 the, “oh shit, that’s not good,” all hell breaks loose kind of prediction. Since the crystal ball was a little foggy last year I'll try Tarots, next year I'm going straight to goat entrails.

U.S. dollar:

Last years strength made absolutely no sense and with the current predictions of a $1.5-2 trillion 2009 deficit it should scare the hell out of anyone who’s holding large quantities of U.S. dollars or debt. The recent 83-86 range on the US dollar index seems way too high but how can you judge a currency compared to its peers when they are all hell bent for fiat currency suicide, racing to zero with the pitiful greenback. While I believe the danger of a serious crisis is more likely than last year, there is no way of knowing which market or political event will pull the trigger, or when. Today’s dollar strength may just be enthusiasm created by the end of the Bush era and Obama’s promise of change but in reality Obama has no hope in of fixing America’s problems, they are too big, he’s only a man and Americans are too selfish to limit their expectations. You cannot fix debt and overspending by creating more debt and overspending. Pain, sacrifice, frugality and loss of empire are the only possible ways to save the system, all other courses will result in far worse outcomes.


I still strongly believe the Gulf States will drop or weaken their dollar peg and that some countries that use the U.S. Dollar as their own currency will start to look towards independent or regional currencies. Top on my list would be Ecuador, but others may also go this route.

Russia may demand payment in Rubbles by year end refusing to settle for dollars.

1. USD index will start heading down in a noticeable manner by second quarter and will drop to 73.00

2. The dollar could could fall under 64 should panicked foreigners start dumping treasuries.


I do not believe that "demand destruction" will be drastic enough to compensate for both oil field depletion and the promised production cut backs by OPEC. Today’s low prices for oil and N.G. say to energy companies, “turn off that drill, we are losing money” Oil shale, tar sands, and coal bed methane are all well below a profitable price eventually resulting in new developments and even marginal old developments being shut down. A shut in oil or gas well represents lost capacity we will need when demand goes up again or when shortages arise. A shut in wells also represent a total loss for oil companies who get nothing for their expenditures.

1. We will reach $100 oil again this year and N.G. will rise back over $10. While we are not heading sharply down the backside of the Hubbert's oil depletion curve YET, the loss in new developments and proposed cut backs will cause regional shortages this year. With Mexico depleting fast and destined to become a net importer within 18 months added to Venezuela's hostile attitude towards the the U.S., America could face regional shortages.

2. If $100 dollar oil combines with a crisis or a natural disaster it could cause last years highs to be matched. Knock out a pipe line or close all the rigs in the gulf for a weak plus repair time and $140 oil might be back far sooner than many could believe. We could even expect U.S. offers of military aid or advisers to places like Nigeria in order to stave off the repeated disruptions by rebels. Should the dollar tank as well, $200 could be investors home run for the year. Me, I’m thinking energy could be a better play the metals this year and some of the new money I’ve putting in the market has been building a position in the Horizon Beta Pro Bull ETFs for Oil and N.G.


World gold production is dropping for a number of reasons. Gold mines are closing or slowing development due to the credit crunch, South African mines still have power issues that are lowering output, older mines are becoming depleted just when the funding for new developments has become hard to obtain. All this equals less gold than projected keeping pressure on the price. Demand for small gold will continue to stay strong and with world mints not being able (or willing) to meet demand, premiums on bullion coins will stay high. Despite false concerns over deflation the drastic and purposeful devaluation of the U.S. dollar will continue to the drive smart private money and sovereign funds towards bullion.

1. Gold will reach at least $1100 and close over $950 by years end
Nov 9 , we hit my mimimum $1100. now we just need to close the year strong

2. If the U.S dollar tanks or inflation from the massive stimulus packages gets away from central bankers in 2009, we could get a price spike as high as $2000 for 2009


Silver will suffer both demand destruction from lower industrial use and supply destruction from the closing of base metal mines that turn out 75% of the worlds new silver supply. If we can maintain silver investment demand through this downturn stockpiles will shrink and the silver/gold ratio will tighten.

Obama with his infrastructure spending, stimulus and printing of money will be extra good for silver. Inflation from stimulus will force metals go up, while the electrical grid upgrades may include the use of super conducting cables which use silver in their manufacturing.

Other silver stories to watch for would include one or more major laptop manufactures offering high performance silver/zinc batteries instead of lithium or the commercial release of a cheaper silver catalytic converter in Japan. There also seems to be some substitution effect happening in the jewellery market with a lot of sterling being offered this past holiday season. Women still like their sparkles and will suffer with mere silver when gold gets too pricey, or at least their cheap husbands hope they will suffer with it.

1. Silver will hit $20 dollars and pressure to suck the COMEX warehouse stocks dry will continue, I would think bringing Comex silver inventories down to 115 million oz is a modest goal for the year and should be attainable. With the recession/depression leading to less base metals mining we could break the manipulators as long as investors can continue to take silver off the market and convince more of our friends and family to do the same.

While the price point still alludes me Nov has seen huge withdrawls from the comex lowering stock levels to below 112 million ounces as of Nov 17, I think we've already seen 4 mill withdrawn this month and it looks like we will hit the 7.5 million ounce limit

2. Dollar weakness or a concerted effort to draw down the silver inventories could do wonders for silver putting it north of $40. There has to be a magic level in silver inventories where industrial users panic and start to hoard. I don’t think this means we have to empty the Comex vaults we just need to draw them down to that point where the first industry panics like Ford did with palladium early in the decade.

All it will take would be 5000 futures contracts demanding delivery or 30,000 individual investors taking one 1000 oz bar off the market to drop stocks below 100 million oz and surely start a panic. Remember that almost half of the 125 million oz of silver stored are marked as eligible and therefore not offered for sale and delivery. This deliverable 65 Million ounces is the number we need to see fall either by changing status to eligible, or even better getting the physical metal taken out of the warehouses and the reach of the manipulators.

Other stuff

Inflation will continue to fall for a while but will rear its head late in the year as the crazed government spending has effect

Unemployment will continue to rise in the U.S. and Canada but only Canada’s figures will marginally reflect the truth, U.S. numbers are understated by at least 5%

China will have a crisis if not in currency then at least a wave of increased social turmoil as unemployed factory workers can neither find new jobs nor return to family farms that are either incapable of supporting them or which have been bulldozed or poisoned by industry.
A very interesting article that claims hyperinflation in China will be the straw that kills the U.S. dollar. I don’t know if I buy it the whole theory but it’s certainly plausible

Despite Government handouts and bailouts many more banks will fail this year, mainly smaller banks because they can't afford the political friends needed to save them. Just a week or two out from here I quantified my prediction to at least 80 which we know now was a gross understatement, but I still hit my target.

Housing will not recover in the U.S. and will continue to slump in Canada

Commercial real estate will get nuked as retail bankruptcies make it impossible for malls to stay fully leased.

With the minuscule returns offered on treasuries investors will start to turn back to QUALITY corporate paper. U.S. debt is a precarious investment at best and those who think low returns from a near bankrupt is a flight to quality are nuts and deserve what they get.

Obama will be unable or unwilling to do most of those things he promised in the campaign, while smarter and less tainted than the old regime his glut of ex Clinton advisers shows change is not really that far up on his agenda.

The best Obama can do is keeping the country together and continue the charade that the U.S. is solvent. Huge predictions for the deficit will lead to inevitable default or watering down of U.S. pension obligations starting towards the end of his first term, Obama will have to pull one huge rabbit out of his ass to survive an election.

The worst he can do is preside over the crisis that shatters an empire: debt default, hyperinflation and insurrection.