Thursday, December 30, 2010

Canadian Silver Bug 2011 Predictions

Looking ahead into 2011 I see no reason to question the trend I’ve been following for the last several years. In previous years my predictions have not been so much wrongly inspired but wrongly timed and much of what I still see coming are either leftovers from last year’s post or my longer 5 year prediction (now 4 years).


Overall I expect continued strength in gold as the recent trend of massive buying on dips creates an ever rising floor which resists being pushed below. This stubborn resistance stopped a couple of late year attempts at running the price down and is a good sign that gold will not be going below 1300 again. On the up side I’m calling for $1800 regardless of the currency markets, if however the U.S dollar index collapses below 70.0, $3000 gold is possible. Of course the US dollar index itself is corrupt and becoming quite irrelevant when so many of the worlds major currencies are playing the same games of monetization, gold itself is perhaps the only valid measure of currencies left.


$50 silver seems like a big leap for 2011 but one I’m willing to make, demand remains strong, supply cannot be greatly increased and there is so much existing demand wrapped up in defective, badly managed, unbacked and entirely fraudulent paper products masquerading as real silver that anything including a default somewhere is possible. We don’t even need to convince the public to buy a couple hundred million ounces to bust open the Comex or the LME all we have to do is build enough doubt into those poor saps who’ve bought paper silver that 1% of them demand delivery. That’s all it would take to bust this wide open and make Silver the investment of the century.
Silver will continue to outperform gold and the silver to gold ratio should fall below 40 next year

I expect the Comex stockpiles to drop below 100 million ounces early in the year and continue down, whether we can reach the industrial panic level this year (or what that level is) I don't know but I can't see manufacturers sitting on their hands when levels drop below 90 mill.


Peak oil is very near and even the U.S. military states in the most recent Joint Operating Environment report “ By 2012, surplus oil production capacity could entirely disappear, and as early as 2015 , the shortfall in output could reach nearly 10MBD (million Barrels a day)” So while this is not necessarily the crunch year I believe we will see $120 in the first half of 2011 but it may correct sharply if the price is high enough to prompt another “acknowledged” recession, me I’m not convinced the old one is over yet!

I see more regional/seasonal fuel shortages in Canada because of reduced refinery capacity

I can’t know how the U.S. system will deal with the fraudulent paper trail surrounding millions of residential mortgages but I can guess they will pass a new law retroactively patching over the mistakes made.(Constitutional or Not)

This law will undoubtedly favour the very banks that committed fraud, failed to maintain the correct documentation, and bet against their own customers and will instead punish the average Joe. That said, I don’t pity the dumb ass who bought an overpriced house with no money down, no prospect of actually paying it off, just so they could partake in the American dream. The American dream, western superiority, and consumer gluttony are now all symbols of a failed experiment in greed. Yes you can curse about the banks being predatory but if you are too $@$% stupid to read the fine print, factor in risk, model scenarios on increased interest rates etc, and only buy what you need rather than what you want, TOO BAD. You are not a victim but a contributor to the problem.

The banks however will not gain much from this new law; Yes they can continue on their merry way foreclosing on 20% of the nations mortgages but they cannot sell these properties for what’s owed on them, neither can they afford to buy back the 100s of billions in compromised mortgage bonds they sold as Investment grade. Add in the increasing failures in commercial mortgages and banks will continue to bleed out causing 270+ banks to fail in 2010

I still question the rationality of kicking people out of houses and leaving them unmaintained when banks could open up a rental division and generate some cash flow on them. It obvious they can’t flood the market with all those empty houses or the market will tank another 20% or more so why not keep people in them, generate cash flow, and keep them maintained? The entire industry is run by dumb assess.

It’s probably happening in some areas already but I suspect that on a national scale resale houses will soon sell considerably below construction costs. At those prices, the stigma of foreclosed resale properties vs. new homes will lessen and new house starts will continue to fall.

Unemployment and poverty
U.S. Broad based unemployment will continue to rise on more real job losses, more graduates unable to find work, and more pensioners attempting to return to the job market. Look to the U6 number to come in about 19%

Inflation is being felt in areas like food, energy, insurance/medical costs; it’s also being seen strongly in the commodity and wholesale prices which will manifest themselves at the retail level by mid year in a way which government stats will not be able to hide.

As we speak about 43 million Americans or 13% are on food stamps, I call for 48 million by year end with no increase in their dollar value. Poverty will not only spread but deepen.

More and more tent city/shanty towns are popping up on the fringes of U.S. cities, Crime, unrest and violence will increase often in depressed jurisdictions that have already been forced to lay off law officers. While I doubt societal breakdown is pending this year, lawlessness will increase will increase with poverty, many areas will not have the resources to cope.

I said the same thing last year but I still expect scores of towns and cities to declare bankruptcy (if allowed to in their States) or simply default on either they debt repayments or pensions. While not able to go bankrupt a few States may also default debt or obligations.

QE3 is a possibility but regardless the U.S. debt will spiral further out of control, what’s a few more $ trillion when it’s now impossible to balance the U.S. budget. The U.S budget deficit is now larger than ALL federal government discretionary expenditures and without massive real growth or cuts to pensions, Medicare, and other government obligatory payments the U.S. Gov can never balance its books.

If QE3 happens it will be rationalize as a way to bail out the lower levels of government

Added Jan 2,
I think we will see student debt defaults spike this year, enrollment dropping and more existing students not finishing due to inability to pay tuition or get new loans. I also think we will see a a couple of for profit universities go bust.

Canadian Content

I believe 2011 to be the year when the shit begins to hit the fan for Canadians who’ve smugly spend the last 2 years claiming moral superiority over our neighbours to the south. Things will start to unravel in Canada but the results will not be quite the same as America’s for a number of reasons

1. While Canadian personal debt is way too high our government debt to GDP is still modest in comparison

2. There is still healthy demand for Canadian debt without monetization.

3. While undoubtedly underfunded our Government pension fund actually has more than IOUs in it. Is it enough to be self funding? Hell no! But it is both substantial and salvageable if we start clawing back more from those that really don’t need it and disallowing early retirement or even push up the age from 65 to 68 or 70. Working is good for the body and soul; inactivity costs governments both in pension and in medical expenses.

4. There is no glut of residential housing or residential rental

We will however begin to see a growing trend to inflation; 5-6%, mainly because of the energy and food components which might run as high as 25%

We will see the housing market slump (but not as much as in the U.S.) prices will come down 5-8% continuing the trend into 2012.
Housing starts will slow.

With lower prices pent up demand will allow many people to enter the market and grab bargains, there will be no ghost town developments.

Unemployment will rise from 7.6% to above 8% maybe so much as 8.3%

International Considerations

I still believe the EU is in major danger. Recent riots in Greece will be echoed in other Mediterranean States and Germans will become mighty pissed off at the expectation they will bail out every failed state in the EU. I still expect EU members to be leaving of their own free will or being tossed out by the majority as part of my 5 year prediction with Ireland, Spain, Portugal, Greece and even Italy as prime choices to be shown the door. I also believe EU expansion is over; the Baltic States will not qualify to join and would be better off not doing so regardless. The abysmal condition of the Med States and its impact on the Euro is the only reason the US dollar has not broken down they way it should

The BIG story in 2010 should be Spain which unlike Ireland and Greece is far too big to fail but at the same time is far too screwed up save. German banks are on the ropes and Spain could well bring them down unless a huge monetization of debt takes place EU wide. This is why it’s possible for gold and silver to soar without any perceived U.S. dollar weakness.

China, Russia, Brazil and a few others will make more deals in their own currency, cutting out the need to use Dollars or Euros.

China is suffering high food inflation, a housing boom and reckless lending practices; I suspect we will see some internal turmoil but the crash they are facing will not be this year

Last words

Overall the trend continues to point towards hard times. While gold and silver are great investments, debt reduction, food security, and taking care of each other should not be ignored. Good luck all!


Uncharted Thoughts said...

Here are some points to consider.
America, mathematically is bankrupt. The only thing holding its dollar up is the fact it is the worlds reserve currency. That said, there is a strong trend away from the dollar.

I'm Canadian, so when dealing in US stocks we must be mindful of the exchange rate. Which has been quite volatile.

Our CAD is strong, we have low debt per person, and tons of resources.

Oil at $120, we can expect the USD to be worth $0.8 CAD. Remember the CAD rallies when oil goes up.

That means if you are holding US stocks, you just took a 20% cut in your profit margin.

I like this blog, your predictions match mine.

I know how I plan to play this, but I will wait until the dollar is done rallying for the 1st quarter.

Art said...

Great post.

I get the idea of accumulating silver as investment but what's the easiest way to sell it?

Can I just go to any bank and sell my silver bars to them at market price?

Anonymous said...

If you bought silver from the bank.If you want to sell it just present id plus original receipt and they will pay spot minus a small comish.Best bet sell it to a honest dealer who will probably pay over spot since your silver bullion is probably primo brand ie jm or englehard and not the Season Greetings variety.

Aquataine said...

Interesting food for thought here Gents;
These guys on the oracle are a bit alarmist but if the recent buying, despite the USD, is any indication...hang onto your lug nuts, wink.

Aquataine said...

Ho Ho Ho look at the price of Metals now! Looks to me like the whole cycle is accelerating or that just my imagination. Big drops in silver are moving us towards a buy position fairly soon I would guess. Easy does it, haha.
Big question is how far away is the bottom?

Anonymous said...

Just came back from a coin show in Hamilton Ontario Canada, not a lot of silver 1 troy ounce bullion coins available.....maples and wolves selling for between $ 32.25 and $ 33.50 each, 1/4 ounce of gold about $ 380 per coin....general feeling among trusted dealers is that there is tightness in supply and good 999.9 pure product uneducated opinion suggests that since actual physical supply is small and the demand is strong and becoming greater the laws of supply and demand dictate a strong upswing in price for gold and especially silver....stay invested in physical and maintain your hedge against hyperinflation....good luck!

Anonymous said...

Until China and India reject the US Dollar it will continue to be currency of the world. That being said, when it falls, it will be hard and fast.
Another good thing to remember that silver being USD$50 doesn't mean that it will purchase twice as many goods as it did when it was $25.00 It only means that it will purchase twice as many USD.
As far as peak oil goes, we are no where near peak, with massive liquid reserves having been discovered under Sask, Manitoba, and the Dakotas. We need never fear the disappearance of an energy source, because another will take it's place as the original source becomes cost-prohibitive.
Speak to previous generations, and you will find that they heated their houses with wood, coal, oil, propane, electricity and natural gas - depending on the price.
Peak oil will not affect people nearly as hard as some green alarmists would like us to think.

Just my $.02

Anonymous said...

Silver $50 this year seems to be on the cards.
Skye said $50 silver may not buy twice as much goods as when it was $25 ... good point, im trying to value everything in ounces of silver an ounces of gold and the good news is that their buying buying is increasing every year.

junga said...

We need never fear the disappearance of an energy source, because another will take it's place as the original source....hmmm.. I'll stop worrying when they can make solar, wind,or bio energy cheap enough to fly planes. It's not whether or not there are other sources, but are they AFFORDABLE. I live in Korea where everyone drives huge cars, as if there's no tommorow. i enjoy ur blog!

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