Canadian Silver Bug- Predictions for 2008 pt2

Ok this installation is the big stuff, lets look at precious metals.



Gold,



based on U.S. dollar weakness, flight from risk and the instability of paper assets world wide I believe 2008 will see $1200 dollar gold. This of course is based on a continued, somewhat orderly fall in the U.S. dollar. That said there is still the chance of the Chinese nuclear option of dropping all U.S. debt or some other calamity still leaves the possibility of astronomical gains. 1980 saw what panic/mania/ can do to a market in a very short time and while destined to happen the risk of panicked spike is much higher than the chance of peace, goodwill and sound fiscal management fixing the worlds woes and dropping gold back down to $400.


Silver

Based on the same factors as gold, silver will go to $25 in 2008.

There are slight differences in the markets however, while I believe silver is money many still look at it as only a commodity so naturally in a crisis more money will move to gold than silver. This is where it gets complicated, first there is much less silver available in the world so it would take much less new investment to bid the price up, that’s good for us. The Nymex is evil and quite probably allowing manipulation, that’s bad for us.

The Nymex holds about 133M oz of silver and between it and the silver EFTs accounts for most of the available silver. The Nymex also has regulations limiting how much you can have delivered per month making it difficult for any one person or institution to accumulate large quantities or bleed off their stockpiles quickly.

Eventually however enough people will quit trading paper and demand delivery, a quick move towards delivery that takes down stock piles 20-30% would at today’s prices only cost 600 million, a drop in the bucket compared to the values of hedge funds, pension funds, and sovereign wealth funds. This kind of move will panic industrial users to secure a year or twos supply rather than accept the security of just in time delivery, the ensuing rush will push silver much higher. It can’t all be bought by one entity but it will get bought, delivery will be demanded and eventually there will be default as far more paper trades than silver exists.

I’m not saying this will happen next year but this is destined to happen. The default is the magic moment physical silver holder must wait for; the silver/gold ratio will go from today’s 55 to 17, 10, maybe 3.1212232332? I don’t actually know, I do know silver is way below it historical ratio, it’s natural ratio, and it’s above the above ground ratio.

While my status quo prediction for 2008 is $25, a silver default could price silver over $200.



Platinum and Palladium.

I don’t usually mention these because they are not now and have never been money. That said, there is a lot of risk with these metals, short supply, strikes, hostile and potentially manipulated producers, mine accidents all of which could pump the prices. I won't set a price for these but I do expect them to go up. Bang for the buck however, Silver has the most potential so I can't see any reason to bother with Platinum Group metlas.

Part 3. will be along in a few days, it will be some general predictions, and a few what if's.

We are having a nice correction likely from Goldman Sachs self serving claim Gold has peaked and the markets are getting over the credit crunch, Bullshit!

My belief is this is a ploy to strenghten the dollar or to cover short possitions by driving the price down. Don't believe them and take this opportuntity to stock up.

Canadian Silver Bug- Predictions for 2008 PT 1.

I’m going to break my predictions for 2008 into a few bite sized posts, to make them easier to digest, discuss and to drag this out for more days of content, ha!


A Bigger war in Persia,

NO

While I do believe that Bush and Darth Cheney are stupid enough to do it, I don’t believe they can because of the weakness in the system. I think a war would cause Generals to quit, protesting bad orders. There has to be strife in the military, they are over stretched, they’ve been stealing tracks from armoured vehicles in Korea to meet their need for spares. They have too many soldiers putting in multiple tours, too many National Guard acting as full time soldiers, too many soldiers failing to re-up, too few new recruits and with the banning of Blackwater and possibly other contractors in Iraq, it is going to leave the U.S. with no wiggle room to enlarge the conflict.

Iran has them by the short hairs and the U.S. dependency on foreign oil from hostile states like Venezuela means any war would lead to an immediate energy crisis world wide.

Between modern air defense (unlike Iraq’s), subs, massive missile stockpiles, super sonic anti ship missiles, and suiciders, any fleet in Arab waters will be sunk, oil terminals for the Saudi’s , Kuwait, UAE, etc will all burn. China who would lose a lot of its energy supply and would likely pull the currency bomb destroying the U.S. dollar. There is no marginally winnable scenario for an Iran conflict up to and including enough neutron bombs to sterilize every town over 100 souls

Dollar Pegged Currencies

I expect to see most or all of the Gulf states turn on the U.S. and drop the dollar peg as Kuwait did in May. The massive devaluation and over creation of U.S. dollars is creating strong inflation and big losses in the currency reserves of Gulf states. As protection from a falling dollar many are already shifting reserve ratios to include more Euros, Pound, Swiss Franc, and Gold. This trend will continue further weakening the Dollar and the problem will snowball.

Other pegged countries include non oil producers like Lebanon, most of the Caribbean, and Jordon. Inflation will also force some of them to re peg to the Euro or mixed currency baskets.

Countries Using Dollars as Domestic Currency

Its one thing to peg your dollar to the U.S. but there are also a handful of countries that actually use the U.S. dollar as their own. These include British Virgin Islands, East Timor, Ecuador, El Salvador, and a few others. Panama's currency is U.S. notes traded in tandem with domestic coinage. I predict Ecuador and likely a couple of others on this list to institute new domestic currency or switch to Euros. These States are relatively small economies and the damage would be more image than substance. Still, as soon as one country make the move the chances that other will follow increases.

I suspect there to be some serious talk about a South American regional currency. I don't believe it will go anywhere however; Chavez and his big mouth will likely sour the process before a deal can be made.


Dollars for Oil

I also predict more States will begin to price oil and demand payment in Euros rather than Dollars. Iran has begun demanding Euros and soon other countries will follow. This is a huge market and the demand for Dollars will drop greatly when this break is made, the dollar with plummet. The last hold out will be the Saudis. Since Kuwait has already moved from the dollar peg I expect they will be the first, if not them, Russia.

U.S. Dollar

There will be ups and downs but buy the end of 2008 the U.S. dollar will have lost almost 15% putting the USD index about 11.3 lower than today's level of 75.75 or 64+-.

It would even be more but by mid 2008 both the ECB and the BoC will have no choice but to start cutting interest rates and weaken their currencies in response. I think China will make some small (under 5%) revaluation of the Yuan(Renminbi)upwards as a anti inflationary move that the west can claim as progress in trade issues.

The main factors of the USD index will be a worsening U.S. Economy and a drop in interest rates to 2% by 3rd Quarter

The Yen

You can't decrease your interest rate when you barely have one. The Yen will be the big gainer as other big players join in a new rate cutting cycle. Try as they might I don't think the Japanese will be able to indefinitely suppress the Yen against the Dollar.

That's enough for now, maybe I'll get the rest of it out by weeks end.

Remember remember the fifteenth of November

Remember remember the fifteenth of November
Derivatives and bad paper amount
I know of no reason
During reporting season
That losses not be taken account


The fifteen of November is going to a very important date when this debacle is writen up for the next generations economic text books. The day itself will probably be rather boring but its importance will come from the effect of the FASB (Financial Accounting Standards Board) statement 157 which changes the accounting rules for the reporting of asset values by companies.

The big losers from this rule change are going to be financial institutions now sitting on tonnes of bad paper which is not easily priced. Unlike Stocks and bonds which have know market values, the world of assets also houses other classes of assets that do not trade readily and are difficult to accurately price. This was a godsend for financial institutions because they could price these items to a model, or to reflect their own assumptions which generally meant they could be priced at what ever value the organization wanted, ie. much to high to hide losses. This Voodoo accounting is about to end.


The gist of the rule is to force companies to attribute fair value to assets based not on internal models or unobservable inputs but rather measure them at the best of their ability as the external markets themselves would price them. As of Nov 15 2007 they must factor in the same non-performance risk that the general market would attribute to this asset, not the original erroneous credit rating they were given on creation.

No longer will companies arbitrarily decide the value of CDOs in their portfolios, they now must report "fair value".

In coming months this new standard will force companies to expose all of their malinvestments and the increase in reported write offs will be absolutely huge in comparison to the losses they have already admitted.

The total could very likely be in the 400-500 billion range and should increase the body count as more than one bank could follow NetBank to bankruptcy. Sure there are funds building up capital to buy CDOs but they have no intention of paying anything near full prices for this paper. The vast amount of paper and the likely weak market for risk makes me believe this stuff will sell, (if it can be sold)at fire sale prices.

This is the big test.
Which Banks will crumble?
Will the Government step in and buy bad paper or bail out banks? Will this generate so much new money that the U.S. dollar collapses?

We had a heavy correction today and it would have been a good day to buy some more silver, unfortunately my bank is closed due to a carry over of the Rememberance day holiday.

If you have cash buy silver now.

Predictions Past and Future

In the past year I have learned alot from both writing this and reading other peoples work. What began as a silver blog has by necessity spread to comment on many other aspects of the economy, Canadian, U.S. and world.

Some weeks it's not necessary to mention what happened to gold and silver but little did happen, rather it's more important to highlight a greater trend, a new threat, or the corruption inherent in the system.

The past

With the year end approaching I thought it was time to consider past and future predictions. In mid 2006 I made a number of predictions to friends.

1. U.S. recession- While I can't prove it by Government stats- (they lie, they must lie: the current inflation numbers .8 percent is irrational,) a recession did start. Stats by John Williams of Shadowstats.com claim CPI of near 10% and negative growth for several quarters which feels correct to me.

2. Oil $100 - it's been too close to quibble- I made it

3. Silver $16- we've nearly hit it this week and I suspect we will break it by year end

4. Gold $900 , we've hit 840 and like silver I think the run will last till year end

5. A U.S. dollar melt down- this is tricky I said we'd break parity and might hit 1.10, we did but I did not expect it only last 1 day. I'll take this one too

6. I mentioned dollar melt down and U.S. fiscal crisis but I
apparently did not define myself well enough as some people have claimed these are too vague to quantify. I certainly think a 25%depreciation of the Dollar vs. the loonie counts as a meltdown, but to be honest I expected something much more drastic to happen to quality as a fiscal crisis.

7. I predicted lenders and banks would fail. This was a gimme to anyone who had read anything but my friends still did not
believe me. Well the number of mortgage companies that have disappeared, closed, filed for protection is actually quite huge and one bank,NetBank did indeed
file for bankruptcy protection. I felt we might get a big fist too but I have no doubt this will run 2 more years at least.

That was about it, I can't say I'm too pissed off about my predictions, I seem to have the trend right but I was a little to anxious or pessimistic for 2007. My biggest disappointment was my failure to see the credit crunch would weaken mining shares despite the actual metals preforming well. Equities are still far off 12 month highs despite metals are at 26 year highs. That sucks but does give us time to accumulate

The Future

I plan on building a very detailed list for 2008 with half a dozen trends, and particular price goals and even a series of expected political political moves. This is not going to be a road map for any ones investments other than my own but rather a fun little game to watch over the coming year.

For your part I'd like to hear some of your predictions. What do you see that I may not. What spoilt this years guesses. Mostly I'd just like some good natured discussion of the issues on the page.

Fractional truths

The U.S. Government, federal reserve and the world banking elites have finally run out of wiggle room and a drastic rewriting of the norms of fiscal culture about to happen.

Over the last few years there have been voices in the wilderness who have seen this coming and have been ignored, sneered at, decried as cynics, doomsayers, depressed, unpatriotic but rarely acknowledged as being correct. A few of the notables are

David Walker Comptroller General of the United States who has been railing against the debt and unsustainability of the U.S. financial system.

Dr. Doom aka Peter Schiff, stockbroker, analyst, writer and uber bear, president of Euro Pacific Captial

Ron Paul, U.S. congressman, libertarian, Republican Presidential hopeful, strict constitutionalists and one of the few people in modern U.S. Government you understands money and economics.

The list is huge and includes the people behind so many websites, blogs and newsletters that could not gain access to the mainstream media yet have been telling the truth and helped to make people's investment choices safer and more lucrative in recent years. The bottom tier is people like me who after wasting their time NOT convincing their friends and family to protect themselves turned to the Internet out of communal duty

I think this segregation between truth and spin is about to be broken. Over the few months the severity of the housing crunch could not longer be hidden and mainstream new outlets have daily housing gloom stories. The large financial entities have had to report huge losses and write downs related to bad commercial paper, mortgages and this is all before the true destructive power of derivatives have been demonstrated.

The real jeopardy of a U.S. dollar crisis is in the offing and when newspapers like the Globe and Mail state blatantly Greenback on the Brink you know the days of ignoring or hiding the problem are over.

Frational truths

So if reporting the problems is suddenly becoming Vogue when will we see answers and strategies coming from the mainstream media?

My bet is no time soon. The media is part of the system and the system is run by banks, investment houses, brokers, industrialist who want you to do several things which are not necessarily best for you. This is what will happen in my opinion. Remember as long as you stay in the market the big boys can make money on both the up and down ticks of the market as well as hefty commissions

They will continue to tell you "the worst is over", "we've hit bottom", "recovery is imminent", the same as they did during the crash of 29, and the entire first year of the U.S. housing bust.

They will lobby and pressure the Governments to do what is best for them, not average investors.

The Government will lowering interest rates, legislate bailouts, and inflate away their debts by destroying your savings.

Canadian and Europe Banks will lower the interest rates and join in the U.S. dollar's race to zero value for the sake of saving industrial jobs that would likely become irrelevant in the later stages of peak oil anyways.

How this will unfold cannot be predicted 100% by anyone. Once panic and desperation shows up it will be chaotic and unpredictable but I so believe there are a few safe decisions to make.

Shed debt, downsize, delay major purchase and increase savings.

Investment money should be moved away from the most dangerous currencies, U.S. dollar and probably the Sterling(which I believe is also headed for a break). This includes cash, bonds, equities priced in the risky currencies.

If you must play in equities such as a self directed pension fund, stick to commodities, food, energy, metals, maybe infrastructure, water, consumer staples. Tech(non energy), electronics, auto,banking, aerospace, luxury goods are all destined to be losers.

Precious metals, real money that cannot be devalued to nothing, something that will reactive inversely to the destruction of any particular currency, something that cannot be counterfeited.

If you have the option acquire productive land. Be it currency crash, depression, unemployment, peak oil etc the greatest asset one can have is even a few acres and the will and ability to feed oneself. Despite my belief that silver and gold are a great investment, it is just that, an investment and one you cannot eat. The ultimate asset is productive land, while silver might buy you food, it only works until you run out of gold. If you have land too garden on you can save your precious metals for property taxes, medical treatment or other emergency purchases.

So while the sickness has been diagnosed I don't think the mainstream media will ever tell us the solution. If main steet media ever tells you anything like I have that will be the signal that it's be nearly over and it's far too late for you to jump in. Don't wait, make what ever changes you can. If you wait for frational truths to become complete truths, you'r sunk!