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).

Gold

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.

Silver

$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.

Oil

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

Housing
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.

Debt
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!

2010 prediction review

I’m a little surprised this year by metals market, not because they performed different than my predictions, I was spot on with gold hitting $1400 and silver clearing $25+. What I was surprised about was the fact that these two did so when without much greater weakness in the dollar index. This says one or two things to me

1. Every nation is in a cycle of competitive monetization making gold and silver appreciate far more than the dollar index would otherwise indicate. (we are all screwed)
2. That there is one hell of more potential in metals than even I believed.

Face it, I’m not one of those writers predicting $20k gold, my modest 5 year prediction (oct 09) is for $3000 and $120 silver but if we can make these kinds of gains this year with the U.S. dollar index still above 80, what the hell happens when it actually breaks down?
My “all hell breaks loose” scenario begins to be more realistic and that scares me. Personally I would prefer austerity, deflation and an eventual steady state economy, to inflation, out of controlled growth, and the world turning into a desolate Easter island scene.

I think the pressure on the comex is growing and it was good to see some aggressive withdrawals in Nov/Dec, while its bounced back a bit we saw silver stocks down to about 103 million ounces in mid dec. I believed we would break below 100 but at least the momentum is going in the right direction into next year.

Another hit for this year was my prediction that 43 million Americans would be on food stamps in 2011, considering last months numbers put it at 42.9 million I’m pretty sure Dec can add a meagre 100,000 to the rolls. I think my 5 year at 60 million food stamps receipts is still quite doable, assuming of course food stamps still exist when the government goes FUBAR.

Oil, I saw $100 and we’ve just recently touched $90, so a miss. In Canada we have seen regional shortages and price spikes attributed not to shortage of crude supply but the closure of the Montreal refinery and a corresponding shortage of distillates. Big oil has us by the short hairs and figure they can cut production and then rationalize higher domestic prices rather than refurbish and update old refineries. The bonus however people will become acclimatized to higher fuel price and with hopefully begin to adjust their behaviours.

I missed bank failures badly 157 vs 250. I don’t see how the at risk list can keep growing at this pace yet the actual failures does not keep up,, my guess is they are pushing failures off to the future somehow with flawed accounting practices. A great deal of commercial property is financed by region banks so I still expect another huge wave of mid tier failures.

All in all the trend I see is continuing but I seem to be over anxious about how fast the fall will be, I know Rome did not fall in a single year but damn I don’t want this to linger and linger I just want it all to blow up, get it over with so we can start working on a new model.

Locally I see an awakening with many Transition towns, Post carbon groups and such popping up in many communities, this is a good thing and with luck many of these groups will establish and flourish before all hell breaks loose. Me I’m waffling between adapting in place with illegal chickens in my backyard or going all out and moving to a planned eco community where a number of families can attempt total food security, reskill in sustainable living and build a functional, inclusive and caring community. Pipe dream??????

I know I’ve not been posting a lot this year but I still appreciate my readers and their feedback, I know you’re still out there from my hit counter and the occasional Adsence cheques and I thank you for your support. There are many voices on the web saying much the same thing and sometimes I feel I’m just a very weak voice in a large off key choir. I’m often frustrated by the intransience and stupidity of the main stream but regardless I will continue to post when I can. It’s imperative however that we all look a little inward and begin focusing our efforts in preparation for an ugly future. It’s obvious that we cannot educate or save the majority in time but please be open to your neighbours, friends and family. Share if you can, educate where you can, encourage where you can and be respectful to those who screwed up. The future could suck real bad or we can work to make it suck less, Your choice.

Clear sailing towards silver riches

I’ve bought a reasonable pile of silver over the last 5 years and I’ve held it through some crazy gut wrenching turbulence, some that came damn close to shaking my confidence in bullion. Today that fear is entirely gone.

I watch the market daily and I’ve seen the recent attempts to drive down prices and I can say with great confidence that the tide has turned decisively in our favour. Sure they can knock the price down occasionally but no longer can they nuke the market back 30% in a matter of days, their control is slipping.

There are a number of very encouraging signs in today’s silver markets that ensure this quite profitable run will continue for some time.

1. The number of new converts in both blogdom and the financial media who are not scared to state the obvious facts about silver’s supply and demand issues.

2. Advanced technologies are using more silver each year. Solar, high temperature super conducting cables, antibacterial coatings/fibres, and silver/zinc batteries are all expected to see significant demand growth

3. Despite higher prices, demand is making the market for physical silver very tight. Many reports claim there is little to no small silver around for delivery.

4. Few pure silver mines are opening ensuring that a quick fix to supply issues is not going to happen.

5. The amount of silver on deposit with the Comex is shrinking at a nice steady rate. While physical inventory has shrunk to about 107 million ounces, outstanding contracts for “potential delivery, represent more than 700 million ounces. At some point industrial users will panic if inventory shrinks too much; that’s when the real fun starts for us.

I can’t promise prices will not slump a bit from today’s level but I have no fear that this market can be brutalized the way it has been in the past. If you have the means and can find anybody with silver for delivery make that purchase while you can.

I don’t have time to check ALL the vendors and inform you who has stock but I do know that First Majestic Silver restocked this week and have sizes in stock today.

My last couple of purchases have been from First Majestic and I’ve been very happy with the product and the service. Those 1kg bars are beautiful, well packaged and stack so very nicely.

Tell them I sent you, maybe they’ll buy some advertising or send me a mug ;)

Silver poised to soar on manipulation report

If you read nothing this week you should read this short quote from Bart Chilton of the CFTC with regards to the silver market.

"There have been fraudulent efforts to persuade and deviously control that price,"

No hedging or waffling in that statement is there?

While the CTFT has not reported on its two year investigation into silver market manipulation, I believe this quote is an attempt to telegraph to the market that these complaints will be totally substantiated and very soon.

While I'm not entirely clear as to the extent of CFTC powers to fix this problem, I assume it could lead to criminal charges, fines, position limits perhaps even trading bans.

This could very well be the event that finally frees silver to find its own price level, one which I believe will be a hell of a lot closer to its historical ratio than it is now. My bet is a 30:1 silver to gold ratio (or better) within 2 quarters if the report comes out proving manipulation. That would be about $44/oz

It could however be a lot more explosive than that so I’d suggest you get out there and clean out the coin stores now. Paper will be repudiated very soon, demand delivery on contracts and certificates if you have them or cash them out and go find physical bullion somewhere else in the market. Many junior miners still look quite undervalued; if you have money locked into retirement plans do some research on pure silver plays.

I think this is going to get fun.

Another silver failure to deliver story

This could just be a case of Scotiabank behaving badly, being overzealous, not understanding how to deal with a Power of Attorney, or just having zilch in the category of human decency. What ever the reason Scotia deserves all the bad press they can get over their treatment of this dying women.

On the other hand this could just be a large bullion bank doing its best to make damn sure this obviously savvy lady did not convert her silver certificates into bullion, figuring if they delayed until she died her kids would be more than content cashing them out in fiat dollars. In the end she did finally get her bullion but how many other dying customers would have gone to this effort?

Which is worse, no compassion or being self serving bastards? Not much of a choice is it?

Banks are evil, corrupt and working for their best interests not yours. Please people, if you have paper silver demand redemption and tell your friends, neighbours co-workers etc the same message.