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Lancaster 2003 Predictions Recap

December 31, 2003

Predictions 2002: Recap
SEATTLE – 31 December 2003

Wow, what a year! 2003 has been quite remarkable. War, earthquakes, mad cows, insane politicians, Wall Street scandals galore and a massive bear market rally that will go down in history as another financial market record. Of course, for most of you reading this, the biggest news all year has been the continual rise of the price of gold versus the demise of the US Dollar.

Lets now look back over the predictions I made for the year and see how I did, this is painful, fulfilling and intriguing. I’ve not relished the prospect of doing this as I’ve made some major errors in the predictions for the year, but all in all it’s well worth the pain – especially when I look at the gains in gold stocks, mutual funds and bullion!!

Here’s the recap, I’ve repeated the prediction below in bold and then scored my accuracy, I hope not too liberally!!

1. POG (Price of Gold): Currently $345 - and rising. On the long slow road to record POG levels I think we will see gold rise ultimately as high as $450 in 2003.
Score: 1/1

As predicted gold has made a spectacular gain and is currently at $417.30 (A gain of $72.30 on the year). Admittedly I didn’t hit the mark of $450, but this is close enough for government work!!

2. POS (Price of Silver): Currently $4.75 - but somewhat stagnant. Silver has better fundamentals than Gold at this point, and therefore the opportunity for a relatively higher high is apparent. Therefore I'm predicting silver to end 2003 at $9.25.
Score: ½/1

Well Silver has in the past 24 hours hit the $6 mark for the first time in over 4 years. I was way off on the upside for silver, but the fundamentals are still in tact. Silver should ultimately rise higher relative to gold. I give myself ½ point for picking the trend – I lose the other ½ for being too aggressive! Better luck next time on the accuracy Rich!

3. DJIA, Nasdaq and S&P Predictions.· DJIA: Currently 8,275 - Ending 2003 at 5,900.

Well I don’t know what to say about this one! The market is currently at 10,425. I am amazed at the amount of manipulation that has been engineered to enable the markets to rise while the POG has also risen and the US$ crashed 20%+. My amazement is only surpassed by the economic “recovery” we are in that is jobless, lacks any wage inflation and continues to suck down record amounts of debt! Clearly the End Game for this economic system is longer and more deranged than I could possibly anticipate. I fully expect a major market correction ahead – but you’ll have to read my predictions for 2004 to know when!
· Nasdaq: Currently 1,367 – Ending 2003 at 975.

Just how the tech stocks could rally to over 2000 currently is just too difficult to compute. PE’s across all the major markets are back to mania levels – but debt levels are much higher now than the last peak in 2000. We’re in much worse shape and yet the markets are acting like we are in the middle of a New, New Economic miracle.
· S&P 500: Currently 889 – Ending 2003 at 712.

Currently 1109, man I got this stuff so wrong. All bets are off on this stuff going forward, if you think you can predict the activity of these markets then you are a much better amateur analyst than I!
Score: 0/1 (The good news about this part is that I still only lost 1 point for all of # 3)
4. Interest Rates: Currently 1.25% - Ending 2003 at 3.25%.
Score: 0/1

Interest rates actually went down ¼ of a point since the beginning of the year, so I got the prime rate completely wrong. However, mortgage rates have actually risen a point or two – which is really what I’d anticipated. I was technically incorrect on this and score 0, look for movements in interest rates in the not too distant future.

5. US$: Currently 102 (DXYO) – Ending 2003 at 80.
Score: 1/1

The US$ is at 87.20 as I type, a new all time low against the EURO and not too far from my predicted 80, so I’m claiming a full point on this one. This trend will continue, maybe we will see a temporary surge in dollar strength in 2004, but the secular trend is in and will keep rolling for some time. We’re witnessing global economic events on a scale not seen since the Bretton Woods agreement was penned. Where the demise of the dollar will lead us is a difficult issue – my crystal ball isn’t powerful enough to see that far at this point in time.

6. There will be a lot of printing action at the Fed throughout the year and I suspect a record amount of monetary inflation in order to stem deflation and push us in to general price inflation - which I believe will occur by year-end.
Score: ½ /1

I think I’m half right about this. There are so many conflicting reports on inflation, deflation and stagflation that getting a good read on this is nigh on impossible. Clearly we’ve experienced some dramatic monetary inflation throughout the year, which has fallen off a cliff in the past couple of months, as consumers could consume no more debt. There is a smell of deflation in the air currently, although many commodities are still inflating. It feels to me like Fed inflationary efforts are starting to fail, deflation may be right around the corner – but I’ve seen the Fed and global central banks do incredible things to alter the natural course of events lately – do YOU know what will happen next with inflation and deflation. This to me is the $10 trillion question.

7. POO (Price of Oil): Currently US Crude Futures $33 – Ending 2003 at $35.
Score: 1/1

The POO is hovering around $33 – I predicted a drop in the POO in the post Iraq confrontation era (this was prior to the war starting by 3 months) followed by a constant rise to the end of the year. I’ve been pretty much right on the money, the POO rose right in to the face of the war and then dropped like a stone on the announcement of victory in Iraq. Ever since then oil has been marching gradually upwards. We are facing much tougher issues than dictators in Iraq around our oil supply, and fighting a quick war was never going to solve the overarching problems. Global oil production will reach a peak in the next few short years and will then begin a 2% annual decline – right in the face of China’s massive growth in demand for oil. The western way of life – based around petroleum products – is going to be called in to question. We are at the beginning of a massive change in global lifestyles that I believe is inevitable. Oil has been held in the $15-30 per barrel range for 30 years – if you adjust that current price for inflation a barrel of oil should really cost over $85. Sooner or later the price is going to rise, and fast.

8. Real Estate: 10% drop by end 2003.
Score: 0/1

By all accounts real estate is still rising, buoyed up by almost 50-year low mortgage rates, even if here in Seattle that is not the case. I was ahead of myself on this one, my reasoning was sound, but timing is everything – once again I’ve been amazed at the insatiable appetite so many Americans have for debt and the support of a lifestyle they haven’t earned! Real estate will drop, substantially – but who knows when?

9. Mutual Funds: Precious Metals OR Short Funds to be the Top Performers of all funds throughout the year with returns of at least 70%. Also predicted a collapse of available funds from 9,000 to 7,000.
Score: ½ /1

I consider myself half right on this prediction. Some precious metals funds have finished in the top performers for the year, notably Scudder (SCGDX) with 105% gain – which ended in 8th place out of over 6,000 funds ranked on the Morningstar site. All of the precious metals mutual funds I invested in performed very well, including Tocqueville, Socgen, and Oppenheimer. However, my consistent prediction all year that short funds would pay off was my single biggest flub of the year – and very painful personally! Luckily for me I learned to trade these funds during the latter part of the year and cut my losses. I’m still absolutely Long Gold and Long Short – but now I’m waiting for a clear signal that the market has turned down before jumping back into RYVNX, USPIX and a couple of other short funds. When the market does finally turn in the next 12-24 months, I will be buying back in to these short funds. We all know that during the year the mutual fund scandal broke. I was overjoyed to see some of these financial tyrants brought low as I’ve watched and groaned over the years at the gouging, cheating, lying and fraud perpetrated by this industry. My predictions of 2000 funds going under is not one I can validate right now – the data is too hard to find. But I am taking credit for calling the fact that this segment was in big trouble – there’s plenty more to come in this space. Remarkably the US investor has been incredibly lenient on the fund industry; there should be outrage at the theft that has occurred. Wake up people!

10. The public will begin to pierce the shroud of manipulation, corruption, arrogance and secrecy that the pundits hide behind.
Score: 0/1

Yeah right, in my dreams!! It seems so negative to brand the vast majority of people as “sheeple” – so derogatory and condescending, but it’s hard to think of the masses in any other way when year in and year out they choose to believe the crass, bare-faced lies and manipulation that is daily fed to them by their political leadership through the corporate media. I guess I was being a bit idealistic and hoping for a Hundredth Monkey event – or the economic education Tipping Point – during 2003 and anticipating some kind of mass enlightenment. Well it didn’t happen and people seem more than happy with the conventional wisdom as the major markets rise and they are able to borrow more based on their assumed Net Worth of inflated shares and real estate. WHATEVER!!

Summary:

So I get 4 ½ out of 10 for the year. On the face of things I can live with that. My big error was obviously the major market movements and I paid for that handsomely. Gold was my salvation on the year and more than made up for short losses in my portfolio. I’ll be trading gold exploration stocks, mid-sized extraction stocks and precious metal mutual funds in to the New Year - - while I keep an eye out for the major reversal in the stock markets, when I will buy back my short mutual funds. Now I need to go and write my Predictions for 2004, catch you in the next blog.

Have a Happy and Prosperous New Year.

Power to the POG!!

Cheers Rich

PS. Your comments are always welcome. R

Posted by rlancaster at December 31, 2003 06:10 AM
Comments

I am new to the internet and I did a search in the search engines on a "real estate blog" and I found your web blog. Let me introduce myself, I am a Halifax Real Estate Agent in Nova Scotia, Canada and I was told that blogs were discussions on specific topics which made me interested in searching for a real estate blog. It seemed like an interesting way to see what trends and technology are happening in the real estate market in other parts of the world besides Halifax. I am considering a blog for myself if I can understand the technology of operating a blog and from what I see I am somewhat hesitant right now even though it was interesting reading.

Respectfully yours
James B. ,
A Halifax Real Estate Agent

Posted by: Halifax Real Estate Agent at February 17, 2004 02:40 AM
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