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Nystrom - 2003 Predictions Recap

December 31, 2003

Well it’s that time of the year again, time to take account of the year, and see how the old predictions on the website turned out. I recently dialed up my page of 2003 predictions for the first time in about 6 months to see how I did. Boy, was I ever wrong! Did I write that? I see why I hadn’t looked at the page for the past 6 months, because I was well off the mark. Thank goodness I hedged my bets at the top with this nice quote:

Predictions of the future are never anything but projections of the present...that is, of occurrences that are likely to come to pass if...nothing unexpected happens; every action, for better or worse, and every accident necessarily destroys the whole pattern in whose frame the prediction moves and where it finds its evidence.
- Hannah Arendt

In spite of my batting less than .500 this year on the predictions, it is still a nice (if painful exercise), this writing of predictions. In undertaking this exercise year, I’m reminded of all the things that I did not predict last year, of all the things I had no idea were in store for me personally. For example, I did not predict that I would get married – had no idea it was coming late last year. Nor had I any clue that I would move to Taiwan later in the year, but here I am. And at the time, I was an unemployed web designer, so how could anyone have predicted that I would end up in Hsinchu Taiwan, working for ITRI, one of the largest and most innovative research institutes in all of Asia?

But enough about me. Lets talk about me. Err…the predictions, that is. First a recap of last year. I waxed poetic in explaining my positions, but in the end went on to do what everyone does when making predictions – that is, I predicted the past, not the future. I extrapolated the present, with all of my biases, straight out into the future.

Here is the executive summary of my predictions:

1. American bombs falling in Iraq in the first quarter of the year
2. Declining interest rates
3. Declining value of the dollar
4. Declining price of gold
5. Declining oil prices
6. Declining housing prices
7. Dow decline to 6000 or below
8. SPX decline to 600 or below
9. Nasdaq decline to 999 or below.

And here is the executive summary of my results:

1. Yes
2. Yes – Until June. Then they started to rise again.
3. Yeeessss.
4. Noooooo.
5. no
6. no
7. no.
8. no.
9. no.

So, three out of nine has me batting .333, which would put me into the hall of fame, if I were a baseball player. Babe Ruth hit .342 lifetime and knocked 714 balls out of the park, but whiffed almost twice as many times -- 1330. Just keep that in mind as we enter the new year. It doesn't matter if you get everything right, but just make sure that what you get right counts!

For the time being, I'm taking a zen approach to my predictions for 2004, and I have but one prediction:

1. Unpredictable things will happen. Many of them.

However, seeing as it is that I'm now living in China, I'll debut my new, well thought out, well ruminated predictions at the Chinese lunar new year. Watch this space!

Best regards for a happy, healthy and prosperous 2004!

Sincerely,
Michael Nystrom

Posted by manystrom at 03:21 PM | Comments (95)

Lancaster 2003 Predictions Recap

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 06:10 AM | Comments (64)

Who's Pulling the Strings?

December 13, 2003

bush-puppet3.jpg

Mr. Bush has forsaken American Ideals


From the e-taiwan news
http://www.etaiwannews.com/Taiwan/2003/12/12/1071194087.htm

Related Link


The following material is an edited transcript of Taiwan-related portions of the press briefing given to White House reporters by White House Spokesman Scott McClellan after Tuesday's meeting between United States President George W. Bush and People's Republic of China Premier Wen Jiabao (溫家寶).
Many of the reporters, mainly from European as well as U.S. media, sharply questioned McCellan on the apparent hypocrisy in Washington's alleged shift in position on Taiwan and reluctance to support the island country's democratic progress in the face of threats from the PRC.

Question: Why is the President opposing the exercise of the democratic self-determination by the people of Taiwan when he says that that's a cornerstone of his policy worldwide?

McClellan: Well, our policy remains the same. And the President, in the meeting, made it very clear that we support the one China policy and the Taiwan Relations Act, which is part of the three joint communiqués, and that we do not support Taiwan independence...The President made it very clear that the United States opposes any unilateral attempt to change Taiwan's status, or to change the status quo. The President also made it clear that that applies to both Beijing's possible use of force and Taiwan itself, including referenda and constitutional reform that would change the status quo.

Question: The President does not support Taiwan independence under any circumstances?

McClellan: We have made it very clear that we do not support Taiwan independence. We support the one China policy, which is part of the three joint communiqués. The President believes it's important to continue urging both sides to refrain from actions or statements that increase tensions or make dialogue more difficult to achieve.

Question: Isn't there a contradiction between that policy of maintaining the status quo and not allowing unilateral actions, and the desire, apparently, of a substantial number of the people of Taiwan to vote on the matter? I thought this President was for that kind of democratic activity.

McClellan: The President opposes any unilateral attempt to change the status quo. That has been our policy, and that remains our policy. And that applies to both Beijing and Taiwan.

Question: The Taiwanese make the point that the referendum they have proposed is not about independence, the word doesn't appear in it; it's about the Chinese missile build-up on the coast facing Taiwan, a missile build-up that I think it's U.S. policy also to oppose... Why is the President opposed to a referendum ... on a question of missile build-up?

McClellan: The President talked about some of this in the Oval Office. ... It is our view that the recent statements and proposals coming out of Taiwan that you bring up would imply a desire to change the status quo, and we oppose any unilateral attempt to change the status quo.

Question: What are the consequences for Taiwan ignoring the President's wishes on this?

McClellan: Well, we've made our views very clear. Our policy is well-known. They are very aware of our views, as is Beijing.

Question: Well, they're planning to go ahead with this resolution as of now. Are the United States willing to impose sanctions?

McClellan: We will continue to emphasize what we already have. No, I am not going to get into hypothetical actions or anything like that.

Question: But you would not rule out the use of sanctions?

McClellan: I'm not going to rule in or rule out.

Question: On the question of whether or not the referendum itself is heading down the path toward independence, is there a specific statement that you could point us to that indicates that that is indeed what the Taiwanese have in mind by doing this referendum?

McClellan: That's what I said that it seems to imply, a desire to change the status quo. You've seen the public comments that have been made.

Question: Why shouldn't people see this as the administration picking and choosing its moral clarity when it comes to foreign policy, by opposing democracy here because it doesn't suit your interests in the region, especially since China is helping on North Korea?

McClellan: Well, one, this has been a longstanding policy. This policy has been in place, and what the President said today was reiterating what that policy is. He was asked a question about it, and he reiterated what our policy is.

Question: Why isn't that hypocritical? I mean, you're all for democracy in the Middle East and in Iraq, but the Taiwanese people see that and then America says, no, not for you, not democracy for you.

McClellan: There are a lot of matters you address around the world, and different circumstances require different action and strategies.

Question: Explain why this strategy is different, why the Taiwanese are being sacrificed for what? What is the larger good here that the President sees?

McClellan: You might want to go back and look at the three joint communiques, and look at that.

Question: Do you want to get 10 Americans on the street, and see if it's clear?

McClellan: This is what he has said from the beginning, this policy.

Question: Why don't you educate us about what the President's thinking is - why there's moral clarity when it comes to pushing democracy in some parts of the world, but not here. What is the larger interest?

McClellan: Wait. We do not support any change - any unilateral attempt to change the status quo. That's what he's made very clear.

Question: Even a democratic change?

McClellan: I think you need to look at that.

Question: Scott, you say you oppose a unilateral movement toward democracy in Taiwan. In what way could Taiwan move toward democracy that would please the administration?

McClellan: Again, this is addressing the current status quo. We oppose any attempt to change, unilaterally, the status quo, in regards to China and Taiwan.

Question: Premier Wen said that democracy as was being practiced by President Chen in Taipei was being used as a tool to split Taiwan away from mainland China. Does the President agree with that?

McClellan: You heard the President's comments. That's what the President believes, in terms of what he said in his comments, and what I've reiterated from this podium. That's the President's belief.

Question: Does he agree with Premier Wen that President Chen is using democracy to split Taiwan away?

McClellan: We're working together to address these issues and talk about any differences we may have, as well, on a whole host of issues, but also working together on areas of common interest.

Question: If there is a threat from China, U.S. will defend Taiwan at the same time U.S. policy will change on China?

McClellan: U.S. policy will change?

Question: Towards China.

McClellan: Our policy is the same under the one China policy and the Taiwan Relations Act, the three joint communiques.

Question: I thought that the United States had never foreclosed the possibility of Taiwanese independence, as long as it was mutually agreed to.

McClellan: We've made it clear that we do not support Taiwan independence, and that we oppose any unilateral attempt to change the status quo.

Question: So you don't - it's possible that some day Taiwan could be independent?

McClellan: It's important for there to be dialogue on these issues. And that's why we've urged both sides to refrain from actions or statements that would increase tensions.

Question: The Chinese Premier said that President Bush told him he opposed Taiwan's independence. And you just told us that U.S. do not support Taiwan's independence. Could it be in private U.S. is telling China opposing Taiwan independence and in public you are saying another thing, you do not...
McClellan: You heard from the President himself; our policy is that we do not support Taiwan independence and that we oppose any unilateral attempt to change the status quo. That's our policy and we've made it very clear publicly for a long time.

Question: I don't understand why the U.S. is committed to defending Taiwan militarily if it's attacked if it doesn't think that Taiwan can be a separate country. There's no consistency here.

McClellan: No, I think there is. And we've talked about this issue previously, in terms of the one China policy and in terms of the Taiwan Relations Act. This applies to both sides. This applies to Beijing, this applies to Taiwan in terms of any unilateral attempt to change the status quo. And there are a lot of reasons for that.

Posted by manystrom at 04:28 PM | Comments (142)

Fed Funds Rate Moves Inversely to the Umemployment Rate

December 10, 2003

Take a look at this chart: (click to enlarge)


The implication of this is that the Fed can decide how much unemployment our economy is going to endure.

Posted by manystrom at 09:13 PM | Comments (94)

Inflation v. Deflation

December 09, 2003

Inflation and deflation are monetary phenomenon. The fact that prices rise or fall is not inflation or deflation per se, that is just the visible effect. The Feds thinks that they can contain deflation, because they think they're in charge of the money supply. Just print more money and the problem is solved, right? That is what they have been talking about and doing for the past few years. They think lowering interest rates will inject money back into the system. And it has, so far, via the home refinance market, lower credit card payments, increased margin debt etc. Thus we have had a nice recovery. Business is booming, commodity prices are high, and the POG is high, which would seem to signal inflation.

But if you look at these Steve Puetz charts, and listen to him, he's saying that it is just a temporary phenomenon. Like throwing gasoline onto your dying campfire. Nice and bright for a few minutes, but then it will die back down to embers, and you've used the gas that you need to get yourself home in the morning!

m3-rate.gif



m3-ndq.gif


So everyone has taken on debt because it was easy and that really juiced the economy, but people can't take on any more. Can you? So that's why M3 is falling. Money supply was first increased, then it was borrowed, spent, and now it is gone. Debts? How do you pay them off if you didn't have any money in the first place? If people are unable to keep up with their payments on debt -- which becomes likely once interest rates start to rise -- the cycle is reversed right down the chain. People default, causing others to tighten, loans stop, loans are called, liquidation begins in earnest and the money supply growth goes negative, like it is right now (see chart above).

But there is a lag between the change in the money suppy and its effects. We're just seeing the effects of the increase in money supply, and its already falling been falling for some time now! So we should start to see the effects of the falling money supply shortly. The gas on the fire has made everyone optimistic. Look at how pretty the economy is - best in 20 years! The Dow is near 10K, Nasdaq 2K, unemployment is down, growth is up. But if times are so good, why is the price of gold so high? Because the money washed over all asset classes indiscriminately, like gasoline, and is making them burn brightly. Don't believe the good news for a second, this economy and this system are gravely ill. The economy is rotting from the inside out, and the foul stench of decay is still hidden from most people's perception.

When prices start to collapse in the market, people will sell for liquidity. This will drive markets down further - the whole cycle in reverse. The anti-bubble. "Investors" wil sell their gold, because in the end, they were just speculating -- out to make a quick buck. The gold bugs will hold, but it is the marginal buyers who affect the price. Same for commodities. There are engineers here in Taiwan who are speculating in the DRAM market -- locking in prices on a contract, then quietly dumping it on the spot market, and making a nice profit. The economy here is 'good' too.

So everything will fall in value - but what will rise? Curiously, the dollar. Why? Because everyone's debt is denominated in dollars, so there is demand for them because people need them to pay off their debts. Even though it is ultimately worthless, people are fooled by the illusion. Their perceptions have not yet caught up with reality.

At some point in the cycle, however, the illusion is broken, and people forget about their debts. They realize they'll never be able to pay them off. Instead, they'll use what money they have, or better yet, use borrowed money to buy commodities, real estate, gold, etc. because they're switching out the bad money for good. This is where the hyperinflation begins.

In the end, the question of inflation or deflation has to do with how people feel about paying off their debts. If they think they still can do it, we'll have deflation because people will demand dollars. If they give up hope, that is when the free for all will start with inflation then hyperinflation.

My vote is that people will try to fool themselves for a little longer. It is much easier than facing up to the ugly truth.

On that cheery note, never forget the two fundamental rules of speculation: (which I learned from a late 20th Century issue of Esquire magazine)

1) Don't Panic!
2) Panic First!

Cheerio!

Michael

Posted by manystrom at 12:20 AM | Comments (138)
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