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Lancaster Predictions 2004 - The Lull Before the Storm
January 22, 2004

Relative stability reigns throughout the year.

Bush and Blair become media heroes and are seen to be "saving the world" from a number of ills from AIDS to terrorism to SARS and financial crises. Bush of course is re-elected as there is no meaningful opposition that isn't already sold out to the money power that already own Bush.

The country creeps towards martial law quietly with the population barely perceiving something is terminally wrong.

Patriot Acts I and II are used more and more for non-terrorist related crimes and freedoms are eroded in front of our very eyes and hardly anyone says a word, and if they do they can't be heard through the corporate owned media!

China's satellite state, North Korea, is held up as the poster child of nuclear proliferation and instability - conveniently posing as a huge threat requiring a massively expensive defense shield around the United States.

China revalues the Yuan (up against the dollar) and takes a hit in exports to the US. Taiwan is dangled infront of China as a tasty morsel the US is prepared to offer up in trade talks to try to continue the phony economic miracle.

Europe's economy struggles even more as their exports get more expensive.

The US dollar stabilizes at around 80 through the election.

Consumer prices deflate a little more but hold reasonably steady.

Gold rises to $450 by year end, with some spikes up and down.

Oil continues to move upwards ending the year at close to $40 per barrel.

Interest rates rise towards the end of the year, but not massively.

Real estate drops a little in value as consumers' ability to service more debt and pay ever higher asset prices finally starts to really slow by the end of the 2nd quarter.

Whiffs of deflation start to fill the air into the 3rd quarter and the talking heads start to waffle and cannot explain what is going on or why.

As we roll through the election the veneer starts to come off the whole facade covering the reality of the economy, however the illusion is strong enough to carry us through the Bush re-election. Not one talking head ever mentions Fraction Reserve Banking, Usury, Fiat Currency or Sound Money - - the American population remain blissfully ignorant amidst the biggest meltdown of a global financial system in the history of this Universe!

Upon the conclusion of the election we start to accelerate towards the inevitable collapse of our monetary system and all of the necessary, but very painful, adjustments in our lives that comes with it.

I'm not sure when the big crash will come. I could be and probably will be wrong about most of what I've said in terms of timing, the crash could come before the election, it could come after a massive dirty bomb or biological attack (or some other kind of disaster that could cover the reality of our failed system), all I know is that crash it will and sooner rather than later.

There it is. I'm no clairvoyant or seer, I just say what I see. I've changed by opinion on inflation, I think we'll see a deflationary depression - I've changed my opinion on many things over time and reserve the right to change them again going forward. These are just my opinions right now, they are bound to change as our situation evolves.

I'm still Long Gold and Long Short - although I now think that a Deflationary Depression will cause gold to eventually go down along with everything else - just not as much in relative terms. Gold will remain the ultimate store of value, and food and protection will remain the ultimate security during a depression!

Hold on for the ride, it isn't going to be pretty, but it is necessary.

Vaya con Dios!

Rich

Posted by rlancaster at 11:11 PM | Comments (29)

Predictions
Nystrom - Unsustainable Illusions - 2004 Predictions
January 19, 2004

Background
Economists and the press are overwhelmingly bullish on prospects for 2004. All sixty (60!) economists poled by Business Week magazine have called for stellar growth this year. Alan Greenspan has claimed victory in his battle against the bubble, and has managed to get both the economy and the stock market moving higher. Global markets are at 2-1/2 year highs, and last year’s 3Q GDP weighed in at over 8%. The Conference Board projects growth to hit 5.7% this year, making 2004 the best year yet in the last 20. To top it off, Saddam Hussein is safely behind bars, and happy days are here again. Apparently.

But recent growth is artificial and unsustainable. It is like a shivering camper, taking his remaining supply of kindling, newspaper, and even the gasoline from his car, and dumping it onto the glowing coals of his dying campfire. Of course the fire burns hot, but it is merely an illusion. Mesmerized by the fire, the camper might even say, “This is the brightest campfire I have seen in 20 years!” It will keep him warm for a few moments, but of course it is unsustainable. And when such a fire goes out and all his resources have been consumed, there is nothing left to start a new one. Not even the gas in the car remains to get him home in the morning.

This is the story of the current economy of illusion. Low interest rates have encouraged consumers to borrow against their homes and on their credit cards in order to continue on their unsustainable consumption binge. Now that the euphoria of the holiday season is over, bankruptcies and delinquencies are at all time highs. Like a societal fractal, undisciplined and overburdened consumers are simply mirror images of their government, which today is over $7 trillion in debt. Massive tax cuts have helped juice the economy in the short run, but have wreaked havoc on the national balance sheet. In three years, the government made a $700 billion swing from a record surplus in 2000 to a record deficit today, and like a common pauper, needs to borrow over $2 billion per day just to keep operations going.

Worse news is that America is hemorrhaging both jobs and investment. Jobs form the foundation of current economic strength, and investment is what ensures growth in the future. China has widened its lead over the U.S. and the rest of the world as the most preferred location for foreign direct investment. China now ranks first in the world in FDI, having surpassed the U.S. in 2002. Between 2001 and 2002, FDI in the U.S. fell from $124 Billion to a mere $44 billion, while FDI in China climbed to $53 billion. The number of manufacturing jobs in the US has fallen for 41 straight months. When you see headlines that say American manufacturing is recovering, it simply means that jobs are being lost at a slower pace, not that jobs are returning.

As we are mesmerized by the misleading headlines of the booming economy, remember this: Jobs are moving overseas. Not just manufacturing jobs, but management, service and even knowledge jobs. The unemployment rate in the U.S. is an illusion, maintained at an artificially low level by a very simple trick: Not counting people who have been unemployed for over 26 weeks. Those poor, discouraged workers – they must not be trying hard enough. As the joke goes, “There are plenty of jobs in America. Look at me, I have three of them.” It would be funny, if it weren’t so grim.

Last year was good year for the stock markets. The second great depression has been postponed, but not averted. Deflation is still knocking at the door. How does deflation happen? Deflation is a monetary phenomenon, and describes a reduction in the money supply. Imagine for a moment a poor soul who owes Chase Manhattan bank $10,000 on a credit card. Since losing his good job at IBM (it moved to India), he hasn’t been able to keep up on the payments, but not willing to sacrifice either his pride or his good credit rating, he’s been using his Citibank card to pay off the Chase card. By making the minimum payments, he’s barely reduced the principal with Chase, but has managed to rack up another $5,000 with Citibank. This is not an uncommon tale. Funny how accounting works, because both Chase and Citibank view these sums as *assets* on their balance sheets. Lets get this straight: Two multibillion-dollar corporations are relying on an unlucky, unemployed worker (and millions like him, with no prospects for new jobs), who are swapping paper back and forth between banks. There is no value created here, it is only accounting trickery. When the unemployed debtor finally declares bankruptcy, the ‘assets’ of the bankers disappear. Viola, deflation. Deflating assets caused by defaults domino through the economy. With bankrupt consumers unable to secure credit (it is suddenly too risky to lend), they have no ‘money’ to spend, so demand dries up, and prices fall further. The deflationary spiral deepens.

How long before it starts in earnest? I have a shelf full of books from the late 1970’s when pessimism ran high, claiming that fiat currency and the ‘massive’ U.S. budget deficit would spell doom for U.S. economy. Today with the debt 10 times higher, and increased risks on every front, no one seems to be the least bit worried. How long can unsustainable activity be sustained? By definition, not forever. If you have ever thrown a sheet of newspaper onto a campfire, you know that it ignites quickly and burns brightly for a few moments, but it goes dark just as fast. In 2004, the effects of monetary stimulus will dry up, causing a sharp reversal of fortunes. A sudden return to reality sparked by a ‘surprise’ event could be in the offing.

Surprise!
Last year, I began my list with a prediction of war. A year ago, it was the U.S. attacking Iraq. This year, I will not go so far as to predict a full-blown war, but hostilities are definitely in the air across the Taiwan Strait, and these heightened tensions are likely to have disruptive effects on world markets. Presidential elections in democratic Taiwan are coming up on March 20th and the incumbent is also offering up a referendum, requesting that China remove over 500 missiles pointed at the island. Of course such a referendum will pass – who wants missiles pointed at them? But China views such activities as ‘splittist’ (although Taiwan has never been under communist China rule), and has vowed to ‘protect the homeland at all costs.’ Explicitly, they have stated that they are willing to sacrifice their prospects for the 2008 Olympics, as well as the past decade of economic growth to maintain a unified China.

The U.S. is involved because of its pledge to defend Taiwan in case of attack by the mainland. However, China is very important to the U.S., because China is one of the main purchasers of U.S. Treasury securities. That is, they are one of the main countries sustaining our unsustainable consumption binge. And the US is very important to China also. Why? Because the U.S. is consuming Chinese products, keeping its factories humming. Additionally, a huge portion of Chinese wealth is tied up in dollar-based assets.

As we move closer to the election, cross-strait tensions will increase. Nervous investors will flock to gold. What happens next is anyone’s guess. The last time tensions boiled over in 2000 (also over Taiwan elections) the Chinese lobbed a missile over Taiwan and the U.S. sent warships to the Strait. This time, all three players have drawn their lines in the sand. Taiwan is intent on holding the referendum. China is intent on blocking any Taiwanese steps toward independence. The U.S. intent on defending Taiwan, but China wants the U.S. to stay out of its ‘domestic affairs.’

Recent rises in commodity prices, including oil and gold, can be traced back to the booming economy in China, and its tremendous appetite for resources. But the growth in China is being driven by massive amounts of FDI pouring into the country. This is leading to overcapacity in every industry, and a bust is sure to follow. Any signs of ‘uncivilized’ behavior by China would cause investors to flee, and markets to collapse – not only China’s booming asset markets, but worldwide commodity prices as well, including oil and gold.

An unsustainable situation cannot be sustained forever. Whether it is China or another event, this year or next, something will expose the massive vulnerabilities in U.S. economy. Whatever the event, it will merely be the trigger, not the cause, that starts the collapse of the U.S. economy in earnest.

Predictions
The predictions for the year: Batton down the hatches, its going to be a rough year: The bubble in China will pop. The Dow, SPX and Nasdaq will streak lower and break their 2002 lows. After a brief rise in gold and decline in the dollar, rapid reversals will occur, sending gold on a downward spiral, and the dollar will show perplexing strength. Deflation will show its face for all to see. Economic disruption will cause recession, and the economy will contract in 2004. As a result of the economic disruptions, President Bush will lose in a landslide to the democratic ticket of John Kerry and Wesley Clark.

Happy New Year.
Michael Nystrom

Posted by manystrom at 03:14 PM | Comments (27)

Predictions
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)

Predictions
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)
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