Why is it that the biggest story of the year isn’t even being discussed in the main stream media? Not only has the U.S. breached its legal debt ceiling, but in order to postpone a panic, the Treasury has started to dip into pensions. The federal government is buying some time by not putting money into government worker retirement funds, amazing isn’t it? Our society is so numb to the government doing whatever it wants that we just allowed them to dip into pension funds and the American people didn’t raise a finger, no union protests, no worker walkouts, just okay, that’s fine. Americans have NO IDEA what is about to happen over the next few years. Mathematically a recovery, as defined by the media and government, is IMPOSSIBLE.
The U.S. will face a restructuring of its economy whether it likes it or not, the demographics just aren’t there for the typical Keynesian boost. Government has interfered in our economy at every level, especially by encouraging debt. Does anyone honestly believe that the constant credit expansion that has helped drive our economy for the past thirty years will continue? Not a chance, check out this chart recently posted by economist Chris Martenson.
Martenson notes “that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008 — and it has not yet even remotely begun to return to its former trajectory.” In our opinion, it won’t and it can’t. Not only do we have the largest generation (baby boomers) collapsing in spending habits, the echo boomers are jobless and already tapped out from the housing bubble with ugly credit scores.
THE BIG DEFLATION SCARE OF 2011
Let us first start off by saying we are not seeing a repeat of 2008, however, we may see ‘2008 light.’ It will be all about QE3 or whatever they are going to have to call it. Like we have stated in previous reports, we believe it is likely that they change the name of the next round of quantitative easing, just as quantitative easing is just another name for printing currency. With the FED responsible for purchasing about 70% of U.S. treasuries and both China and Japan slowly decreasing their purchases, the treasury department will be desperate for more buying for the FED. Currently, the FED is averaging injecting about $89 billion a month by default into our economy, this of course doesn’t include their zero interest rate policy and secret bailouts that no one knows about.
FutureMoneyTrends.com strongly believes that the Dow Jones and other major indexes could see a serious correction in 2011 without further quantitative easing. However, more than likely what we will see is a market scare tactic that will cause equities to fall and then the FED will come to the rescue with something even bigger than QE2. Remember, besides stocks, nothing has really recovered in the economy. In fact, things have worsened when it comes to the amount of people on unemployment, long term unemployment, 44 million on food stamps, and foreclosures expected to break records this year. The FED knows that rebounding 401ks is the only Keynesian wealth effect at play in this consumer spendingdriven economy.
Five things give us great confidence that we will see more aid from the FED:
- The FED is saying it is going to end it.
- The media and other economists are saying the recovery can stand on its own two feet.
- Without the FED there simply isn’t enough buyers to absorb 1.6 trillion dollars of annual deficits.
- Ending it will cause stocks to fall.
- Central banks around the world are net buyers of gold, even as everyone is talking about some sort of bubble that just burst in the precious metals markets.In fact, central banks purchased more gold in the first quarter of 2011 then they did during the first three quarters of 2010.
Remember, our current assessment is that we will have another deflationary shock prior to seeing a major currency and sovereign debt crisis.
When it comes to the precious metals and commodities, we believe they are still the best long term place to be. Even if we see an expected deflationary shock, not knowing what the FED’s exact reaction will be could spin us off into a much larger inflationary shock over night. In short, we believe trying to play musical chairs with a tectonic shift in our economy and something that will be the biggest story in our lifetimes, is not something we would personally recommend.
Precious Metals Bubble? Not Even Close
As we have pointed out many times, the precious metals are showing signs of being the exact opposite of a bubble. Recently Peter Schiff, President of Euro Pacific Capitalhad this to say about junior mining shares, “A lot of these juniors are lower than they were five years ago, some of them are lower than they were ten years ago. You wouldn’t even know that we are in a bull market in gold, you’d think it was still a bear market. I own a lot of them and not a single one of them has ever split. To me it doesn’t sound like a bull market when you don’t have any of your stocks splitting and I’ve owned them for ten years. You remember the internet stocks, I mean there were internet stocks splitting every week. There’s no bubble activity going on in these mining stocks, hardly anybody owns them.”
Of course that is why we are Future Money Trends and not Past Money Trends, we are always looking for companies that have yet to be discovered. If you read our article, ‘Gold 1980 Vs Today,’ you will see that the vast majority of public participation in the gold market is selling it, and selling it at a HUGE discount from its melt value. Recently, one of our members shared with us how their friends were excited after going to a gold party, they sold their gold, one ounce for $150, WOW what a steal (literally).
Trends To Point Out
- Wal-Mart, the nation’s largest retailer, said this week that high gas prices have restrained its shoppers and business. Sales at stores open for at least one year fell 1.1 percent in Q1 and overall visits to stores in the U.S. declined for the 8th straight month.
- Lowe’s this week said its traffic for the last quarter was down 3.4 percent, they also saw a 5.7 percent slide in profits.
- MasterCard Advisors who research consumer spending, reported that gallons of gasoline pumped in the U.S. in the last month fell by 1 percent from a year ago. It appears that consumers are beginning to modify their habits with less shopping and driving.
- Staples yesterday stated that they are continuing to see soft demand for office products. Not only in the U.S., but also in Canada and Europe where demand notably weakened due to higher fuel prices.
- Sears moves to a loss as government appliance rebates end.