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Economic Outlook, December 15th,2002
"The possession of GOLD has ruined fewer men than the lack of it".
-----Thomas Bailey Aldridge"-------
A visit back one year ago:
--Saturday December 15th, 2001--
Precious metals settled mostly higher Friday, with dollar weakness against some key foreign currencies prompting funds to cover short positions in gold futures. The yellow metal is another one of the few markets that is currently sitting just above '00' year end levels.. prompting this FuturesCom Special Report On Gold
It’s been 21 years since Gold had its heyday. GOLD BUGS are 'dead and buried.' The Swiss Banks that insisted upon buying some GOLD for all of their Managed Accounts, have now liquidated their positions and are probably short. Whatever happened to the "Gnomes of Zurich?" In the past 21 years, GOLD has mostly been in a Bear Market………….
In other words, the World has forgotten the Metals that Glitters. The WORLD is Bearish on Gold BUT it remains just at or near year ago levels .. Is there any reason to Buy GOLD NOW? There sure is. The fact that Bulls in Gold are as scarce as a Snowball in July in Miami, is about the best reason I can give you. But, eventually, VALUE goes to VALUE……
In my opinion a bit of Stagflation in the U.S may be just around the corner. In case many of you had forgotten , Stagflation was the culprit during 1974 to 1976, that nasty mix of rising prices (inflation)) and a recession or stagnant economy.. A phenomenon where BOTH Prices and Unemployment rose
If the depressionary price spiral cannot be offset by rising demand caused by growth / consumption and while productivity gains are still present .. Commercial interests may begin by 'covering their own asses' so to speak by cutting production to increase prices and attain profits for their shareholders that way.
So prices may rise and create cost push inflation as a result from knee-jerk lowered production, War, pestilence or disease (swine flu, mad cow.. Hoof and Mouth ) and famine rather than the great evil of Demand Pull Inflation that Greenspan fought during the late 1990's..
What a pickle we would have then...
Copper production cuts..; Oil Production Cuts .... and so on and so on...Toss in a bit 'o war' a crop disaster or two.. governments who want to see their only source for income increase in price..and over time prices rise on their own. Throw in a recession simultaneously you get Stagflation..
When this occurs it is difficult to know which monetary policy and fiscal to apply, more uncertainty , lower stock markets ect ect ...Everyone running around like chickens with their heads cut off trying to find a cure..
Leaving HARD ASSETS looking relatively attractive...
Back to Gold... ---
I still see economic expansion in certain 3rd World countries. I see trouble brewing in South Africa and the intentions of Russia to benefit from higher metal prices the two countries that produce just about ALL of the GOLD in the World.
(Platinum already began a long term move higher a couple years back)
Toss in the 'New War' on terrorism that may in fact last for quite some time and stretch across vast regions of the world, who knows what will happen...for example ...,Even though North Korea is signing off on some anti terrorism accords current relations have been described by some as explosive ..cont--.
--On Dec. 9 - it warned the United States against making it a target of its war on terrorism, saying Pyongyang is fully prepared for any U.S. attack and would "mete out unimaginably telling blows to the aggressors. " "The U.S. still describes the DPRK (Democratic People's Republic of Korea, or North Korea) as a 'sponsor of terrorism' for no reason in a bid to provoke a war on the Korean Peninsula as they did in Afghanistan on the pretense of combating 'terrorism,"' the official daily Rodong Sinmun said in an editorial monitored in Tokyo. "The U.S. designation of the DPRK as the target of the post-Afghanistan war operation compels the Korean people to be in full combat preparedness to lay down their lives for the country," it said. The U.S. has taken Pyongyang to task for its nuclear program and its missile development and exports. "If the U.S. imperialists opt for a war on the pretense of 'combating terrorism,' all the means of defense and attack in the DPRK will mete out unimaginably telling blows to the aggressors and teach them what will be the end of the kingpin of terrorism," the Rodong Sinmun editorial said.
"The DPRK is not Afghanistan. The DPRK is ready for defense and attack. The DPRK'S striking power and the sphere of its strike do not know the limits," said the mouthpiece of the ruling Workers' Party of Korea.
North Korea is believed to have developed missiles capable of delivering a nuclear warhead. In August 1998, Pyongyang stunned the world by test-firing a three-stage Taepodong-1 missile over Japan into the Pacific Ocean. It is currently working on a longer-range missile known as the Taepodong-2, which analysts say will be capable of traveling more than 4,000 kilometers and hitting Alaska and Hawaii with a nuclear, chemical and biological warhead
And just today, out of SEOUL( courtesy of AP)-- North Korea rejected U.S. demands for an inspection of its alleged nuclear weapons program and refused to participate in talks on its missile development. "There is neither condition nor need for the Democratic People's Republic of (North) Korea to accept the 'nuclear inspection,"' said Rodong Sinmun, the official newspaper of the North's ruling Workers' Party. "The same is the case with the 'missile issue,"' it added. North Korea has increased anti-U.S. rhetoric since U.S. President George W. Bush warned this month that it and Iraq would be "held accountable" if they developed weapons of mass destruction to carry out terrorism. "The U.S. is going to use the dialogue with the DPRK as a lever to pressure
and an opportunity to find a pretext for military provocation," said Rodong. The report was carried by the North's official news agency, KCNA, which was monitored in Seoul. The North has accused the United States of preparing to make it the next
target after Afghanistan in the U.S.-led anti-terrorism campaign. North Korea is on a U.S. list of countries sponsoring terrorism. It maintains a 1.1 million- military, the world's fifth largest. The U.S. keeps 37,000 troops in South Korea to deter North Korea, a legacy of the 1950-53 Korean War. Technically that war ended in a cease-fire, not a peace treaty.
As far as Currency or Gold goes who needs it just buy Stocks... right....
Over the last couple years many stock bulls and CEO's forgot what real money is and began treating stock as a 'currency'.. We all know the result.. they ended up blowing their 'investment brains out' ...
Best of all, my friends and Associates say I am crazy to predict a Bull market in GOLD.
Most Economists are happy to stick with the Crowd and be Wrong than take a chance and be Right. They rationalize that it is better to be wrong and not stick your neck out than take a chance of being Right. The World created economists to take the heat off the weatherman...After- all, if you are wrong with the Crowd, you can always say----But so & so was also Wrong.
2002 could be another so so year for Stocks, in my opinion. If we see a sharp decline in the Stock Market in 2002, I wonder how the billion dollar ‘funds ‘will react this time ?
I hold the view that one should have at least some Precious Metals representation in their Portfolio. Now I am Not saying that one should sell the Farm and buy gold or silver and platinum. But I predict that Gold may rise at least $30/40 in 2002 and might even trade above the $350 level in my opinion.
SILVER, even though industrial demand has diminished may trade near the $ 475 and has a chance to rise above the $5.00 level, in my estimation. Especially if 'ole' Warren Buffet decides lease rates on his silver are too cheap and decides not to lease an ounce...
PLATINUM HAS BEEN the best performer in the Precious Metals arena in the last few years. We might see another rise to at least $600 next year…….Since very few traders and investors are thinking about investing in GOLD, I am more sure than ever that I may be right.
SANTAYANA once said that "Those who forget History are doomed to repeat it." I agree….
Sunday, December 15th, 2002
7:00 AM eastern standard time
As 2002 ended its first week of the final month of trading, without much fan fare gold crept up amidst the abrupt upheaval of the Presidents Economic team as the Unemployment rate tapped six percent..
Upon completion of the second week of the final month Gold closed at it's highest weekly close since the first week of October 1997, while the PPI fell last month to it's largest decline in Six months….
--Point of note --
--Before the great last advance of the roaring 1990's that culminated the 1982 to 2000 Bull Run, the SP500 was trading at 975 during the first week of October 1997, the Dow sat at 8050 ish and the Nasdaq sat at 1750... Looking way back , December 31 of 1981 the Dow sat at 875.00 by Dec 31, 1999 the Dow had risen to 11497...during that period the GDP or as was known at that time, the GNP rose nearly 200 % a stunning achievement of growth but still dwarfed by the 370 % growth that occurred between 1964 and 1981. When the Dow moved from 874 to 875 year end to year-end... something Wall Street seems to omit.... it’s a curiosity that i find interesting.--
As last weeks revived global concern about nuclear weapons (and potential use of) fed risk averse holders of
U.S Dollars and Global investors appetite for the Yellow Metal's long forgotten store of value properties.
Investors continued on the year long trend of selling dollars pushing the Euro to it's highest weekly close since the first week of the New Century and the dollar index to it's lowest weekly close since the last week of January 2000.
Where was the EC in October of 1997 ? --1.1130 --
As we move forward into 2003 , new members to President Bush's Economic team that will join with the Ole' Copper local in efforts stoke the flame of the economic furnace not to just make it warm, but to heat it up.
There are going to get tax cuts galore and deficit spending like a kid in a candy store . If we are lucky we might even get more rate cuts. …..what the heck, lets make it a bakers dozen ! ….
All this is supposed to be bullish towards job growth by encouraging businesses to spend and hire workers once profits are within reach, concurrently the stock market is supposed to pick up on the increased economic activity and begin a brand new bull run that is going to last for years.
Which according to Stock market bulls is where we sit right now..
However, as i have been saying since long before the September of 2001 calamity, re-inflation is really what they needed to do.( while I was recommending bull stock market posture --ugh--)
-Not merely tax cuts and rate cuts-
Over the last year we have seen general price rises in raw commodities, but those rises can be attributed to cuts in production, for example grains, copper and cocoa where the demand to supply balance has been tilted to demand on lower production or special events like weather and war. China has helped boot demand , but not nearly as much as expected. It will be interesting to see what happens if final demand does kick in.
However , it just appears to me that final demand still stinks except for housing.
Our dollar is and has been way too high to encourage exports of technology, services and goods .
The long forgotten manufacturing sector has to be revived to get the fire burning bright and the government knows it.
Generally speaking , consumers and businesses must perceive that higher prices are coming down the pipe to encourage final demand to pick up at a faster pace.
Consumers are pelted with sales every day of the year.. and are now cherry picking at will…
Given that interest rates are so low. and productivity so high businesses , still reeling from corporate malfeasance shock and lack of leadership seem rather reluctant to make any real investment to encourage future profit gain. Which could further stagnate the prospect of job growth and eventually lead to a decline of intellectual innovation and advance until more dire conditions occur and advance occurs through need.
Toss in a lingering debt problem for consumers and businesses alike and there seems to be very little impetus for any real change in growth from the 3 to 4 percent economy.
Which may not even be achievable if job losses persist due to overcapacity and immigration subsides due to Homeland security issues.
During the 1990's it's estimated that 8 out 10 additional new male workers were immigrants.
Estimates looking out ten to 15 years and made prior to September 11 , 2001 concluded that there will be 75 % more persons over the age of 65 and only 25 % more persons aged 25 to 35....If those additions do not continue due to homeland issues, a lack of workers needed to supplant the dis-investing retiring baby boomers could become an real problem in years to come.
That's why productivity was and is so important to Mr. Greenspan. Fewer workers will be available to supply the dis-investing retirees with goods and services as we move towards the end of this decade and into the next, thus resulting in an inflationary trend as time moves forward. Which has a negative effect on the general economy and more so on the general P/E ratio of stocks as does dis-investment.
Which could explain the reluctance of the Fed to really do what was needed at the beginning of the slowdown, fearing that re-inflation prior to the dis-investing years could result in a real mess down the road, but that reluctance , along with the whole ball of deflationary debt ridden corporate malfeasance wax has led to other problems for the current economy and stock values…. so really, the result is STILL ONE BIG MESS that could last for a while ..
----The Markets may be giving us that message again now.----
Dec 15th , 2002
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