The financial markets hit a 12 year low this last week, down 50% from the high in 2007. A “Bear” market is characterized by falling prices for securities. The bear market will continue until investors are finally fed up with losses in the market and leave in masses. That has not yet happened. Gold hit $1,000 on Friday a week ago as we have been expecting. $1,600 is in the cross-hairs of gold and may occur sooner than we think. As instability increases, so does the price of gold and silver. Barrick Gold just report record cash flows for the year. How much longer will it take for investment dollars to flow into the gold producers? Who knows.
The entrenched leadership can’t see beyond their own self interests.
Intrenched interests in the political arena, financial industry, the auto industry, and the pharmaceutical industry have built protective walls of preferred legal structure to protect them from invasion by public unrest and revolt. Leadership in each of these areas has lost contact with the realities of history and standards of leadership, statesmanship, and excellence. The U.S. is quickly moving to a tipping point when civil unrest will rise up and revolt against this detached group of leaders.
$13 a paycheck is not a stimulus! The average American was slapped in the face by the Administration’s plan to bail out the banks and insurance industry with trillion’s and then gives the worker $13. That dog won’t hunt.
The end of abundance has arrived. Home ownership peaked at 69.2% in 2004 and is moving back to 63%. Housing prices have fallen 20.5%. As Ben Bernanke stated in this week’s testimony to Congress, “Another risk arises from the destructive power of the so-called Adverse Feedback Loop in which weakening economic and financial conditions become mutually enforcing”.
The coming high level of taxation is necessary to offset the huge shortfalls in tax receipts because unemployed people don’t pay taxes. Corporations losing money don’t pay taxes and can get some previous year tax payments back. The following graph provides us perspective of the seriousness of unemployment. The blue line best reflects true unemployment because the government numbers eliminate discouraged workers who have been unemployed for an extended time. However, these people still have a drag on the economy and must subsist somehow.
Natural resources are not limitless. Per capita demand of energy in China will continue to rise at the same time the oil supply destruction curve accelerates. The Canadian Oil sands require $65-$85 oil to be profitable. Ethanol plants are closing at these low prices and the farmers are feeling the pinch of lower corn prices. Some farmers hedged diesel (locked in their purchase price) at a dollar above current prices. Mexico’s largest oil field is on the decline. Natural gas drilling in the U.S. is dropping with exploration companies holding costly leases that will not economically pay out. The oilfield services industry is cutting staff daily. Déjà vu! I expect energy prices to begin their rise later this year into next year.
Bolivia has the “mother load” of lithium, the primary metal used in batteries. There will be an increased competition for these resources and countries will have to make hard choices as they must be concerned about building their armies versus protecting export markets. Politically unstable countries will see a regime change and stronger countries such as China will aggressive seek to tie up natural resources in those countries. U.S. citizens living in Mexico may sell their retirement homes and move back to a safer jurisdiction.
A sense of entitlement has prevailed by the population of the U.S. since World War II. We were the “new sheriff in town” and our currency became the global commercial currency. Other countries promoted the exchange of the U.S. Dollar and encouraged schools to teach the English language. We have come to expect our global position to be solid where everyone else caters to us. Hostilities of the public will increase as this sense of entitlement departs and is replaced first by denial then by anger.
The current bank bailouts are designed to protect the bondholders, not the stockholders. The stockholders in the banks have been decimated. The toxic debt still contained in the balance sheets of these banks will challenge the U.S. Treasury’s ability to continue the funding of these bankrupt institutions. My $5 to $20 Trillion bailout projection is coming to pass.
The 30 year globalization plan is reversing and protectionism is coming and isolation is on the way. Multi-national companies will have increasing difficulty in outsourcing manufacturing and customer support. “Buy America” is now the catch phrase in Washington.
The security risks will dramatically rise. When highly skilled technology experts are broke, they will resort to Internet crime. The smart hackers will place a virus on your PC to “ghost” your keystrokes and report those back to them. Suddenly, they will have access to your “secure” banking accounts. When unskilled workers are broke, they will resort to burglary and theft to make ends meet or simply eat and will justify their actions in their survival. The security industry whether technology based or bullet based will see good times.
What are we to do? Initially, there is an escapist attitude towards all these problems. Let us go buy an island and isolate ourselves from this unstable environment. Who do we take, or more important, who do we leave behind? Our Heavenly Father did not design escape routes but did create ways to protect His children during times of turmoil. When the death angel took the first born in Egypt, the children of Israel were not removed from the country. They were covered by “The Blood” and were spared from death. Only then were they sent from the land.
People will draw closer to GOD in these times. Families and friends will build a cooperative effort in ministering to the needs of their “new community”. Isolationism will vanish from the average American family. “Doing your own thing” will be an action of the past. Arrogance will be replaced by humility, charity will prevail over selfishness, and Love will overpower fear and greed.