I expect gold to hit $1,600 per ounce on or before 1/11/11 and expect silver to hit $22.
Oil should trade in the range of $40 to $100 range unless traders finally figure out the peak oil occurred in 2005 and move the price to “conservation” levels. Iran could impact these numbers to the upside. The U.S. economy could move the numbers to the downside. The overall average should be between $60-$80. Natural gas has the biggest upside challenge. $4.50 looks pretty good right now and the pricing pressure will continue to pull on the $6 level since all of the shell natural gas has a rough breakeven there. Lower price will cause gas drilling to dry up in the shell plays and ultimately translate to lower supply. States with natural gas revenues will suffer in 2010 at these lower prices. High energy prices help the revenues at both Federal and State levels as we have shown in the past. They receive the greatest windfall when energy prices are high even though they act sympathetic toward the consumer during those times.
The stock rally since March of 2009 was supported by the government stimulus package. Economic collapse in the next 12 months has a 50% probability of happening. If this happens, the Dow Jones Industrial Average could drop to 7,700. The Fed will fight this risk, especially prior to the 2010 election cycle. Congress will stimulate the economy with a jobs bill of at least $150 billion. According to leading economic indicators, we will initially see an economic recovery but the risk remains. With over 7 million unemployed workers not contributing to the economy, any recovery will be hampered. State governments (about 40 of them) are in deep trouble. Tax revenues are dropping rapidly and continued cuts will increase the unemployment numbers. See: http://www.bloomberg.com/apps/news?pid=20601087&sid=a5OM27Cn39Yk&pos=4 California is the 8th largest economy in the world and is broke. The Terminator may have some problems in getting Washington to print up some extra money for him. Federal tax collections are down substantially and you can count on more stimulus to make the current members of Congress look palatable for the November elections. These realities will have a negative effect on the deficit and future interest payments to support it. On the bright side, corporate inventories are down and will need to be replenished which will help the GDP numbers, temporarily.
Inflation will continue to increase because the Fed will be unable to raise interest rates to fight inflationary pressure. This will continue to hurt the savers who practiced fiscal discipline while reckless borrowers were not required to fully pay for their actions. Bond yields will put pressure on interest rate policy and will impair the recovery, a catch 22. It will benefit savers who have not been sucked into riskier investments since by waiting, they may see their interest checks rise as the bond market wakes up the Administration with a forced increase in yields. On the other side, a broad recovery needs low rates. The net result: someone will not be happy.
Management by Perception from Washington will continue to create noise and misdirection. Cooked numbers and rhetoric mask the underlying realities which you and I have to deal with at a personal level. Who represents us? Our Heavenly Father! This is why it is necessary to focus on HIM and not trust or rely on Washington to see us through this.
What can I do to protect myself against this volatility?
1. Continue de-leveraging- pay off debt.
2. Simplify and change your buying habits. Do without by choice and see how you do. “Act your wage” as well-known talk show host Dave Ramsey says.
3. Give. This is contrary to your natural inclination. Our Heavenly Father open rewards those who meet the needs of others in a genuine fashion. HE loves a cheerful giver.
4. Fellowship. Face to face time with family and friends is a great, inexpensive alternative to other time consuming entertainment alternatives.
5. Dwell and meditate on the Word of GOD and HE will direct your ways through the turbulence.
6. Analyze ongoing expenses and look for ways to reduce those expenses or eliminate them. Why pay for storage when most of what is in it will be eventually thrown away. Get aggressive on utility bills and figure out ways to reduce your usage.
7. Pursue your calling with renewed passion. Each of us has a calling and Our Heavenly Father will bless that calling with the resources of Heaven and earth. However, don’t expect to blessed in your ego-based direction outside your calling. It’s just a waste of time, energy, and money which ultimately creates remorse.