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417: Summer slowdown, 2013 collapse -


03-23-2012

PropertyInvesting.net team

Summer Slowdown Approaching: It’s that time of year again. Looking back annually, when the northern hemisphere winter arrives the following happens:

Winter Acceleration: But then the days get lighter, days get warmer, and the following happens:

  • Part time workers start taking long summer breaks – enjoying the weather and school holidays
  • Rich people sell up and move to their Mediterranean super-boats and holiday homes
  • Risk aversion kicks in as the super rich (control freaks) choose to relax and sell up before they go on holiday
  • Manufacturing plants start slowing down, less energy is burnt
  • GDP statistics and manufacturing indexes drop
  • Stock markets crash on news of possible recession
  • The summer is turbulent in the markets as politicians start intervening and trying to stabilizes things
  • This continues until mid September when the super rich elite return to their investments and start buying things again
  • Then manufacturing plants run harder and GDP growth improves, as do jobs – all the way through the winter period. And so the cycle continues.

Bottom line is – to be in the stock market heavily exposed after mid April each year is highly risky. Best sell before mid April then come back mid September and start up again.

FTSE 6000 Too High: Yes, we are serious. The FTSE100 rapidly rose to 6000 in February - in our opinion this was a high point, and we cannot see that level being reached again for quite some time. Expect the FT to crash to at least 5000 by August 2012. Its likely to improve in the run up to the November 2012 US election, but then there will be an almighty crash any time after that – the real collapse, as 6 years of heavy money printing finally come home to roost.

Inflation Hedge: But before you get cold feet completely on stocks and shares, at least you are not likely to lose everything if you own company stock. Unlike government debt or other loans, bonds etc - where you can lose 100%. Also stocks and share are to some extent a hedge against inflation. Stock prices can rise though they are not likely to keep up with inflation in this overall stock bear market.

Calm Before The Storm: We are really expecting a severe recession in 2013. 2012 should be reasonable calm only because Russian, France, Germany and the USA all have elections. They will all be printing money through the back door to prop up their economies. Giving hand-outs and making things look as rosy as possible. But after these elections, the bad news will come out. And we expect a massive run on the US dollar – triggered by a run on bond markets. Bond rates are starting to drift higher. Some people interpret this as good news – because they think everyone is expecting interest rates to rise in response to a healthy US economy. But don’t be fooled. They are rising because international investors have lost confidence in the US dollar and are asking for higher rates as insurance against default. When this negative bond market momentum builds through 2012 and into 2013, the **** will hit the fan, because interest rates for individuals, businesses and banks will sky-rocket. They will no longer be able to afford to service these debts – money printing will have to be accelerated on a grand scale then inflation will run away. Then the US currency will be destroyed.

Inflation To Skyrocket: When we analyze the numbers and underlying fundamentals, it’s extremely difficult to see any end outcome except inflation on a grand scale. Whenever deflation rears its ugly head, the Fed just prints more money and the US debt sky-rockets. Ultimately inflation will go out of control when private and international investors bail out of the US bond market. When the US dollar finally loses its safe haven reserve currency status when markets get wind that there is absolutely no way they can pay off their gigantic debts, then :

  • The dollar will crash
  • US inflation will take off as import bills sky-rocket and the Fed print more money
  • Oil prices will skyrocket in dollar terms
  • Unemployment will rise sharply
  • The rich will get their money off the table fast, the poor will get poorer
  • Savers will be destroyed as their purchasing power declines very fast

Accelerating Into 2013 Crash: We expect this process to accelerate end 2012 – it started many years ago, but will become very obvious in 2013 for all to see. At this time, gold and silver prices will skyrocket as people trade their dollars for gold and silver.

Just to describe what the US debt looks like – a reminder:

  • US total annual direct debt is $15.2 Trillion
  • US annual deficit is $1.25 Trillion
  • US annual oil import bill is $0.4 Trillion
  • US annual tax receipts is $1.5 Trillion
  • US annual government spending is $2.75 Trillion
  • US total direct debt including Fannie Mae and Freddie Mac obligations is $19 Trillion
  • US total unfunded liabilities including Medicare, Medicaid, Military, Pensions, Social s $75 Trillion
  • Size of US dollar bond market is $75 Trillion
  • Size of US derivative market is ~$125 Trillion 

Unsustainable Debt: It doesn’t take a rocket scientist to read these numbers. The USA is bankrupt. It cannot pay back it's debts without printing more money. It can old print money because of the historical goodwill, military might and the US dollar’s reputation as a reserve currency.

China: As the US’s military capability is eroded and China gains economic power – a tipping point will be reached when international investors desert the dollar. Then the US economy will crash – sometime in the next few years. A long slow collapse started around 2000 as oil import bills started to rise, oil prices rose and the Fed created an unsustainable housing bubble. The financial crash of 2008 was just a pre-curser to a wider scale sovereign debt collapse that is fast approaching – it was created as banks were bailed out using tax-payers money. And money created from thin air. This social model will fail shortly, as all such government interventions and money printing do. With it the US will lose it's economic empire built around the dollar and its reserve currency status for oil, trading and transactions.

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Default, Inflation Or Both: When the US can no longer pay its debts, the Chinese will want payment in gold, land, oil and other assets – commercial property and infra-structure. Gold will need to be transferred from the USA (Fort Knox and the Fed) to China to pay off the bad debts.  And yes, we are very serious. The US gold reserves of 8200 tons - if they actually exist for real (they have not been audited since 1956) - are only worth about $0.6 Trillion – about 23 times less than the US $15.2 Trillion direct debt. That is one reason why gold prices could ultimately rise as high as 23 fold as they catch up with the amount of US printed money in existence.   

Inflating: At the end of the commodities bull market, it will be like 1980 all over again, except rather than being able to respond with higher interest rates, this time the Fed will not have this option because the national debt is just so colossal. So hyper-inflation or at least very high inflation will take hold. Interest rates will always be behind real inflation rates. This policy will be the only way the national debt can be destroyed, barring default. Inflation might run at 15-25% per annum for a few years. As you can imagine, if rates stay low and inflation is high as the US debt is deflated away, gold and silver prices will go ballistic – because it will be the only safe mechanism for businesses and individuals to preserve their wealth. Eventually, the US population will realise how much the dollar's value is being destroyed and shift to gold in a panic. 

Oil Silver Ratio: Take a look at the calculations below. The oil price was $30/bbl in 1980. It is now $110/bbl. Silver prices were $50/ounce in 1980. They are now $33/ounce. Meanwhile the world's population has doubled, but silver production is running at about the levels as as 1980. For the average person living in a developed nation in 1980, they used $450 worth of oil a year - or 15 barrels (half that of the average person in the USA). Now they use $1650 worth of oil a year. In 1980, each person on the planet used $71 worth of silver a year. But today, they only use $2.4 worth of silver a year – simply because it is so incredibly cheap and the population is double. The price has been suppressed beyond recognition by the elite - probably a combination of JP Morgan, the Fed and Wall Street generally.

 

 

 

 

 

 

 

 

 

 

 

 

Oil Silver Cost Per Person: In 1980, each person’s annual oil to silver cost was about 6.3 – meaning the cost of a person's oil was 6.3 times that of a person’s cost of silver per annum. But today, in 2012, each person’s oil cost is 700 times that of their silver cost per annum. This is despite the fact that silver production is at a plateau, silver stock piles are at an all time low and very few silver only mines exist. Hence the ratio of 2012 to 1980 oil to silver is 111 times. Therefore, for the silver price to catch up with the oil price in dollar terms in 2012 compared to 1980, it would need to rise from $33/ounce to $3667/ounce – a 11100% increase!  

Silver Bargain of Century: As we keep saying, silver is the bargain of the century.  Currently stock piles on the earth’s surface amount to only 500 million ounces of silver available, about a year's worth of consumption. That sounds like a lot, but it isn't. There are 7 billion people. That means each person has 1/14th of an ounce of in silver stock. That’s 1/14th of a silver coin. One silver coin for each 14 people. And an announce silver coin costs only $33+.  That's $2.60 worth of silver per person per year!  Wake up. Pinch yourself. Can you see – that silver is just a gigantic bargain?

Actions: Anyway, we hope you have understood this Special Report and its ramifications for forecast silver prices. We have actioned silver. It’s all about actioning. You cannot make serious money unless you put some skin in the game. Since we realised just how incredibly cheap silver was back in August 2011, we have been buying huge quantities. As much as we can. Gold as well. But silver seems to us the screaming buy of the century.

Bear Trap Shake Out: After Christmas 2011 the silver price rose sharply to $37/ounce as investors worried about the European debt problems. The silver prices have now been manipulated back down – likely by the US Fed via JP Morgan short positions – and this has shaken a few people out of the market. Prices are now down to $31.5/ounce. This is a great buying opportunity. The stock market has risen nicely and many financial folk think the economic recovery is gathering pace nicely. This is a reason why silver prices have dropped. The Iran issue has also gone quieter for now - as the US prepares for the election - an uneasy truce one could say. This is the time to buy silver and gold. Because the global financial markets will go pear shaped shortly and then gold and silver prices will skyrocket. Don’t be put off as the price drops – use it as a buying opportunity. We really don’t care if silver goes to $25/ounce because we know it will zoom back well over $50/ounce shortly. Silver prices are very volatile – as they say – silver is the devils investment and it climbs a wall of fear.  The trick is not to be shaken out of the market before the real action starts. You need to hold your nerve. Obviously this is easier for the more wealthy robust investors. But if 14 people’s worth of silver cost $33/ounce, can you imagine cutting back on 5 Starbucks coffees and buying one silver coin a week!  Or cycle to work – save the tube fare – and buy one silver coin a week. Can you offset $33 a week to invest in silver?

Long Term Investment: Just to put this into perspective, if you started work at age 18, retired at 60, saved £5 per working day through your working life by making your own sandwiches/lunch, then invested this money each day and making a 12% return a year on that investment, you would be a millionaire by time of retirement. Now just imagine buying one silver coin a week – then the silver price rises ten-fold in the next five years. It would be a tidy sum - $85,800 in fact.   

Peak Oil Plateau: Anyway, anyone that thinks our prognosis is a little gloomy might consider the oil price and the affect this has on the global economy. Any oil price near $125/bbl will eventually lead to inflation. It's quite remarkable how robust the US and European economies have been so far this year as oil prices have risen from $90/bbl to $125/bbl. But essentially the oil prices have been too high for too long now, and the developed nations that import oil will tip into recession shortly. The only reason why this has not happened up until now is because both the US and the European governments have been printing money – in part to prop things up because there are so many elections this year. All the talk of plenty of oil in the market is misleading. The world is on a Peak Oil plateau. As Iraqi and Libyan oil production rises, other countries have static or declining oil production. One offsets the other and we are stumbling along with an oil crisis just around the corner. If an oil crisis breaks out, oil prices could rapidly rise to $200/bbl, but then a recession would start quickly and they would crash back down again. But the floor should be $80/bbl, rather than the $35/bbl level we saw back in late 2008. World economic growth is being constrained by Peak Oil. 75% of all transportation uses oil. No way out. It’s too late. It's precarious and this is being reflected in the oil markets and will translate into slower growth or recession in all nations with significant oil import bills.

 

 

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