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465: Spring-Summer Crash Now On The Horizon

04-04-2013 team

Stock Market To Tank Shortly: We are well into danger territory for the stock market in 2013. The annual cycle has a predictable pattern in the last five years and this year is no different. You need to take a look at the outdoor temperature (weather) in NE USA (New York) and UK (London). In general it is inversely proportional to the price of the stock market. Just as things warm up, people bail out of the stock market. There are a number of reasons for this:

Summer Blues: The long cold winters are when people work like crazy, produce lost of goods and services, employ lots of people to service themselves and migrate into the urban developed cities to work and study. When the warm weather arrives, the super-rich bail-out of risk, they head for their boats in the Carribean or Mediterranean and vast swathes of workers head to less developed countries and produce less for the summer. Money is spend on holidays, but not “back home”. Less fuel-energy is used, less manufacturing takes place, less is produced, less is consumed, London goes quiet (apart from tourists), jobs levels drop and the whole economy during the summer starts looking like a recession. This then spooks the markets, they think a big recession is about to start – everyone starts selling their stocks and shares – putting it into less risk investments.  The financial services and related services make up such a large proportion of the overall economy – that when summer activity drops – it spooks the markets – people sell – activity levels go down.



























Get Out Now: We are really serious when we say – best get out of the stock market by early April – at the start of the new UK tax year. Things won’t pick up until late September again. There are so many wealthy hedge fund managers and financiers that take long holidays in the summer and don’t trust their underling with their investments – that they simply sell down during the summer crisis periods. The politicians and central bankers are kept busy trying to prop everything up – meanwhile the smart investor have fled – sold up for the summer – and are sitting on the boats by May each year. Just wait and see this happen again.

Still Bullish On Gold: Many people are saying the gold bull run has come to an end – the more conventional banks and voices that support stock market paper money and bonds-debt and trying to talking gold and silver down – they are succeeding one could say – gold is down 17% in the last few months. But we still think gold will eventually rise far higher because:

·         Of the colossal waves of printed money being created at an almost exponential rate – from the USA, Japan, China, UK, Europe

·         This gigantic sovereign debts eventually leading to a real crisis – financial meltdown – and flight to safety

·         Inflation eventually breaking out when the bond market bubble goes pop – sometime in the next 3-4 years

Don’t Be Shaken Out: For gold and silver investors, it’s tough, but the big players want to shake out the small players and you need to hold your nerve. Eventually, gold will account for a large proportion of all the dollars ever created – if it did this now – gold would be worth $60,000 an ounce – but it’s just $1550/ounce. It costs $1000/ounce to extract. We really cannot see a big gold price crash – its always possible of course but we don’t buy this when so many central banks are printing so much money and debasing some many important currencies.

Mini-Property Boom: The US and UK governments have been copying each other’s ideas and creating a mini-property price boom. The central thesis being – if property prices rise, people feel more confident, they spend more money, use their homes as ATMs and this gets the economy moving. This is an extremely dangerous game – but the governments are playing it – especially in the USA and UK. So expect property prices to rise fairly broadly – especially in the cities where private sector jobs are being created in the USA and UK. This is general inflation – governments stimulating demand for property – and hence having the prices rise. But eventually the debt needs to be paid back – and there could be a further crash – particularly if the bond market crashes, interest rates rise then property prices collapse. But for now, in London at least, it looks like prices are heading higher for the next year. People will shift money out of the stock market and put it into residential property – because of the housing crisis and shortage, and high rents. Big commercial property players are switching to residential – to close the gap. There really is a desperate need for low priced rental accommodation in London for all the lower end workers that service the financial services barons, financiers and hedge-fund managers. Huge numbers of people have migrated into London for a better life- many have three part time jobs – and struggle to find a room to rent. Meanwhile the rich elite also flock into London – buying up West End prime real estate. The population balloons with almost no home building in response.

Phantom Recovery:  There may be talk of some sort of economic recovery, but let us assure you this is a sort of phantom recovery. What is really happening is wages are not rising as fast as inflation. The inflation numbers in the USA and UK are manipulated – by substation, changing the basket, discounting products that rise in price and many other tricks. Inflation is generally double what is reported. So if inflation is reported at 2.5%, it will be more like 5%. So if you get a pay rise of 3%, instead of earning 0.5% more than inflation, you will actually be 2% worse off each year. That’s one reason why so many people have more than one job. A couple might be living in London in a room in a flat – both doing three part time jobs – six jobs for two people. Back in the “good old days” of the 1960s – most couples had one job between two people. Everyone who works – is working harder. Of course many people are not working – they need to be paid for. Taxes have risen so high, that most money goes back to the government through income tax, national insurance, employer contributions, VAT, fuel tax, council tax, high rail-tube fares etc. It’s very difficult for anyone to make money these days. The good news is that interest rates are very low – for the time being at least.

Policy: So the general monetary policy game seems to be:

·         Provide ultra-low borrowing costs

·         Print money to create inflation

·         Raise taxes and get this money back to

·         Destroy savers with zero savings rates

·         Pay for a bloated public sector and large government

Opposite Would Be Best:  Instead, we should have exactly the opposite in a vibrant efficient innovative industrial society. Investors should be rewarded with high rates, prudent savers as well, inflation should be reduced with increasing efficiency, the private sector should be stimulated with low taxes and the public sector should be severely cut down to size – like it was before the 1970s. There are almost as many public sector jobs are private sector jobs these days – manufacturing has been destroyed, driven abroad – with it our deficits have sky-rocketted and borrowing more money to pay for cheap import will eventually lead to economic decay and crisis. It’s certainly on the horizon for many western developed nations now.

More of the Same: So what we can expect is – more of the same. More printed money. More borrowing. More fuelling of a mini-property boom based on borrowed and printed money. A perception of growth. Taxes may drop slightly, but not back to their levels in the early 1990s. Growth will be broadly stagnant – zero.  Some quarters will see recession, others slight growth – we will bump along and everyone will be squabbling.

Innovation: In such an environment, only the very innovative will make serious money. We are talking about innovative manufacturing, products and services – like:

·         Manufacturing using printing

·         Shale gas and oil shale extraction

·         The latest smart phone technologies

·         Fuel efficiency-conservation manufactured products

·         High end luxury products for the super-rich in the developing world

Inflation: We still think the central forecast should be one of eventual high inflation – caused by an uncontrolled flood of money coming in to the markets, probably after the bond market bursts. Currency debasement will accelerate the inflation. So holding physical assets such as gold, silver, artwork and property seems prudent.

US Oil Boom: As for oil prices – the oil shale boom in Texas and North Dakota is gathering pace – this is certainly helping the USA with its balance of payments deficit. Without the private sector enterprise that had nothing at all to do with Washington, the US government would probably be on its knees now. These new reserves of oil and gas – discovered then confirmed in the last 4-7 years – are helping underpin the dollar and allow the US government to print even more money and get away with it. It started with shale gas – from horizontal fracced wells – this flooded the gas market driving gas prices down from $12/mbtu in 2007 to $3/mbtu by 2009 – they have stayed low helping manufacturing and lowering electric and heating costs. Then this same technology has been used to extract oil out the shales. North Dakota and Texas oil production has doubled in the last 5 years. The USA now produces more oil than it imports.  It’s certainly boom times in Texas and North Dakota – for business and property. We expect this to continue in these regions. But eventually the shear size of the US debt will grow so large, a re-set will be required. Owning physical assets will help protect your wealth. Holding fiat paper currency and bond could eventually see you destroyed.

Oil Prices Set to Remain High: But don’t be fooled into thinking the oil price will crash. These new extra barrels have been created only because oil prices are over $70/bbl. This is the cost to profitably extract oil prove shale, deepwater, biofuels and oil sands. This new oil has only arrived because of high oil prices. If prices tanked, supply would drop sharply and then prices would probably recover quickly – simply because oil is so expensive to extract these days. In 1999, oil prices were $9/bbl and cost $7/bbl to extract. Oil prices are now $90/bbl but the marginal barrel in western countries costs about $70/bbl to extract. The debate rages about whether this is Peak Oil, Peak Supply, Peak Consumption or whether oil production will continue to increase. But for sure, the days of cheap oil are over. Everyone is drilling like crazy to keep the production rates up – and investing gigantic amounts of dollars in the process in risky areas. This high cost fuel has crippled countries like Greece, Cyprus, Spain and Portugal who have to import all their oil, gas, coal, metals and much of their food. It was always an accident waiting to happen – as soon as oil prices rose. But another key reason why oil prices are so high is because the USA has exported inflation – namely printing so many dollars that oil prices have risen in dollar terms. Despite these extra dollars, the dollar has remained fairly strong – hence oil prices in Euro and Pound terms have been even higher. This has of course further helped stoke inflation in the UK.  The bottom line is – oil prices have had a crippling effect on western developed nation’s economies – because they use so much oil – and have got rid of much of their manufacturing base. Being prices in dollars often does not help either. This overall trend of high oil prices and suppressed economies that do not have their own oil and gas production is set to continue. Hence don’t expect a big reversal of fortunes for Greece, Spain and Portugal as oil prices remain high.

Super-Rich Strategy: Let’s face it, most of the super-rich use the financial markets to speculate – but with the proceeds of their businesses – they normally put into prime real estate, with some in gold and art work. They normally wrap these up to reduce their tax liabilities. They are normally the first ones into a new market, and the first ones out – the first to leave the party.  This investment strategy certainly seems to be the best in the current environment.

We hope this special report has been insightful – to help you with your investment strategies and tactics. If you have any comments, please contact us on .

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