Golden Year! 1-15-2012

Gold has had almost a twenty per cent correction.  We expect it to start moving up again in the New Year.  Another metal to keep your eye on is copper.  If copper starts to move it usually means the economy is picking up and the commodities will follow.  There are many reasons for gold to move higher, inflation, economy picking up, stimulus packages, defaults, uncertainty, unemployment and wars.  The Bureau of Labor Statistics publishes an alternative measure of unemployment called the U6.  It counts those who have looked for work in the past 12 months and those who work part time but would like full time employment.  The rate moved from 8.8% in December 07 to 15.6% last November.  That is 7% higher than the official unemployment rate the government touts.  5.7 million Americans, 43% of all unemployed have been out of work for more than 27 weeks.


Pimco co CIO Bill Gross told CNBC the fact that central banks are printing money like gangbusters could reignite inflation.  By adding hundreds of billions of currency into circulation, central banks can produce reflation, that is why we are seeing the pop in oil, gold and other commodities.
However, there is also the potential for deflation if the private credit markets can not produce some sort of confidence and solvency going forward, says Gross. So we are at great risk here, not only in the U.S. but on a global basis.



New York University economist Nouriel Roubini says the eurozone crisis is not going to be a sudden wreck. It is going to be a slow motion train wreck where initial economic difficulties, financials, fiscal then restructuring and eventually exit might occur. Separate countries will have difficulties at different points in time, Greece, Ireland, Portugal, Italy and Spain. Some experts have warned that unless the European Central Bank eases up in its reluctance to buy government debt from banks issued by troubled countries, the currency group could collapse.

Goldman Sachs Group Inc. is staying overweight on commodities, and gold specifically, because they believe more demand revives speculation of shortages.  They believe in the next 12 months gold could hit $1940 per ounce, with interest rates and inflation remaining low.


Laura D'Andrea Tyson, former chairwoman of the Council of Economic Advisers under President Bill Clinton says, the danger in 2012 is not too much fiscal stimulus, but too much fiscal austerity. The same danger is stalking Europe and could lead to a sovereign default by a euro zone country and the breakup of the euro.  Such an event, considered unthinkable just a few months ago but viewed as a real risk now, would plunge Europe and the United States into recession, with negative reverberations throughout the global economy says Laura.


More and more Federal Reserve officials believe the economy could use a third round of quantitative easing, loose monetary stimulus programs designed to pump up the economy when normal tools like interest rate cuts are not enough.  The Federal Reserve Open Market Committee will meet on Jan. 24 and 25.  Past comments indicate that there is more stimulus in our future since they feel the economy is not on solid footing.  

San Francisco Fed President John Williams has said unemployment rates will stay high, which does make an argument that we should have more stimulus, according to CNBC. Meanwhile, Cleveland Fed President Sandra Pianalto has said in a recent speech that economic models indicate the Fed should be even more accommodative than it is today.  New York Fed President Bill Dudley has also said fresh easing may be needed, and three inflation hawks who would normally oppose easing, Richard Fisher of Dallas, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia, are rotating off the committee that sets such policies. 


Silver is a more attractive investment than gold, the latter of which is showing signs of bubbling, says John Licata, CEO and chief commodity strategist at Blue Phoenix Inc., a commodities and metals research company.  While gold may post more gains in 2012, other metals are showing signs of more lasting upswings, such as vanadium or lithium, Licata said in an exclusive Newsmax.TV video interview.


Rare earth elements are needed for products like mobile phones and TVs.  New technologies are creating demand and mining is not keeping up with demand.  In fact China produces most of these metals and they have cut back on exports recently.  EconIntersect will be watching these as well as oil and oil associated industries.  We believe oil could be a major mover in the New Year because of all the problems with Iran, more and more countries using more of their own oil leaving less for export, and the fact that there is not enough new finds to replace depleted oil fields.

One other item of importance, The New York Times reports Standard & Poor's research shows dividends may break records in 2012, suggesting that the U.S. recovery is picking up at a faster pace.  Dividends are on track to set a record of more than $252 billion in 2012.   This is based on current dividend rates of 394 companies, up from $240.6 billion in 2011 and $205 billion in 2010.
Dividends have been rising strongly, says Binky Chadha, the chief strategist at Deutsche Bank, according to The New York Times.  And the rise that we have seen has plenty of upside.

Doug Casey of the Casey Report says to rig for stormy weather, buy gold, build cash, diversify internationally, and look for opportunity in crisis.  We totally agree.  Keep your eye on EconIntersect as we expect to be making some trades very soon.