Shenandoah

by John Galt

December 27, 2009

Just sigh.

We have Joe the Buffoon with Obama the Wannabe Clintoon. What a sad and sorry year this has been. The United States has gone from being a joke under a President who bumbled his way through his last year in office proclaiming the economy was fundamentally strong while the system melted down all around him, to a new leader who’s mantra of “hope and change” has left the American business community hoping he would seek asylum in Bolivia and changing their spending habits to the point where the catch word for 2010 will be “temporary”; be that your job duration or the replacement they hire at 30% lower cost.

At least he can claim one successful summit this year as the beer was cold, the world watched in amazement and puzzlement that a world leader who distributes Ipods to royalty would be so concerned about reuniting a policeman and his suspect at the White House in an attempt to foster peace among the races. What’s next? A keg party for the LAPD and Rodney King? I know, better yet why don’t we gather up the Chrysler bondholders with the Auto Czar and set up a cage match or Jaeger shooters until the losers pass out and get the rights back? This is the logic of the current administration and it should scare the living crap out of every citizen, investor or participant in our society or economic future.

With that bit of political venting and commentary it is time to offer my prognostications and predictions for 2010.

The Economy

I fear that the entire charade of the past twenty-four months is about to come home to roost, and the strong comparisons on a historical basis will move to the forefront as the memories of the 1929 to 1932 time period beckon and call. If you look at the Dow chart from that era, courtesy of www.technicalanalysisbook.com you get the gist of what I am talking about:

So with that chart as a background and history being my primary field of study, here goes my “market” predictions for 2010:

1. The Dow will crater then SURGE. In the first six months of 2010 a minimum 25% correction from current levels (Dow 8000 or lower) which in my opinion could and should experience a 50% decline which would fit the historical pattern is more likely. Once this decline and the panic sets in during the spring period, the administration and Federal Reserve will pull out ALL of the stops. I fear that we will not see the proverbial “QE” or Quantitative Easing we saw in 2008 but just an outright declaration of a policy to support the Treasury auctions to the extent that a 6% 10 year yield will be the most that is tolerated by this administration and banking regime. The panic due to a total collapse and recognition that the consumer has withdrawn from the economy due to layoffs, lack of faith in the administration ( a la Hooverism) and then the rules never being truly set or ever changing for small business causing them to cancel any future expansion until they understand the tax and regulatory implications to come. Other nations have experienced such turmoil but never, ever has this happened in the modern era with the nation holding the responsibility of the “world reserve currency” as their moniker while at the same time showing an irresponsible willingness to expand the national debt and credit responsibilities beyond any hope of repayment. Charts of the Dow and S&P are useless at this point but as we move into the last two quarters of 2010, look for a miracle.

The miracle of “inflation” that is. The common theory and thinking of those mired in traditional economic thought and refusing to think “outside the box” as the expression goes is that all of the recent monetary creation is only going to pad bank balance sheets and create bloated reserves, which contributes nothing to the future growth or expansion of the government. If you refer, which is foolish in my opinion but let’s do it for predictions and fun, to the chart above, I think we are hovering around the rebound  period of 297 on that chart and shall now witness dramatic declines as faith fails and reality sets in for the good old U.S. of A. In the second half of 2010 however, I fear we break the pattern with deliberate if not outright purchases of bonds and equities by the Fed and the Treasury or some new “Department of Economic Stability” or other such nonsense and see the Dow stabilize in the 9000 range by year end. A tactical victory by any account should the full 50% decline occur.

2. It’s the Dollar Stupid

I have taken the liberty of drawing two major resistance lines for the US Dollar Index and despite the faith of many that the central banksters would rather deflate and risk a deflationary crash, I strongly feel otherwise. The bottom level is where I tend to lean towards the dollar rally we have witnessed and that I predicted with many others, would peter out. If we do surpass the 80 level with volume in January then we probably will witness a rally into the 82-83 level and all kinds of new hope and prayers as Kudlow orgasms on air about the mythical “new strong Obama dollar” and other such idiocy.

It ain’t happening. I’m going to play the technical side of this and align myself with other technicians where this move is nothing more than a technical bear market rally in a declining 18 year channel. Thus the proclamations that the dollar is back might be viewed as a major breakthrough that the U.S. economy is strong and vibrant, I call “nonsense” and advise that this is nothing more than a dead cat bounce falling down the stairs to a new all time low.

When I use the term “all time low” it is not an immediate prediction for a break below the 69.70 level on the US Dollar Index this year but I would rate the chances at greater than 70% at this time.

3. Gold, Gold, Gold and More Gold

The MSM follows this:

Thus while the world loses its head, I think there is a story behind this move.

The technical traders are dominating the gold market right now in dollar denominated terms. The recent declines have nothing to do with fundamentals or the relationship to the U.S. Dollar in my opinion. When the technical correction ends, in other words when I predicted it in my article titled

Be Leery of this Parabolic Move in Gold

I was not trying to make a joke or suddenly jump off of the “woah, real money” ship. The story stands pat as did the movement during the 1979-1982 markets but despite the anti-realist refrain against “this time it is different” this time, it truly is. Gold is no longer an “investment” against inflation, it is performing the historic role as the universal currency as it has for 3000 years. Thus why I feel after the current corrective phase is over a resumption to the intermediate term target of $1380 is solid for 2010 and if the U.S. government focuses more on the domestic economy than reality, the price target IN DOLLARS should be substantially above $1530 to $1570 at some point during 2010. The central banks of the world have to decide how much pain they wish to endure and worse, how much pain the U.S. taxpayer can handle as the inflationary spiral along with policy of devaluation for survival begins.

International Affairs

Mexico accelerates into an almost universal status of a Civil War. Venezuela and Cuba interefere and make power play moves to influence such an action with weapons and advisers courtesy of Iran (via Hezbollah as I’ve reported previously) and using the growing dissatisfaction due to the U.S. economic implosion by exporting trouble via El Salvador, Nicaragua, Guatemala and Belize throughout 2010.

China and Taiwan reach a mutual economic treaty agreement using the Yuan as the universal currency between both nations.

South Korea sets up a mutual trade agreement using the Yuan with China.

Japan defers further purchases of any long term U.S. Treasuries unless they receive a guarantee backed by physical assets.

China participates in all U.S. auctions of 2 years or younger maturities, with limited participation on instruments beyond the 3-5 year span.

Nigeria invites Chinese military assistance in exchange for oil rights to help suppress the current Biafran rebellion.

Romania, Lithuania, Latvia, Ukraine and Hungary experience a massive economic collapse due to the implosion of their bond markets and the unwillingness of the EU to support their policies. The EU only intervenes when the risk to banks in Germany and France requires IMF intervention with ECB backing. The former Central Asian Republics of the old USSR demand the same assistance but are not granted the same terms thus driving them to cooperative raw material agreements with China and Japan in exchange for trading U.S. and EU denominated debt for Yen and Yuan denominated debt.

The Yen reaches a peak of 93 on the Yen/Dollar exchange rate before cratering to the 67-72 level during the year.

Singapore and Malaysia reach Yuan trade accords with China before the end of 2010 as the US Dollar deteriorates.

Brazil creates a fixed dollar exchange rate during 2010 only to revise it due to dollar valuation fluctuations by year end.

Russia and China announce a trebling of their gold reserves in 2010.

The Era of our Domestic Discontent

The expansion of and continuation of the unemployment rate as measured in the U-6 table will expand the discontent of the majority of the American public, especially as the number in real terms exceeds the 18.7% level by year end. The short term correction we should see in the U-6 level below 16% due to the massive hiring of employees for the decadal Census taking will be overwhelmed by the wave of retail and service industry related bankruptcies due to the complete collapse of the transportation, manufacturing and retail sectors along with the new regulatory regime reducing the profitability for small businesses in the service industries, including that of medical care.

The uncertainty facing domestic business creates a lack of expansion, hiring and worse, further layoffs as revenues decline. I know that might be the “no duh” prediction of the year, but it runs counter to popular opinion and will create uncertainty and instability domestically from mid-year forward. The wild cards that face our nation in 2010 in my opinion are:

1. Unemployed illegals without benefits.

2. U.S. Citizens who are unable to save their homes and government benefits are terminated.

3. Foreign nationals tied to terrorist organizations who are engaged with groups like Hezbollah and Al Queda within North America.

There is nothing new in those three groups except for the numbers will probably expand exponentially as the real economy deteriorates further as the year moves forward. Thus why I remind everyone to prepare for a land falling hurricane the size of Texas at any point now.

Prayers

To be honest gang, my prayers are still for all. I pray for our soldiers overseas. I pray that I am wrong and the Keynesians are correct. I pray that our society does not disintegrate as so many other great powers have in the past.

I pray for our government to see the light.

I pray our nation does not collapse.

And I pray that we enjoy the blessings of the fruits of the earth, instead of the bitter taste left in the wake of an eruption, something I fear is coming to our society sooner, rather than later.