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Predictions for 2013

Tuesday, 08 January 2013 19:47 Written by 

The complexities and risk built into the Modern World have increased its fragility and the likelihood of an unpredictable extreme event, or Black Swan.  In his masterful book of the same title, Nassim Taleb labels this age as one of “Extremistan” where severe, wild outcomes are the norm.  These events can be political, economic, or militaristic and like ripples on a pond, they spread across the globe with effects that can last for years.  The collapse of the hedge fund management firm Long Term Capital Management (LTCM) in 1998 due to the Russian Bond Crises and the attacks of 9-11 are two such events.  Both were largely beyond the imaginations (let alone predictably) of those who cared and the result of poor risk assessment.  The nature of this new reality means that predicting status quo over a reasonable time is less likely than the occurrence of an extreme event due to fragility built into the System.  In other words, one would perform better by making multiple calculated “extreme” predictions than forecasting “business as usual.”  While, the strong majority of these outliers will not fruition, a twenty to thirty percent rate would be a success.

It is more dangerous to forecast larger events over shorter time-frames as day to day developments contain far more noise than years or decades.  A year isn’t a lot of time and many things I feel will slip, yet ultimately occur in the 2014-2015 time-frame   I’ve been surprised about how many events with regards to gold, the Euro, major economies and the bond markets still haven’t happened despite obvious weaknesses in the System dating back to the financial crises in 2008.  Many, if not most people, have vested interests in maintaining the current order as long as possible and will do anything to extend things long after their tenability has proven questionable.

Predicting the future ultimately serves the purpose of making “experts” look foolish.  How does one make Ben Bernanke or Paul Krugman look like idiots?  Simple: quote them.  Apart from the arrogance of believing that studying at Princeton or Harvard gives one the ability to accurately predict the future through applied formulas, the other salient characteristic of such “experts” is their tendency to shy away from delivering bad news to their employers (politicians, benefactors, New York Times intelligencia, etc.).  We here at Prepper Link suffer from no such constraints.  

So, in the interests of exceeding the hubris of William Shatner’s singing career, here are my predictions for 2013:

1) The direction and viability of the European Union and its Euro become clear.  I’m not suggesting that either will necessarily collapse, but we will know whether or not the Union itself will transform into different blocks or move towards closer integration by the end of the year.  High systemic unemployment in the peripheral States of Europe will have tragic social consequences that are not fully appreciated by bureaucrats and politicians in the more prosperous core States.  As patience is exhausted, the productive and non-productive people of Europe will share the perception that the costs of solving the crises are not being equally borne.  The major financial institutions of Europe have yet to recapitalize their banking system despite having more extreme leverage ratios than their American counterparts before the 2008 crises.

2) Japan will witness the beginnings of a major bond crises.  The end game may not arrive until 2014, but it will be obvious to many by the end of 2013 that this will be the near future.  While the focus of many pundits is with Europe or the U.S., this forgotten economy is likely to be the match that sets off the powder keg of the World bond market.  With its current debt to GDP ratio at roughly 250% and 25x yearly Central Bank revenue at the end of 2012, there’s no way out of this horrifying Keynesian endgame.  With a declining and aging population that fears immigration, growth is not an option.  Japan is no longer self-funding and with a rapidly deteriorating balance of trade, this will ultimately lead to restructuring (default). 

3) Gold will meet and likely exceed $2500 per ounce.  The next major leg up will be powerful and surprising, despite the best efforts of Central Banks to prevent a major rise.  Gold has been priced higher every year for twelve consecutive years and 2013 will be no different, except in its percentage increase.  There’s no fever like gold fever and this trend will only continue and accelerate.

4) Silver will exceed its previous high of $50 per ounce.  Gold’s volatile cousin won’t disappoint but there will be gut wrenching price changes along the way. 

5) Interest rates in the U.S. will remain at all-time lows.  Yes, Bernanke recently stated that rates would stay where they are through 2014 and indefinitely as long as official unemployment was above 6.5%, so perhaps this isn’t such a tough call.  I’m merely predicting that market forces will not compel higher rates and the crises in Japan or Europe will drive investors’ capital into U.S. Treasury bonds to help maintain those low rates.  Which also means…

6) The U.S. will keep the Economy duct taped together another year.  That’s not to say things won’t continue to get uglier with higher taxes and financial repression on the Federal, State and Local levels.  Corruption at all levels will also increase and become more visible in both the financial and Government sectors.  You will also see an acceleration of city and local defaults as soaring retirement pension costs continue to erode the already stretched finances of their respective governments.  Expect higher unemployment as, paradoxically, Federal employment continues to expand.  Despite all of this, the U.S. will fare better than Europe or Japan.

7) The Assad regime in Syria will fall and find the Muslim Brotherhood taking power.  While the first part of this might be an easy prediction, the current Administration’s performance in the Middle East (Egypt, Libya, etc.) almost ensures the second.

8) The Dow Jones Industrial Average will tumble below 11,000 at some point during the year.  While a fast rebound might be possible, too many of the same signals that were present in 2008 before the last crash are currently in place.  Not quite blood in the streets, but definitely unpleasantness setting up a potentially catastrophic 2014 in the Market Averages.  And yes, this is despite the powerful money printing forces whose interests are vested in maintaining a higher average.

9) The shale boom in the U.S. will continue to expand and bring the nation closer to energy independence.  This will of course be despite and not because of the efforts of the current administration.  This is one of the few bright spots in the economic landscape.  As U.S. reliance on foreign, and specifically Middle Eastern oil decreases, look for outside lobbying for environmental restrictions on American Energy.

10) Some industrial jobs will return to American shores.  Partly driven by the shale boom (#9) which will lead to lower energy and manufacturing costs and partly driven by increased labor costs in China, expect to see some industrial jobs become economically viable once again in the U.S.  Another bright spot in an otherwise bleak, dystopian landscape.

Last modified on Wednesday, 09 January 2013 11:27
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