How’d We Do in 2011?

Dave Gonigam – December 30, 2011

  • Forecasts fulfilled? A look back on our calls for 2011
  • Mayer on a “wrecking ball” in emerging markets… Amoss on the squeeze for U.S. businesses… Nelson on a sector that made out very well
  • Gold already recovering some of this week’s losses… Egon von Greyerz with a bold call for 2012
  • “Tallulahnomics” to help revive the gold standard? How a long-dead actress might change the economic dialogue in 2012
  • “Right on”… or “ignorant”? Readers chime in on Jeffrey Tucker’s “Generation Disillusioned”

   Greetings and welcome to the day that wasn’t… at least for our Samoan readers.

The island nation in the South Pacific shifted time zones today… and jumped the international date line. One moment it was 11:59 p.m. on Dec. 29. The next, it was 12:00 midnight on Dec. 31.

It’s not a mere curiosity: It’s another sign of the great global shift. “The government felt that in the new millennium we’re making a lot of business with New Zealand and Australia,” explains Samoan journalist Autagavaia Tipi, “and also Japan and China. Very little business with the United States.”

So after 119 years in sync with North America, “I think it’s about the right time for us to move to the original side that we were of the international date line.”

Conveniently, this brings us to a tradition on the final trading day of the year: Instead of a forecast, a review of the leading forecasts and profitable themes from our writers and editors during the year gone by.

   “The year 2011 is the year when inflation will play the role of wrecking ball” in emerging markets, declared Chris Mayer on Jan. 18. “The basics like food and energy are like brakes on these economies.”

Only a week later, skyrocketing food prices were among the factors that launched the revolution overthrowing Mubarak in Egypt.

Meanwhile Chinese inflation topped 6% this year, and that’s the official figure. “On-the-ground” estimates from our contacts there ran north of 10%. And that at least tapped the brakes on China’s economy as year-end approached. “The world’s second-biggest economy faces a deeper slowdown,” Bloomberg reported on Dec. 14.

Meanwhile, “India’s economy is looking decidedly less flashy these days,” The Wall Street Journal said 11 days ago. And according to the Financial Times on Dec. 7, “Economists have started bandying around a word rarely associated with fast- growing Brazil — recession.”

   As if to further bear out Chris’ forecast, HSBC’s measure of Chinese manufacturing activity is out this morning… and it reveals a second straight month of contraction.

Like the ISM number in the United States, 50 is the dividing line between growth and shrinkage. The December number is 48.7.

China’s stock market is set to close the year down 22%… at a level last seen in March 2009.

   “You could make a lot of money investing in rare earths,” said Byron King on Jan. 19, “if you can handle a lot of risk. And I mean a LOT of risk.”

2011 began with one of 2010’s red-hot sectors looking shaky… and many names collapsed. Industry darling Molycorp has been cut down by two-thirds in eight months.

“All of the publicly traded investment ideas — even the best of them, and some are quite good — are speculative ventures on future output,” Byron warned. Days earlier, he got readers of Energy & Scarcity Investor out of Molycorp for 178% gains in four months.

Is there still any life in the sector at year-end? Absolutely… if you look for “heavy rare earths” — so called because of their atomic weights. “Light rare earths are fairly abundant in terms of volumes,” says Byron. Those are used mostly in magnets.

“Heavy rare earths are far less abundant,” and that’s the stuff that goes into electronics, like your mobile phone. “Look for companies with ore bodies that are rich in heavy rare earths.”

   Another news item from China today buttresses Byron’s thesis: The Middle Kingdom — still the producer of 97% of rare earths — is revamping its export quotas.

The move “is unlikely to stem the nearly six-month slide in prices of the crucial elements,” according to the Financial Times, “but could cause shortages of critical ‘heavy’ rare earths.”

“Industry executives,” reports the salmon-colored rag, “say the separate quota for heavy rare earths — a category that makes up 15% of the overall quota compared with 85% for light rare earths — will ultimately make heavy rare earths more scarce.”

Byron has two favorite plays rich in the “heavy” stuff. “I track these guys very closely,” he says. “I’ve visited the plays. I’ve met the technical staff and the whole line of management. I expect good, positive news to flow from the companies as 2012 gets under way.”

And the best part? They’re “way underpriced,” he says. Much more here.

   “Dividends will play a major role in investor’s portfolios in 2011,” declared our income specialist Jim Nelson on the first trading day of 2011.

He also said not to expect much in the way of capital gains from stocks this year. Regular readers know this forecast was borne out by the chart we shared three days ago. It’s worth another look.

   “For 2011, my No. 1 prediction is a rise in the Producer Price Index,” declared our stock market vigilante Dan Amoss, also on Jan. 3.

Nailed it. The year-over-year change in wholesale prices topped out above 7% in late summer and early fall. Companies faced the wrenching decision of whether to eat their rising costs, pass them along to customers, cut expenses or some combination thereof.

This is the “margin squeeze” we’ve been writing about for more than a year. Look for it to show up in quarterly earnings reports… starting in mid-January.

   “Home prices, which were already headed lower before this recent spike in mortgage rates, are set to take another tumble downward,” forecast Michael Pento on Dec. 13, 2010.

What’s more, “lower home prices will send more mortgages under water and force many more homes into foreclosure.”

This is a forecast that in hindsight looks like a slam-dunk. It was, in fact, an outlier at the time. But a year later, the Case-Shiller home price index is 3.4% lower than it was at the time of Mr. Pento’s forecast. Meanwhile, “the U.S. housing market must digest more than 14 million distressed properties…before the foreclosure crisis will subside,” according to a Bloomberg account of RealtyTrac’s latest monthly figures.

Forecasts like these — standing against the wind and proving out right in the end — are one of the reasons we brought Mr. Pento on board.

   “Get ready… the bulls are coming back to the U.S. dollar,” said Abe Cofnas on Jan. 3.

Understand that Abe calls things very short term. At that moment, the dollar index was a bit above 79. On Jan 7, it topped 81.

Abe’s trading strategies this year bore the most fruit in calling the swings of Germany’s big stock index, the DAX. Time after time, he saw traders overreacting to rumors on Monday morning — delivering big gains to his readers by Friday afternoon. Among those gains… 161%, 72%, 120%, 125%, 117% and 66%.

   On this day last year, we pronounced 2010 “both tumultuous and profitable for the better part of the collective portfolio” here at Agora Financial. 2011 turned out to be more of both. And for 2012? We release our New Year’s forecasts next week.

The most actionable of those forecasts will go exclusively to members of the Agora Financial Reserve. Reserve membership is our ultimate package deal. The high-end services from only three of the above-mentioned editors — Chris, Byron and Dan — cost more than $3,500 every year. Add in Patrick Cox’s Breakthrough Technology Alert and you’re looking at $5,500.

For not much more than that, you can pay only once and secure lifetime access to nearly everything we publish. Within a year, you might be sending us emails like these…

  • “The first year of my membership I made enough money from only two of the services in the Reserve to recover ALL moneys spent on my membership”… plus transportation to Vancouver for the annual Symposium [free admission is among the privileges of membership]
  • “My ‘small gains’ for the year more than paid for my lifetime membership to the Agora Financial Reserve”
  • “I have been a Reserve member for over two years and feel it was, hands down, the best financial decision I have ever made (and I’ve made some good ones).”

“Still,” this reader adds, “I worry that nothing keeps ‘working’ indefinitely if it gets big enough. I hope you can resist the temptation to expand to the point that your letter writers start majorly ‘making markets’ and begin to lose their niche effectiveness. This is a real danger and (I suspect slowly) would become a huge disappointment to your longest-time subscribers.”

No worries about that. We know that’s in no one’s best interests… so we limit membership to no more than 1% of our total readership. And we open the Reserve to new members only a couple of times a year.

The current membership drive expires at midnight next Wednesday… and the membership fee might well go up the next time around. You can secure membership now — and receive our entire team’s 2012 forecasts and recommendations as soon as they’re ready — by acting here.

   Stocks are drifting on the final trading day of the year. The major indexes are down fractionally.

Assuming those numbers hold by the close, the S&P 500 will end the year four or five points higher than it began… with a lot of stomach-churning moments along the way.

   Gold has regained a good chunk of its losses from the last two days. At last check, the spot price is $1,574. Silver has recovered to $28.29.

   Gold’s swoon this week is “just manipulation and panic in a paper market at the year-end,” says Vancouver veteran and GoldSwitzerland proprietor Egon von Greyerz.

“It’s easy for anyone who wants to intervene to push the price down even further in a thin market,” he tells radio host Eric King. “So I think that’s what’s happening and I wouldn’t worry the slightest bit.

“Gold is up for the year in all currencies and 2012 will be another fantastic year. I wouldn’t be surprised to see several thousand dollars (for gold), let’s say $3,000-5,000.”

   “Can we just skip the lectures and get down to vibrant job creation via the gold standard?” asks Ralph Benko from the American Principles Project… who proposes a novel idea we plan to take up one month hence.

“Nobody, but nobody,” says Mr. Benko, “has ever put economic policy better than… Tallulah Bankhead. This siren of the silver screen… said all there is to say about economic policy: ‘I’ve been rich and I’ve been poor. Believe me, honey, rich is better.’”

Prophetess of the new gold standard?

Mr. Benko is calling for the presidential candidates to start “evangelizing Tallulahnomics.” But short of that, he proposes a celebration built around Ms. Bankhead’s birthday… which is Jan. 31.

[Ed. Note: Our fact-checking team has discovered this quotation is more commonly attributed to Ms. Bankhead’s contemporary, Sophie Tucker.

“Sophie Tucker Day isn’t nearly as fun,” Addison muses via instant message. Her birthday comes up even sooner — Jan. 13.]

   “I very much enjoyed yesterday’s 5 with the individual who wrote in and said that he too had worked at the Alberta tar sands and it was as a previous commenter described.”

“Sticky, hard to breathe during the summer due to the huge amount of tar lying on the ground, etc. He then went on to describe what it was like after the ground had been reclaimed.”

“I would think that the various oil companies would be well advised in putting some money into a publicity general fund kitty and have a documentary made (Hint: maybe by someone who has made a documentary before?) on what is really taking place there instead of the lies the environmentalists are trying to shove down the public’s throat.”

   “What would be nice,” writes another, “would be to have a collection of pictures of the oily landscape and a bunch of pictures after a reclamation project.”

“Then sit a bunch of eco-freaks in front of them and ask them to tell you which one did Mother Nature create and which one did man create.”

“This type of drill would be good for the average person out there too so that they might get a bit more educated on the fact that man can get oil and gas from the earth and make the land better than it was before. You might throw in some good coal reclamation projects too.”

   “Right on,” a reader writes in reply to Jeffrey Tucker’s Overtime Briefing yesterday, “Generation Demoralized.”

“Couldn’t agree with you more: My working from age 12-17 did a lot more for me than four years of college.”

   “For as much as I disagreed with Tucker’s first article for you guys,” writes another, “this one is dead center. How do I know? I have two 20-something kids who cannot find work.”

“These are very bright kids with top education and serious work ethics. Businesses today are looking for people they can exploit, not for creative, independent thinkers. It sucks.”

“My kids will eventually do fine in spite of the current bizarre job market. And it will be a great loss for the companies that are using current circumstances to game the system.”

   “Mr. Tucker is ignorant of history, among other areas,” writes someone who disagrees, “when he urges repeal of child labor laws as a means of getting the economy back on its feet.”

“Tell him to read up on children’s role in industry prior to the passage of those laws.”

The 5: “The national law against child labor,” Mr. Tucker replies, “didn’t pass until the Great Depression — in 1938, with the Fair Labor Standards Act. It was the same law that gave us a minimum wage and defined what constitutes full-time and part-time work.”

“By the time this legislation passed, however, it was mostly a symbol, a classic case of Washington chasing a trend in order to take credit for it. Youth labor was expected in the 17th and 18th centuries — even welcome, since remunerative work opportunities were newly present. But as prosperity grew with the advance of commerce, more kids left the workforce.”

“By 1930, only 6.4% of kids between the ages of 10-15 were actually employed, and three out of four of those were in agriculture, and the law didn’t even cover them.”

“In wealthier, urban, industrialized areas, child labor was largely gone, as more and more kids were being schooled. Cultural factors were important here, but the most important consideration was economic. More developed economies permit parents to ‘purchase’ their children’s education out of the family’s surplus income — if only by foregoing what would otherwise be their earnings.”

“The law itself, then, forestalled no nightmare, nor did it impose one. In those days, there was rising confidence that education was the key to saving the youth of America. Stay in school, get a degree or two and you would be fixed up for life. Of course, that was before academic standards slipped further and further, and schools themselves began to function as a national child-sitting service. Today, we are far more likely to recognize the contribution that disciplined work makes to the formation of character.”

   “I love The 5,” an enthusiastic Reserve member wrote in last night.

“On this — the day before the last trading day of the year… I just wanted to thank you for all the wonderful, informative, exceptionally interesting (superlatives could go on for a while) newsletter.”

“Tomorrow… for the S&P 500 — I’m looking for (the expected) U.S. government/Fed reserve intervention to keep the S&P 500 in positive territory for the year. It’s touch and go right now; it won’t take much to make it happen.”

“Cheers, and Happy New Year to all of you at Agora Financial… and looking forward to Vancouver!!!”

The 5: We look forward to seeing you there. Free admission to the Vancouver conference is among the many perks that come with Reserve membership.

If you’ve ever thought about joining yourself, you have the long weekend to mull it over… but not much beyond that. The offer expires at midnight next Wednesday. Please review your invitation here.


Dave Gonigam
The 5 Min. Forecast

P.S. U.S. and Canadian markets will be closed on Monday. The 5 returns on Tuesday. Happy New Year!

For one of our editors, this has been a week of extracurricular activity. Byron King has been on the road engaging his interest in everything from rocketry to supercomputers. But as you’ll see in the musings below, it’s still relevant to his metier of resource investing

I’m putting my “week off” from writing to good use. I hit the road, and made some well-planned calls. I was fortunate to receive guided tours of the NASA Marshall Space Flight Center in Huntsville, Ala., and the Oak Ridge National Laboratory in eastern Tennessee.

At Marshall, I spent many hours walking and talking with a couple of old NASA hands, making our way through the history of U.S. rocketry and manned spaceflight.

We started by tracing the DNA of U.S. rocket engines, from their genesis in the captured German V-2 program of World War II all the way through the Apollo program and the truck-sized nozzles of the Saturn V booster. Indeed, Huntsville has two Saturn V examples — one stacked up outside, 360 feet tall, in all its glory, and another restored, museum-quality Saturn V lying on its side in a shed that’s half the size of an aircraft carrier.

We also spent much time discussing the space shuttle, and the many other orbiting satellites with which people gather so much critical data about the Earth — including data that’s essential to energy and mineral exploration and development.

One of the purposes of the visit was to get a sense of the scope of effort, and depth of industrial base, required to accomplish large, complex projects. I was quite taken by the comparisons between the overall complexity, and unforgiving nature, of both the space program and deep-water energy development.

At Oak Ridge, I toured the National Center for Computational Sciences, home of the nation’s most powerful supercomputer — at least, the most powerful device that the U.S. government admits to owning. The immense banks of parallel processors cover just under 6,000 square feet of floor space on each of two floors. The Oak Ridge system is called “Jaguar,” and for a time it was the fastest supercomputer in the world. Then the Chinese and Japanese each built one that’s faster. But the Oak Ridge scientists have plans for the next step ahead.

Supercomputers are critical to modern science and engineering. In the old days, the “scientific method” was basically a process of hypothesis and experimentation. Today, at the cutting edges, it’s a process of hypothesis and simulation. After you refine things by crunching the numbers, then you might take a shot at building something for an actual experiment. The big point here is that modeling is critical to future energy systems, material systems, environmental modeling and much more.

I also got inside the Oak Ridge Spallation Neutron Source — a one-of-a-kind facility in the world. There, Oak Ridge personnel accelerate protons to 90% the speed of light and slam them into a vat of mercury. The speeding protons knock out neutrons, which then fly into a variety of channels where purpose-built instruments allow scientists to perform all manner of experiments on a wide array of materials. Again, this kind of fundamental physics, as applied to materials science, is how people will invent the human future.

Then I visited the historic X-10 reactor, the world’s second graphite-moderated nuclear reactor (the first was Enrico Fermi’s reactor, under the old football stadium at the University of Chicago). The X-10 was built in a rush during World War II, and was key to proving that it was possible to mass-produce nuclear materials. After X-10 proved the concept, a series of other programs followed up with more nuclear materials — including the nuclear materials of the first atom bombs.

Finally, I paid a call on the Y-12 National Security Complex. This is where the really serious nuclear materials are handled — from reactor fuel to nuclear warheads. In the past 20 years or so, it’s also where a lot of Cold War-era materials have met their fate, being mixed down from weapons-grade bomb pits into commercial-grade power materials.

I’ll have much more to say about all of this in future issues of Outstanding Investments and Energy & Scarcity Investor.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More