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Brace yourself!
Exactly one week from today — on Monday, December 3 — we will give you our forecasts for next year, and I can tell you right now: 2013 is going to bring one of the wildest rides of our lifetime!
Whether the fiscal cliff crisis blows up right away — or blows over for now — we have come to an historic fork in the road; a unique place in time where two powerful forces have converged:
Powerful force #1 is government cutbacks and tax hikes.
If Republican leaders in the House get their way, it will have a heavier dose of entitlement cutbacks.
If Obama prevails, tax hikes for the rich will play a bigger role. But …
Either way, the government will be taking tremendous amounts of money OUT of the economy, and this means DEFLATION.
Powerful force #2 is the Fed’s massive money printing operations.
Some Fed decision makers want to continue at the current pace of their “QE-Infinity” program, printing about $40 billion in new dollars every month. Others are pressing to accelerate that huge the program.
Either way, they are injecting massive amounts of unbacked paper dollars into the banking system, and this implies INFLATION!
So which will prevail in 2013 — deflation or inflation?
Before you answer, make sure you fully understand precisely how CRITICAL this question is — and how massive the consequences of each can be:
• During the last major INFLATIONARY period in America, (culminating in 1980), short-term T-bill rates surged from 2.99% to 17.14%, gold jumped from $34.94 to $850.00, and silver catapulted from $1.27 to $49.45. Hundreds of S&Ls and banks collapsed. Major wars raged. In stark contrast …
• During the last major DEFLATIONARY period, just four years ago, virtually every investment under the sun collapsed — not just stocks, but also commodities … not just in the U.S., but also globally. The Dow fell 54%. Oil plunged 78%. Even gold lost 34% of its value.
Which is worse? For an answer, just consider the long-term consequences of each:
The True Consequences Inflation
Inflation may ease the pain of debtors temporarily, help provide the semblance of a recovery, and even give the illusion that “the crisis is over.”
But such benefits are almost invariably short-lived. They are limited to a privileged few. And they almost inevitably backfire in the form of new bubbles, new busts and, ultimately, an even deeper depression with more financial losses, more bankruptcies and more layoffs.
In a nutshell, unbridled inflation causes:
• Still more bad debts. Individuals and companies are once again encouraged to borrow, spend and speculate, adding a new layer of burdensome debts to an already-overburdened economy.
• The ultimate moral hazard. Speculators are rewarded with profits, while savers are punished with zero, or less-than-zero real yield on their money. And yet, it’s the speculators who are among the primary culprits of the boom and bust; while savers are the ones most needed to help finance the next recovery.
• The destruction of the dollar. Savings and retirement nest eggs are trashed. People have little incentive to work hard and every incentive to find alternative schemes for making money. The inflation corrupts society and sabotages efforts to bring about an economic recovery.
The True Consequences of Deflation
Deflation brings with deep financial losses, widespread corporate bankruptcies and higher unemployment.
But those consequences are largely unavoidable anyway. Moreover, there are major, long-term benefits that accrue:
• A much-needed reduction of burdensome debts. With deflation, debts are paid off or liquidated in bankruptcies. Bad debts are removed from the economic body, creating a cleaner slate for future growth.
• Just deserts. Speculators who took the most risk during the bubble suffer the biggest losses; while those who had the foresight and prudence to save their money benefit from the best real returns. Thus, deflation naturally punishes those who played a role in causing the crisis; while delivering the greatest rewards to those most capable of ending the crisis.
• A strong dollar. The U.S. dollar gains in purchasing power, giving every American a bedrock of value to strive for, to save and to invest prudently. This lays the foundation for shared sacrifice by families, local communities and the country as a whole.
Clearly, despite the near-term pain, deflation is the lesser of the evils.
But what SHOULD happen for the long-term good of the country and what actually WILL happen in 2013 could be two different things entirely.
So the next big questions are:
Which is more likely? Deflation, inflation, or some unique combination of both?
When and how will they strike?
Most important, what are the consequences for YOU?
And what will be the impact on
• The U.S. stock market …
• Bonds and interest rates …
• Gold, silver, and other precious metals, plus …
• Oil and other commodity prices?
We will give you our answers exactly one week from today.
So check your inbox next Monday, December 3, for the exact time and place!
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 4 comments }
I’m gonna invest in a “broken records” ETF…
Here is the answer, and you guys don’t have to wait for one week to get the answer from Martin:
2013 will be a very big one, but it will not be the wildest ride of our lifetime, like Martin has scared us.
What we will have is…
We will have a major slow down in the economy.
The stock market will drop dramatically (bigger and deeper than the one from 2011)
If you are holding any stocks right now, you need to close everything out by January 2013.
And if you want to make money, short the Stock Market by January 2013 (by this time, the Stock Market will make a new high, this new high is a setup for a major down turn ahead)
And the reasons are…
The government cutbacks and tax hikes just like Martin said, and companies profits drop sharply due to a very slow growth, more tensions in the Middle East and the ongoing financial and social crisis in Europe.
The first 6-8 months of 2013 will be an extreme difficult period for all companies. The last 4 months of 2013 will be a recovery period due to strong cut back in spending and profits.
So, we will have a major slow down in the economy (a big set back) for the first 6-8 months, starting from January of 2013, we will see huge losses in the Stock Market during the first 6-8 months (unless you short the market, then it will be no losses). And the last 4 months will be a good period due to recovery and see positive growth in profits.
What about inflation and deflation?
For the inflation and deflation, Martin explained its best.
What we not see in 2013.
We will not see the Stock Market collapses like we did in late 2008 and first 3 months of 2009.
So what will we see in 2013?
A major set back in the economy.
Stock Market come down substantially, bigger than the one from 2011.
Since March 2009, Martin his outlooks always doom-gloom, and finally he get it right this time in 2013; it will a major set back in the economy and Stock Market but it will not be a ride of our lifetime, although, the down turn can be enough to wipe out anyone’s account if they hold in their buy positions. This is the only prediction that Martin will get it right for the first time in his lifetime in 2013, every other time since March 2009 up to the end of 2012, he got every single prediction wrong. He is a good researcher and analyst on the economy, but when it comes to the Stock Market prediction Martin is always pushing his luck.
Minh Tran
(Louisville, KY)
What about Gold and Silver in 2013?
Here is the answer:
If Gold can not get above the 1800 level, then we will have a major down turn in Gold price.
If Silver can not get above the 48 level, then we will have a major down turn in Silver price.
Once Gold & Silver can move above those levels, we will be out of the wood and heading higher, otherwise, we will see sideway and downward movement in prices.
If Gold & Silver can not move above those levels, then all the price levels that Gold & Silver analysts predicted and called out, and the things that you have read, and all the videos that you have listened to from the internet are just wishful opinions.
Gold & Silver can go either way.
Minh Tran
(Louisville, KY)
Thank you for your article and heads-up about what is coming on next Monday. I am looking forward to it. My only comment at this time is that your reference to the last inflationary period in the 1970s is a bit misleading, especially to forex traders that are well aware of what took place during that decade. That was the time that President Nixon took us off the Gold Standard, and major currencies began their transition to the floating system that we have today. At the time, the Bretton Woods Accord had fixed the price of Gold at $35. Once the shackles were removed and currency markets opened for real business, the price of Gold self-adjusted to true market value, as did other commodities and t-bills, too, for that matter. I know it was a bit more complex than this sounds, but the inference of your comment is that inflationary forces were the culprits. They may have been, but other forces were at work, too. Just wanted to make that clarification. Thanks again, and I look forward to next Monday!