On Friday, the December unemployment numbers were released and the official stats showed us losing another 524,000 jobs with unemployment reaching 7.2%. The total losses make 2008 the worst year since 1945, when the US was coming out of WWII.
The "real" unemployment number, which includes the under-employed and those that have stopped looking for work, now stands at 13.2%. Remember, in the last 11 recessions, 76% of unemployment occured in the second half of the recession. I continue to forecast that the official unemployment figures will reach 12% before we have a turn in the economy.
Having shared all of this negative news, the stock market continues to hold its 50 day moving average, and as long as it can do that, the short term trend remains higher. In the gold market, the rebalancing that I wrote about last week is underway, with gold taking a small hit but nothing like what some of the analsyts had predicted. Yesterday, Merrill Lynch came out and said that their high net worth clients are aggressively buying gold (for some reason this surprised them), and they reiterated their forcast that gold would hit new highs by June 1.
Here's my forecast. Once gold breaks $900/ounce we will see an explosive move higher, hitting new highs (past $1030) in less than 1 week. At some point in 2009 gold will trade at $1500, with the really big moves coming in the 2010-2012 time frame. The same percentage moves will happen in silver as well, and in fact the supply/demand situation in silver could dictate an even larger move than in gold. Remember, we have at least 3-5 years left in this precious metals bull market, and that may turn out to be 10-15 years. I'm talking about the mother of all bull markets here, so make sure you are positioned.
Finally, after watching President elect Obama's economic speach yesterday, for the first time I got the feeling that the bloom is starting to come off of his rose. His economic recovery package will absolutely get our tax dollars into the economy, but there are lots of questions as to whether his plan is the best way to accomplish that. IT IS NOT.
The patient (US economy) is in the hospital with severe head trauma and the healing process needs to take place naturally...and over an extended period of time. Overmedicating the patient, or performing too many operations, not only slows the recovery process but increases the risks to the patients life. Our debt to GDP ratio is already at a record high, and 60-70 percent of it is owned by foreigners. Once they realize that hyperinflation is on the way, they will either start to sell their US denominated debt (and fiat currency), or at least cease to buy more of it. Either way, interest rates are headed higher as bond prices go the other way.
When the decline in bonds begin, it will take the stock market with it, which is when we will go back down and test the lows from Septmember. And yes, we will be positioned to profit greatly from it.
Kip Herriage
Editor, VRA
www.kipherriage.com www.vraletter.com