WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
This took me a bit longer to write than I thought it would. Apologies.
Here are some issue areas that I think will be interesting to watch in 2008.
I don’t see the U.S. Dollar catching much of a break in 2008. All of the factors that contributed to the dollar’s steep decline in 2007 will persist going forward, and intensify. The ARM (Adjustable Rate Mortgage) resets don’t peak until March 2008. My guess is that homeowners with these loan products will wind up in very dire situations within six months of the reset. That puts the crescendo of the economic crisis in September 2008. Even if the ridiculous subprime bailout manages to keep some people in their McMansions for a few months more, the cost of the program is going to be paid by U.S. Dollar holders.
How is the U.S. Government going to cover all of those reckless bets?
With printing presses, of course.
From a technical perspective, the U.S. Dollar Index chart shows extreme weakness. On the weekly chart, the USDX can’t even get a foot hold over the 20 period moving average, never mind the 50 period MA. You can see how it broke down and out of the intermediate term channel as negative momentum piled on. Note how the bottom of that channel line now forms an overhead resistance. I think that the way to read the shorter interval stochastic and MACD indicators is to think of the last few weeks as a dead cat bounce with central banks loaning “unlimited” ones and zeros to distressed commercial banks. At a minimum, look for a retest of 74.50 on the downside.
When a move has been so extreme for so long, I start drawing more squiggly lines on charts and flinging more chicken entrails at the wall. I don’t see anything there that looks like a bottom or consolidation yet. I wouldn’t be surprised if we were to see range bound action between 74.50 and 78, maybe for months. If you forced me to guess at the likelihood of a break below 74.50 in 2008, I’d put it at 70%. On the long side, don’t ask me how it would happen, but take note of a weekly green candle above 78. Dollar shorts/foreign currency holders will need to reassess their strategies at that point. If it rallies above 80, regardless of what dollar shorts/foreign currency holders know to be true, the squeeze from here could leave people walking funny. This is why we’re diversified. Right? Right.
I don’t know what’s going to happen, but what I do know is that the dollar, gold and oil are all near critical (make or break) levels. Those levels are:
USDX 74.50 — all time low
Gold $850 — all time high
Oil $98 — all time high
While people can and do argue about the correlations, if the USDX crosses below 74.50, gold and oil are almost certainly going over their all time highs in 2008. However, any number of factors could push gold and oil over their all time highs at any moment, even if the dollar consolidates and trades sideways (rangebound).
With the peak in global oil production almost certainly behind us (July 2006 @ 85.47 mbpd), oil appears to be building a base over $90. What has been passed off as a risk premium for months is giving way to the brutal reality that production is declining.
Barring demand destruction—resulting from some unforeseen wildcard event or events—energy costs will almost certainly continue to rise in 2008. There are lots of energy technologies in the pipeline [pun intended---but you'll have to wait to see what I'm referring to here], but I don’t see any of it ameliorating energy prices this year.
In the case of gold, economic uncertainty could make gold VERY attractive to both sterling and euro holders who are looking to move out of their fiat currencies that have gained so much in value recently due to the dollar crash.
Think of the longer term effects on European economies of the dollar collapse and Americans becoming unable to purchase goods from Europe. Germany is the most vulnerable. The U.S. is Germany’s second-largest trading partner and the U.S. runs huge bilateral trade deficits with Germany. (See: U.S. State Department.)
The largest German firms have expertly used hedging strategies in the Forex markets to mitigate the effects of dollar declines in the past. Smaller exporters, though, could be facing a very hard year. The U.S. and Germany have tied ropes around each other. If the U.S. slips off the cliff, Germany will go with it.
Now, I could have written a similar analysis about lots of other countries and their relationship to the U.S. (New Zealand, in particular), but Germany is the economic powerhouse in Europe. This is a key bilateral relationship to watch.
How about China?
China is a very curious puzzle. Is 2008 the year when the diabolical greed, non existent environmental focus and the repressive nature of the regime starts to gum up the works? (Again, this is about China, not the U.S. It can get confusing, I know.)
Of course not! The Olympics are going to be held in Beijing.
As the scientifically engineered propaganda oozes from the various fascist information ministries in China, the collapse indicators have gone off the chart:
In other words, in 2008, China will continue to collapse AND spew iPods by the millions.
One last thing to keep in mind with China: The regime has amassed a reserve of about US$1.3 trillion. Might the Chinese have invited the biggest Trojan Horse weapon in the history of the world inside their gates? A Dollar Bomb, if you will. Right now, the strategic calculus for China involves spending those doomed dollars on food, energy and raw materials in a way that doesn’t panic markets.
Food prices are perfect storm indicators. Food prices reflect top soil depletion/erosion, drought and rising energy costs. Just a few stories:
In 2008, food could become an out front national security issue in the developed world. My top concerns are wheat and corn. For hundreds of millions of people, especially in America and Europe, this will translate into higher food costs across the board.
2008 U.S. Presidential Election
As you know, I feel as though a focus on U.S. national elections is a gross waste of time. It’s the wrong level of analysis. But I’ll go there anyway for this piece.
To Dennis Kucinich and Ron Paul supporters: I’d encourage you to read the Waiting for Clarity on the Brink of Oblivion post, if you haven’t already. Kucinich and Paul supporters are very sincere and, quite frankly, I haven’t had the heart to apply my grim perspectives on the U.S. political system to their candidates.
Dennis Kucinich won’t be allowed anywhere near the White House.
Ron Paul won’t be allowed anywhere near the White House.
Is that why I don’t support Paul or Kucinich?
No. I have serious problems with both of them.
I don’t support Kucinich because I feel that individuals need more freedom, not less freedom.
I don’t support Paul because I feel as though corporations need less freedom, not more freedom.
Both of these candidates come with hefty amounts of rat poison. But, hey, this is American politics and these are the two best candidates, as far as I can tell.
For the record, I’ve read the candidates’ positions and Ron Paul would be my first pick and Dennis Kucinich would be my second pick, if, that is, I decided to participate in the absurd process. That Kucinich would be my second choice if Ron Paul was first might not seem to make sense, at first.
Here’s why it does. You have to enter a fantasy world, though. Don’t worry, this won’t take long. I’d like to see a Kucinich/Paul co presidency. If you’re an officer of a corporation, or other responsibility avoidance scheme, Dennis Kucinich is your president. If you’re NOT an officer of a corporation, or other responsibility avoidance scheme, Ron Paul is your president. Anyway, that’s enough lollygagging in fantasy land for now.
My best guess about the (s)election is that it will be a Democrat. The next phases of the globalist script probably involve the collapse of the U.S. economy and the creation of the North American Union. Hillary seems like the best shill, but Obama is closer to representing the strange false hope that millions of fools fell for with Bill Clinton’s presidency.
I can’t see how Rudy, or any of the Snake Handlers, can serve the interests of the elite as well as Clinton or Obama in the next phase.
Ok, I’m going to cut this off here. It’s getting too long, and the regular grist is piling up beyond manageable levels.
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