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January 17, 2007
Predictions for the Next 5 Years (2012)
A few weeks after the New Year, but not too late for thoughts on the macro trends for 2012. Quoted prices are for January 17, 2007 and in U.S. dollars; source is Bloomberg. Perhaps in 5 years we will not be quoting in U.S. dollars.
Gold and Silver (and falling U.S. dollar)
No doubt, gold will continue to outperform. The multi-trillion dollar credit bubble has created unprecedented inflation, which has been greatly underreported by nearly all governments. With the U.S. dollar and many other currencies rapidly declining in value, gold will be the only safe alternative. The spot price for gold is US$625.00/oz; silver is at US$12.53.
Oil and Natural Gas
Increasing demand from places such as China and India will only add to the bleak supply picture. Yes, there will be a short-term oversupply given the boom in oil prices, but increasing costs in labor and equipment, risk premium associated with instability in the Middle East, and long-term dwindling of supply will force oil and natural gas prices higher. Current prices are US$44/barrel and US$6.50/MMBtu. Cheap travel as we know it today will change dramatically.
Interest Rates (and Inflation)
The bankrupt U.S. government and consumer should be junk-bond quality. Yet, China, Japan, and other U.S. trading partners are continuing to support the currency train. At some point, this will change and the artificially low interest rates will be back to the levels seen twenty-five years ago in the U.S. The current levels are insane – why would anyone in their right mind want to hold U.S. treasuries or any bonds for that matter? Way too much liquidity sloshing around in most global economies.
Federal Reserve Target Rate: 5.25%
3-Month Libor: 5.36%
Prime Rate: 8.25%
15-Year Mortgage: 5.51%
30-Year Mortgage: 5.74%
3-Month Treasury: 5.10%
5-Year Treasury: 4.78%
10-Year Treasury: 4.74%
30-Year Treasury: 4.83%
Agricultural Commodities
Due to rapid changes and severe affects of global weather patterns, rising land costs and increased development, increased production costs, water shortages, declining number of farmers amidst an ever growing population, farmers are having a tough time. In China today, the majority of the workforce is in agriculture, but rapidly declining. No doubt, all of this will affect most soft commodity prices.
CORN FUTURE (cents/bu.) 408.250
COFFEE C FUTURE (cents/lb.) 121.650
LEAN HOGS FUTURE (cents/lb.) 64.975
SOYBEAN FUTURE (cents/bu.) 714.750
COTTON NO.2 FUTR (cents/lb.) 54.920
LIVE CATTLE FUTR (cents/lb.) 94.175
WHEAT FUTURE(CBT) (cents/bu.) 464.750
SUGAR #11 (WORLD) (cents/lb.) 10.910
FCOJ-A FUTURE (cents/lb.) 200.450
COCOA FUTURE ($/metric tonne) 1,606.000
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