A look back, and some 2011 predictions

January 3, 2011
Santiago, Chile

Welcome back, and happy New Year.

After a wonderful, relaxing weekend here in beautiful Santiago that involved meeting up with a couple of subscribers, I’m buckling down to the business at hand that will include finalizing preparations for our upcoming workshop, as well as exploring initial plans for the community.

To be honest, I’m not much for New Year’s; it’s just an arbitrary day that has no more or less significance than any other day of the year, but I suppose all the time off over the holidays does give one plenty of time to pause, reflect on the previous year’s events, and ponder the upcoming ones.

I spent a lot of time over the last weeks reviewing our conversations from the past year, and I was actually a bit surprised at how much had unfolded. If you recall the analogy of the boiling frog, each of these events represents yet another degree in the march towards 100 centigrade.

Think about it– in 2010 we saw:

  • The TSA ‘tip of the spear’ enforcing subordination to government authority
  • Canada’s government authorizing its agents to search homes without a warrant
  • Gold hitting all-time nominal highs due to unprecedented monetary inflation
  • Governments around the world raising taxes with immediate effect
  • Homeland Security began seizing domains without due process
  • The beginning of the end of the Eurozone
  • World governments engaging in mutually assured destruction currency wars
  • FBI raiding the homes of war protestors
  • Passage of the HIRE Act in the United States, a precursor to capital controls
  • Political heavyweights openly calling for the assassination of Julian Assange
  • Switzerland settling with the US government
  • Panama caving to pressure and signing a Tax Information Exchange Agreement
  • Homeland Security encouraging US citizens to spy on each other at Wal Mart
  • North Korea engaging in acts of war against the south

et cetera, et cetera….

When you spend a lot of time around a child, it’s difficult to really notice his/her day-to-day growth. It takes an outsider who hasn’t seen the kid in 3-years to point out “Look at how big you’ve grown!”

Similarly, it takes a brief pause to look back over recent events and realize how rapidly things are changing. Seemingly the one constant has been an almost uninterrupted rise in global equity markets.

It’s truly amazing how markets have remained unfazed by so much change; this is evidenced not only by rising equities, but also by the lackluster level of the VIX ‘fear index’, which was recently as low as 15.45 before the holiday trading sessions.

As the ball dropped and the champagne flowed, I started thinking about what might shake markets from their apathy this year… and perhaps more importantly, what further events will unfold in the war on liberty.

A few ideas crossed my mind:

1) Many of the old monarchs and dictators still clinging to power will finally croak, creating massive opportunity and instability.

Just look at how many octogenarians are still in positions of tremendous power and influence, either de facto or de jure:

  • King Abdullah- Saudi Arabia (86)
  • Crown Prince Sultan- Saudi Arabia (82)
  • King Bhumipol- Thailand (83)
  • Robert Mugabe- Zimbabwe (86)
  • Fidel Castro- Cuba (84)
  • Raul Castro- Cuba (79)
  • Emir Jaber- Kuwait (81)
  • Pope Benedict XVI (83)
  • Hosni Mubarak- Egypt (82)
  • Sultan Abdul Halim Mu’adzam Shah- Malaysia (83)
  • Manmohan Singh- India (78)
  • Than Shwe- Burma (77)
  • Mahmoud Abbas- Palestine (75)

2) Massive property bubble bursts in Thailand.

Because of the relative size of its economy, low prices, significant population, agricultural wealth, and manufacturing base, a lot of western funny money that’s been printed has ended up looking for a home in Thailand.

In its efforts to thwart rapid currency appreciation, the Thai central bank has matched its western counterparts in polluting the money supply. It’s no wonder that Thailand’s stock exchange rang up a 40.6% return in 2010, the 4th best performing index in the world after Peru, Argentina, and Indonesia.

The other place where the money ended up is in the Thai housing market, which is just bursting at the seams with new supply and rising prices fueled by speculators as opposed to demographic fundamentals.

3) Chinese street inflation exceeds real GDP growth

How can you tell when a politician’s lying? Watch for his lips moving. This goes doubly in China where inflation and growth statistics in China are massaged vigorously.

The government’s efforts to maintain a currency peg have created troubling inflation in the country, and 2011 may be the year when the economic engine runs out of steam.

4) Several major American cities go bankrupt. This has been a long time coming, but it may prove to be the powder keg that sparks the financial mushroom cloud.

5) Julian Assange has an ‘accident’. I sincerely hope it won’t happen, but I won’t be surprised.

6) It becomes illegal to record the police in several US states, Canada, or the UK. You know, we used to be able to rely on the mainstream media to keep governments in check… but these days they’re just petty hacks and cheerleaders.

Fortunately, the Internet is a great equalizer, and videos abound of Officer Bubbles and the like which show the absurd lengths that police forces and government agents will go to intimidate and subordinate the masses.

There have already been arrests, charges filed, and lawsuits pending against citizens who have recorded the police and posted it online… and I fear that governments will pass laws which legally prohibit such action.

Look, I could really go on here, there’s no end to the insanity we may see in 2011, and the pace at which it could happen. Politicians can literally make these changes overnight, and you won’t want your money around when they decide to impose capital controls.

These aren’t things to panic about, but merely to prepare for. When you take action that diversifies your sovereign risk, you sleep a lot better knowing that your assets, interests, and livelihood are not all inextricably linked to an empire in decline.

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