In my December 30, 2021 e-mail I set out how I then saw things unfolding economically in 2011 and in some cases beyond. I thought you might be interested in an objective quarterly update of the opinions I then held. My updated views are shown in italics. Three months ago I said:
1. I saw 2011 shaping up to be both 'interesting' and, from the point of view of equity investors and traders an 'ever more "think for yourself" environment'. If I believed that on December 31, 2021 I am even more certain of it now.
2. I didn't see China taking steps to meaningfully alter its currency exchange rate unless that is clearly in China's best economic interest - and I didn't see how that could be the case until the Chinese economy becomes more self-sufficient. Nothing in the past three months has changed my view on this;
3. I saw China continuing (in 2011 and beyond) with its strategic acquisition program - particularly in the resources area (read Oil & Gas, Base Metals, and Agricultural related commodities in particular). Again, I see this now as I saw it then;
4. I didn't see the U.S. unemployment situation improving in 2011 in a meaningful way. If anything, I am more pessimistic now about the U.S. unemployment now than I was three months ago. I only began focusing on what I see as U.S. Structural Unemployment after 2010;
5. I didn't expect to see U.S. housing prices or markets improve in meaningful way in 2011, unless there are further U.S. Federal subsidies thrown at this sector - which I said I doubted would happen given the then recent new Republican strength in Washington. If such subsidies were legislated, I said I would see that as a 'sign of desperation'. I now am more pessimistic about U.S. housing prices than I was at December 31 - particularly in light of U.S. February New Housing Sales, and now having a better understanding than I did of how New Housing Starts and Housing Resales are accounted for in the United States;
6. I saw the potential of increased 'residential housing foreclosure' problems in 2011. I don't have a changed opinion on this, although news on the U.S. foreclosure front has been subdued (at least from what I have seen) in Q1 2011;
7. At December 31, 2021 I said that following from all the then recent media coverage on U.S. State and Municipal debt problems, I couldn't help but think that 'where there is smoke there is fire', and that while this might not prove in calendar 2011 to be as great a problem as forecast by Meredith Whitney in late 2010, I couldn't help but think that could prove to be a problem of some significance. I also said I had for some time been saying in these e-mails that the State and Municipal income and sales tax bases have had to have been eroding after 2007, and that has led to or will lead to obvious State and Municipal financial problems. Nothing has changed my view on this, if anything I feel more strongly about those views than I did then;
8. I said that in 2011 I saw the U.S. continue to run substantial monthly net trade deficits, a large budget deficit, and suffer a substantially increased cumulative National Debt - while Washington politics suffers from partisan gridlock. In particular, I said that with the Republicans having a greater say in things after October, 2010, I was not expecting to see further Quantitative Easing measures. Three months later I am still of the opinion the U.S. will continue to run substantial monthly trade deficits, will continue to run large Federal budget deficits, and will continue to substantially increase its cumulative National Debt. However, I am not so sure of my December 31 position on Quantative Easing. QE2 has been reaffirmed to June 30. At the same time there seems to be increasing focus by the U.S. Federal Reserve on doing what it can to support ongoing strong financial markets. Three months ago I would not have bet on QE3, today I wouldn't bet against it;
9. I said I expected to see an ever increasing gap between the wealthy in America and America 'Main Streeters'. I also said I didn't see that as a good thing. No change here;
10. I said I expected to see a continuation of what I see as U.S. economic weakening as measured against the economies of China in particular, and perhaps when measured against resource rich and 'stable' political Australia and Canada. Again, no change here;
11. I said I expected to see further, and perhaps more exacerbated 'Sovereign Debt' issues rear their heads in the Eurozone in 2011. Again, no change here, witness what occurred in Portugal just last week;
12. I said it would not surprise me if we see an increasing number of social unrest 'hotspots' as 2011 progresses, as people in the developed economies in particular come to an increasing realization that the standard of living they enjoyed (at whatever level that was) is eroding, and likely will continue to erode, for a great number of them - and as youth unemployment becomes a greater and greater problem in some of those 'developed economy' countries. Witness what has happened in Egypt, Libya, Syria, Tunisia, etc. If anything, I am more concerned about such things than I was three months ago;
13. I said that although I don't want to go there, whether it happens in 2011 or beyond, I see an ever increasing change of meaningful 'terrorism incidents' in the developed countries - particularly in the U.S. - and I also saw what I thought beyond 2011 to be an increasing possibility of country confrontation as the world population continues to increase, and as economic power shifts increasing to the emerging market countries. Again, no change in my views over the past three months;
14. I said that with respect to the equity markets, I have for some months seen them as over-reacting on the high side, and that to December 31, 2021 I had been proven to be wrong. I said I thought the equity markets were not factoring in all of the economic issues I saw out there, and expected those markets to reflect those things in 2011 in a way they haven't in 2010. I continue at March 31, 2022 to be of the same mind I was at December 31, 2010, while the equity markets continue to charge ahead. Frankly, I just don't 'get it', even in circumstances where I am becoming more concerned about world inflation than I was three months ago; and,
15. I said that in the uncertain economic environment we all live in, I expected to see the price of physical gold to continue to trend upward in 2011, and (2) right or wrong, I see physical gold as a 'save haven' protector of 'purchasing power'. Gold closed at U.S.$1,421 on December 31, 2010. This morning it is at U.S.$1,432. My view for the balance of 2011 is unchanged today.
As a final comment, at December 31, 2021 no one would have predicted the March 11 Japanese earthquake. Neither would anyone likely have predicted the current coalition forces (now per President Obama two days ago, led by the U.S.) at the end of last year. Nor would anyone have thought the violence in Egypt would have been as severe as it has been. As I see things, the only thing that is certain is that we live in uncertain - albeit interesting - times.