Submitted by Jeff Clark of Casey Research
What will happen to the U.S. economy and the dollar in the near
term? Will inflation increase dramatically? What is the outlook for
gold, and where should you put your money? BIG GOLD
asked a world-class panel of economists, authors, and investment
advisors what they expect for the future. Caution: strong opinions
Jim Rogers is a self-made billionaire, author of the best-sellers Adventure Capitalist and Investment Biker,
and a sought-after financial commentator. He was a co-founder of the
Quantum Fund, a successful hedge fund, and creator of the Rogers
International Commodities Index (RICI).
Bill Bonner is
the president and founder of Agora, Inc., a worldwide publisher of
financial advice and opinions. He is also the author of the
Internet-based Daily Reckoning and a regular columnist in MoneyWeek magazine.
Peter Schiff is CEO of Euro Pacific Precious Metals (www.europacmetals.com) and host of the daily radio show The Peter Schiff Show (www.schiffradio.com). He is the author of the economic parable How an Economy Grows and Why It Crashes and the recent financial bestseller The Little Book of Bull Moves: Updated and Expanded. He’s a frequent guest on CNBC, Fox Business, and is quoted often in print media.
Jeffrey Christian is managing director of CPM Group (www.cpmgroup.com)
and a prominent analyst on precious metals and commodities markets. CPM
Group produces comprehensive yearbooks on gold, silver, and platinum
group metals, and provides a wide range of consulting services. Jeffrey
publishedCommodities Rising, an investors’ guide to commodities, in 2006.
Walter J. "John" Williams,
private consulting economist and “economic whistleblower,” has been
working with Fortune 500 companies for 30 years. His newsletter Shadow Government Statistics (shadowstats.com) provides in-depth analysis of the government’s “creative” economic reporting practices.
is chief investment strategist and partner at The Wealth Conservancy in
Boulder, CO, assisting clients interested in wealth preservation.
Current assets under management exceed $200 million.
Frank Trotter is
an executive vice president of EverBank and a founding partner of
EverBank.com, a national branchless bank that was acquired by the
current EverBank in 2002. He received an M.B.A. from Washington
University and has over 30 years experience in the banking industry.
Dr. Krassimir Petrov
is an Austrian economist and holds a Ph.D. in economics from Ohio State
University. He was assistant professor in economics at the American
University in Bulgaria, then an associate professor in finance at Prince
Sultan University in Riyadh, Saudi Arabia. He is currently an associate
professor at Ahlia University in Manama, Bahrain. He’s been a
contributing editor for Agora Financial and Casey Research.
Bob Hoye is chief financial strategist of Institutional Advisors and writes Pivotal Events, a weekly market overview. His articles have been published by Barron’s, Financial Post, Financial Times, and National Post.
GOLD: A lot of economists, including the government, believe the worst
is behind us economically. Do you agree? If not, what should we be on
the lookout for in 2011?
Jim Rogers: It
is better for those getting all the government largesse, but the overall
situation is worse. More currency turmoil. State and local problems,
plus pension problems.
Bill Bonner: None of the
problems that caused the crises in Europe and America have been
resolved. They have been delayed and expanded by more debt and more
money printing and will lead to more and worse crises. Deleveraging
takes time. 2011 will, most likely, be a transition year... not unlike
2010. But the risk is that one of these latent crises will become an
Peter Schiff: To me, it's like
watching someone walk into the same sliding glass door again and again.
Wall Street must know by now that large infusions of liquidity from the
Fed spur present consumption at the expense of investment for the
future. We are an indebted family going out for an expensive meal to
celebrate getting approved for a new credit card. It might feel good (at
the time), but we're still simply delaying the inevitable.
We believe the worst is behind us economically, in the short term. The
recession ended in late 2009, and 2010 saw U.S. economic growth in line
with what CPM had expected, but higher than the more pessimistic
consensus had been. In 2011 we expect continued expansion. We think some
economists and observers are too enthusiastic about economic prospects
For the U.S. in 2011, we are looking for real GDP of
2.5% - 2.8%, inflation to remain low, and for the economy to avoid
deflation. Interest rates are expected to start rising, perhaps
significantly in the second half of 2011. The dollar is expected to be
volatile, rising somewhat against the euro but continuing to weaken
against the Canadian and Australian dollars, the rupee, yuan, rand, and
European sovereign debt issues will continue to
plague financial markets, but market reactions will be less severe than
they were regarding Greece in April 2010.
John Williams: An
intensifying economic downturn – what formally will be viewed as the
second dip of a double-dip depression – already has started to unfold.
The problem with the economy remains structural, where household income
is not growing fast enough to beat inflation, and where debt expansion –
encouraged for many years by the Fed as a way to get around the
economic growth problems inherent from a lack of income growth –
generally is not available, as a result of the systemic solvency crisis.
Accordingly, individual consumers, who account for more than 70% GDP,
do not have the ability, and increasingly lack the willingness, to fuel
the needed growth in consumption on which the U.S. economy is so
Steve Henningsen: The governments
worldwide (I don’t pay much attention to economists) want us to believe
that the worst is behind us because the financial system is built upon
the foundation of trust and confidence. Both of these were battered
badly when it was shown that much of the world’s prosperity over the
past few decades was simply a mirage that, once dispersed, left behind
only debt with no means of future production. Now they want us to
believe that they fixed the problem via more debt.
What I will be
watching for this year is sovereign and U.S. municipal debt corpses
floating to the surface sometime in the months ahead.
Frank Trotter: Right
now I have a somewhat dark but not dismal outlook. I think that over
2011, we will continue to experience a Jimmy Carter-style malaise that
combines continuing high unemployment, tentative business investment,
rising prices, low housing numbers when looked at on an absolute basis,
and creeping interest rates.
As a very large mortgage servicer, we
are not seeing significant improvements in payment patterns that would
indicate the worst is fully behind us, and with mortgage rates moving
upward, we see less ability for current mortgage holders to refinance
and reduce payments.
Krassimir Petrov: No, the
worst is yet to come. No structural changes have been made, no problems
have been fixed. Printing money, a.k.a. Quantitative Easing, is a quick
fix that has postponed the problem, yet also made it a lot worse. I
would say that we are still in the early stages of the crisis and have
another 4-8 years to go.
Bob Hoye: The worst of the post-bubble economic adversity is not behind us.
Price inflation is creeping up, but the enormous amount of money
printing hasn't really hit the system yet. Does that happen in 2011,
further down the road, or not at all?
Jim Rogers: It is happening. The U.S. and CNBC lie about it. Most other countries do not lie and acknowledge it is worsening.
Bill Bonner: Most
likely, substantial consumer price inflation will not show up in
2011. The explosion of money printing is being contained by the bomb
squad of deleveraging. That will probably continue in 2011. But not
Peter Schiff: 2010 was the year that
China began cutting back its Treasury purchases in favor of gold, hard
assets, and emerging market currencies. The Fed has stepped in as a
major purchaser of Treasuries. This represents a new phase on the path
to dollar collapse, and it will manifest in 2011 in the form of more
"unexplainable" inflation – as we are now seeing in the prices of
everything from corn to gasoline.
We are now beginning to see some increases in monetary aggregates,
suggesting that some of the monetary accommodations are beginning to
filter into the economy. We expect this trend to accelerate over the
course of 2011. This will bring some increase in inflation, but we
expect the major manifestation will be through higher U.S. Treasury
interest rates as the Fed and Treasury seek to sell bonds to sterilize
the inflationary implications of the monetary easing and to finance
ongoing massive federal deficits.
John Williams: The
problems of the money creation will become increasingly obvious in
exchange-rate weakness of the U.S. dollar. Related upside pricing
pressure already is being seen on dollar-denominated commodities such as
oil. There is high risk of consumer prices rising rapidly before
year-end 2011, setting the stage for a hyperinflation. The outside date
for the onset of a U.S. hyperinflation is 2014.
Steve Henningsen: My
guess is further down the road, as the deleveraging cycle continues
with deflationary-housing winds in our face and the banks still hoarding
money like my 9-year-old daughter stockpiles American Girl doll
paraphernalia. I still expect inflation to continue in areas such as
energy, bread, circuses, and whatever else provides sustenance to the
Romans – I mean people.
Frank Trotter: Most
research has shown that over time the increase in money supply is not a
short-term economic stimulus, but rather has a moderate effect in the
18- to 36-month range. In addition, this theory contends that a growth
in the monetary base – which is what has happened so far – only
increases economic activity when accompanied by a decent multiplier;
this is not occurring. The real risk is that with rising rates and
continued soft economy, the Fed will feel obliged to continue to QE3,
QE4, and so on, all of which may have a significant inflationary impact.
I am more concerned about general price inflation here in the U.S. and the potential it has to reduce global growth.
This is a tough one. I would have thought that price inflation would
have been raging by now, but this is obviously not the case. I have the
feeling that 2011 will be a repeat of early 2008, with commodity prices
(CRB) making new all-time highs. A falling dollar will trigger a rush
into commodities as a hedge against inflation. I am really tempted to
make a totally outrageous forecast that oil could make a run for $200 as
QE3 unleashes another dollar scare, or maybe even a dollar crisis.
Bob Hoye: Massive "printing" has been widely publicized and is "in the market."
The U.S. dollar ended 2010 about where it started; does it resume its
downtrend in 2011, or are fears about its demise overblown?
Jim Rogers: No, but further down the road.
Bill Bonner: No opinion. But there is more risk in the dollar than potential reward.
Peter Schiff: It's
hard to pinpoint exactly when the dollar will collapse, but it will
take a miracle to avoid that outcome in the near term. It really depends
on when the creditors of the United States realize that they are not
going to get their principal returned to them in real terms, but rather
in grossly devalued dollars. We have already seen the average duration
of U.S. Treasury debt drop below that of Greece. No one wants to buy a
30-year bond with negative real interest rates as far as the eye can
Jeffrey Christian: We expect the dollar to
be volatile against most currencies in 2011, but that its demise has
been prematurely predicted. The dollar may move sideways to slightly
higher against the euro, yen, and pound, while continuing to deteriorate
against the Canadian and Australian dollars, the rupee, yuan, rand, and
other emerging economy currencies.
John Williams: There
remains high risk of a dollar selling panic unfolding in the year
ahead, as the U.S. economy tanks anew, as the Fed continuously expands
its easing, and as dollar holders dump the U.S. currency and
dollar-denominated paper assets. Such would be a precursor to the
Steve Henningsen: Similar to
my thoughts last year, I still believe the dollar is headed down
long-term, but it could bounce around over the next year. If sovereign
debts become a problem again, like I think they will later this year,
then everyone will go running back to “Mother Dollar” once again for one
last hug before she lies back down on her sickbed.
Frank Trotter: As
the economy waffles and the global investing community's attention is
drawn from one crisis to the next, I expect the U.S. dollar to bounce up
and down in the current range. After that, however, my analysis
suggests that measured by the key factors of fiscal and monetary policy,
combined with a significant trade deficit, the U.S. does not look as
good as our major trading partners, and I thus expect the dollar to
decline, perhaps significantly, in the intermediate term. Big
geopolitical events may accelerate this or create a flight to U.S.
dollar quality, so hold on to your hats.
I think the dollar resumes lower. I expect QE3 and QE4 – a
dollar-printing fest that will eventually sink the dollar. Sure, all
fiat currencies are in deep trouble and prone to overprinting, but the
reserve status of the dollar actually makes it more vulnerable now.
Whether the dollar sinks against other currencies is a fool's game not
worth playing. It is like being in the hospital, where all patients are
suffering from cancer, and trying to guess who will feel best at the end
of next year, or trying to guess who will succumb first. That's why it
is so much safer to play the dollar against gold.
Bob Hoye: Fears
of the dollar's demise have been widely discussed and are "in the
market." The dollar, itself, will not be repudiated – just the mavens
that have been "managing" it.
BG: Gold has risen
10 years in a row, so some are calling it a bubble, yet it's roughly
$1,000 below its inflation-adjusted high. What's your outlook for the
metal in 2011?
Jim Rogers: It is hardly a “bubble” when very few own it still. Who knows? Overdue for a correction, but who knows?
Bill Bonner: The
smart money is in gold. It will stay in gold until the bull market that
began 10 years ago finally reaches its peak. It is extremely unlikely
that the top will come in 2011; it's probably years in the future. In
the meantime, gold is bound to have a losing year or two. Don't worry
about it. Buy gold. Be happy.
Peter Schiff: The
funny thing about a bubble is that when it's real, no one can see it.
The same commentators who were blind to the tech bubble, the housing
bubble, and now the Treasury bubble are quick to call gold a bubble. The
truth is that many of them have a personal aversion to gold because
they directly benefit from our fiat money system. Goldman Sachs was paid
100 cents on the dollar in the AIG bailout, which never would have
happened in a gold-based system. It's a lot easier to print a billion
paper dollars than dig up a million ounces of gold.
continue to climb in 2011 as the currency war continues and investors
continue to seek stability. Unless there is a major sea change in the
way the U.S. does business, I think the gold trade is a safe one.
A price of $1,550 is possible, although given the enormous investor
buying pressure, prices could spike to almost anywhere. After that, we
expect prices to fall back, initially to around $1,340 or $1,380. We
expect gold prices to stay above $1,280 or so for most of 2011, and to
average around $1,369 for the full year.
John Williams: As
the U.S. dollar increasingly is debased, and where gold tends to
preserve the purchasing power of the dollars invested in it, the upside
to gold in the year ahead is open-ended, restricted only by any limits
to the massive downside potential for the U.S. dollar. Any intermittent
gold price volatility, extreme or otherwise, will be short-lived. There
is no bubble – only increasing weakness in the U.S. dollar – with the
gold price fundamentally headed much higher in the years ahead.
Steve Henningsen: I
believe gold will once again prove the bubble-boys wrong and end the
year positive (I have no idea by how much and don’t really care).
However, I think this year will be more volatile and that Gold Bugs
better remain seated on the precious metals express or they might get
Frank Trotter: I still think that with
price inflation on the rise and big political events occurring, there
may be room to continue to rise. If stock markets take off, then there
will be a reduction in appreciation or even a significant decline, but
based on the factors I mentioned above, I don't see that as highly
Krassimir Petrov: Gold still has
outstanding fundamentals. I believe that over the course of 2010, the
fundamentals have strengthened significantly: (1) "No Exit [Strategy]
for Ben" as he unleashed QE2, and will likely unleash QE3, QE4, etc.,
(2) no more central bank selling of gold, (3) more central banks become
buyers of gold, and (4) trial balloons for a global gold-backed
I have no idea how people could even claim that gold is
in a bubble – barely 1 out of 100 people have any idea about investing
in gold. During the real estate bubble, every second person was involved
in it. Maria "Money Honey" Bartiromo has yet to report from the COMEX
gold pits; gold fund managers and analysts have yet to obtain rock-star
status; and glamorous models are not yet dating the gold guys. Who is
the Henry Blodget [co-host of Tech Ticker] of the gold sector, do we have one yet?
Yes, gold will eventually become a bubble, but that feels 5-8 years away.
Bob Hoye: In 2011, gold's real price will resume its uptrend.
BG: What's your best investment advice for 2011?
Jim Rogers: Buy the rmb [renminbi, the Chinese currency].
Bill Bonner: We
are in a period much like the period following WWI, in which the great
debts and losses of the war had to be reckoned with. It is an era of
great risk. The U.S. faces many of the same challenges faced by Germany
and England after WWI. Like England, it has huge debts. It is a waning
imperial power. And it has the world's reserve currency. And like
Germany, it is attempting to fix its problems by printing more money.
This is not a good time to be long either U.S. stocks or U.S. bonds.
Peter Schiff: Don't
be suckered into the idea that recovery is just around the corner. The
current climate is like living in a hurricane or earthquake zone; it's
important to stay vigilant because you never know when disaster will
strike. Physical gold is the financial equivalent of a flashlight,
first-aid kit, and store of canned goods. It's a basic way to protect
yourself from any eventuality. From there, if you're looking for
returns, there are plenty of foreign markets with strong fundamentals,
as well as commodities that feed those markets.
Investing in the U.S. is now driven largely by force of habit. It's a habit you should resolve to break.
not invest based on what you believe, but on what you know. Gold is a
market, like other markets. It rises and falls. You probably want to
stay long gold on a long-term basis, but may want to cull the weaker
gold assets from your portfolio in the first quarter, and put some
hedges in place to protect a long-term core long gold position against
the potential of significant price weakness over the next two years or
so. Such a period of weakness would be an excellent time to add to one’s
John Williams: As an economist, I
look for the U.S. dollar ultimately to lose virtually all of its current
purchasing power. Accordingly, for those living in a U.S.
dollar-denominated world, it would make sense to move to preserve wealth
and assets over the long-term. Physical gold is a primary hedge (as is
silver). Holding some stronger currencies outside the U.S. dollar, as
well as having some assets outside the United States, also may make
Steve Henningsen: Dramamine (for volatile
markets), a stash of cash (for potential investment opportunities), and
move some of your assets offshore if you haven’t already.
Frank Trotter: My
advice is first to look at the other side of your balance sheet – the
liability and risk equation – before seeking out absolute gains. What
are your goals, what resources do you already have to meet those goals,
and what events (health, income stream, upheavals) might impact these
risks? Place some assets to hedge these risks directly, then look to
diversify globally into markets with higher growth potential than we see
here at home, and that may balance your global purchasing power risk.
Almost like a religion, we have had the phrase "Stocks are the only
legitimate hedge against inflation" beaten into our heads. I say, look
at assets that define inflation like commodities and currencies and
evaluate where these fit into your risk portfolio.
Last year I recommended silver, and I would stick to silver again,
despite the phenomenal run in 2010. Then it gets tricky. I usually don't
recommend diversification, but now I would again recommend a broad
portfolio of commodities. Investing in 2011 should be easy: stay out of
real estate, out of bonds, out of fiat currencies, and out of stocks;
stay fully invested in commodities, overweight gold and silver.
to watch in 2011: stay focused on the sovereign debt crisis and bond
yields. Spiking yields will trigger the next stage of the crisis.
Bob Hoye: Once past the early part of 2011, the best returns are likely to be obtained from the junior gold exploration sector.
world-class experts are right to bank on gold and silver – because the
U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar… why you should be worried… and what to do about it.]