A Look Towards 2011 on the Financial Path!

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I’m actually pleased to say that I missed on important forecast for 2010, and that is that I expected a sell-off in the stock market coinciding with the end of the Bush era tax rates. I forgive myself a little for this miss considering that Congress and the President did extend those rates which was the major caveat to begin with, but that’s just more indication of Washington becoming the power-center rather than Wall Street, and politics driving economic decisions more than economics. Hi, I’m Steve Beaman and welcome to the Financial Path!

2010 saw a boom in several investment areas from the paper assets of stocks, to the hard asset commodities, and in farmland. There was still yet to be seen a recovery in real estate prices, and unemployment remained historically high at 9.4%, and that’s the stated number. We all know that it’s really more like 17%, but who is counting?

2011 to me looks like we could see an acceleration of the economy which quite honestly might be a double edged sword. A stronger economy will force up interest rates which will increase the national debt , which will force up interest rates. You get the picture. If there is one thing to be concerned about in 2011, it’s the federal deficit. December numbers aren’t out yet, but Novembers monthly deficit came to a whopping $150,000,000,000 which by the way, is $30,000,000,000 more than the so called experts had predicted. With respect to this issue, it will be interesting to see how the new Congress attacks it. It does seem like there’s increasing amounts of pressure being applied to Washington to deal with this, so perhaps something will take hold, like a complete re-writing of the U.S. tax code. Somehow I don’t expect it… With the president ideologically opposed to most of what the new Congress ostensibly stands for, my best guess for 2011 is we’ll see very little done in Washington which simply means, more of the same. More debt , more regulation, more talking.
Companies are flush with cash, and that bodes well for the producers. And this Christmas does look like the demand side is beginning to grow again. But I think we’ll not see real growth because American’s are still de-leveraging their balance sheets following the 2008 problem, and companies will be hesitant to make major capital commitments when they’re unsure of what consumers will do. Further, until Washington lays out a real plan to reduce the deficits, it’s going to be hard to make long term commitments.

I look for commodity prices to continue rising as the dollar continues to slip. Thus, gold and silver, and other metals should do well. Oil is today around $90 per barrel and I think we’ll see that rise as the economy does heat up a bit, and the dollar continues to have problems. Agriculture is still a strong area to be investing in as food is the ultimate basic material.

I would expect to see another round of “Quantitative Easing” because quite frankly, I just don’t think we can sell our debt and there’s really no other choice but to expand the money supply. Bear in mind, the banks are sitting on the excess reserves created by the Fed’s policies and they’re using those to buy government bonds, not to make new loans. Should the banks use those massive amounts of money to create new loans, we could see very high inflation as the money supply would expand rapidly. But in order to fund our deficits, we’re going to have to keep playing this game, hoping for some miracle. The fact is, our government must reduce expenditures, and raise revenues. Time is running out for our political leaders to avoid having the laws of economics kick in a cause real problems.

We presently recommend a 10% allocation to precious metals, and a 5% allocation to cash. I think it might be prudent to raise that to a 15% allocation to precious metals, keeping the 5% allocation to cash. For the 80% in the middle, volatility will continue to be a winnable theme.

Happy New Year and let’s hope it’s a prosperous one! I’m Steve Beaman and thanks for listening.