What Will 2011 Bring?

A quick survey of the economic, investment and Gold Price outlook for 2011...

OKAY, so what will 2011 bring? asks Bill Bonner, currently in Delray Beach, Florida in his Daily Reckoning.

Most likely, it will bring more of 2010. That is, the confusing and contradictory trends of the past year are likely to keep going.

On the one hand, the deflationary contraction that began in 2007 will continue shrinking prices and economic growth. The savings rate has climbed to over 5%. Unemployment is still near 10%. And the Consumer Price Index – if you believe the official numbers – is nearly flat. We may be living through the biggest rush in monetary inflation in US history, but the core inflation numbers haven't moved so little in more than 50 years.

On the other hand, the inflationary expansion of the money supply that began in 2009 will go on too. It will bring more bubbles and more speculative pressure on oil and gold. It might also bring a collapse of the US Treasury bond market – if not in 2011, then soon after!

Which hand will have the upper hand? Neither.Instead, they will continue jerking the economy this way and that...rewarding some speculators, punishing others...smacking economists...and giving central bankers the middle finger.

That's our prediction.

Gold will rise. Oil will rise. Emerging markets will rise. The US economy will NOT rise. What? Weren't there encouraging signs of life at the very end of the year? Yes. But there are always signs of life in an economy. The US economy isn't dead. It's just going through a bad patch...like a man whose wife has left him...or a woman who has gained 20 lbs...or a 60-year-old couple that has to downsize. These things take time.

"Baby boomers unprepared for retirement," says a headline in the local paper.

According to the article, 10,000 boomers will reach age 65 every day for the next 19 years. And few of them have saved enough money. Some were counting on 401(k) plans. But stocks haven't made any progress in the last 10 years. Others were looking to their houses as a source of retirement financing. They were doing fine until 2007. Since then, the value of their houses has been cut by a third.

The poor boomers! What are they going to do?

We talked to one of these boomers on the way from the airport.

"I'm going to work until I drop," he said. (Good plan. If you have a job...)

"I bought a little apartment over in Boca Raton," our driver explained after picking us up on Miami. "You know, like everyone else, I've been hurt by this recession. They say it's over. But it doesn't seem over to me.

"A couple years ago, people would rent my limo service for a big night out...maybe, twice a week. I'd take them down to Miami. They'd go to a big party...or to a Heat game...and then to a nightclub. They'd pay me for a whole night. It was good money.

"But now, I'm lucky if I get one a month. Either people don't have money or they're not spending it.

"My wife and I had a big house with a swimming pool...everything. But we also had a big mortgage, $4,500 a month. She didn't want to do it. But we had no choice. I needed to make sure that at least I'd have a roof over my head. So, I bought an apartment in Boca for $27,000. It was $90,000 three years ago.

"And I told my wife that we had to cut back. This way, I'll be able to save some money. Then, if we want to, we can always buy a big house again. But right now, I just don't want that burden on my back. I can't afford it."

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