In my December 30, 2010 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, 2010 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, 2010 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, 2010 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, 2011 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, 2010 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.

Thank you to all who participated in this survey.  For what it is worth, from prior experience I have come to believe that if 100 or more people respond to a survey there is reasonable statistical validity to the survey assuming the population surveyed is reasonably homogenous.  The following are the results as of last evening as compiled from 181 Survey Responses.

First, with respect to gold and silver price trends, 84% said they thought the gold price would trend by year-end.  89% said they thought the silver price would trend higher by year-end.

Clearly while over the balance of 2011 Respondents broadly are bullish on the trend price of gold, they are even more bullish on the trend price of silver.  Presumably this explains their responses (see later paragraph) to questions asked related to their current ownership, holding what they have, and buying more physical gold and silver.

Second, I find the age categories of the Respondents interesting as set out in the following chart.

Note that almost 50% of Respondents fall into the 60 – 75 age category.  I suggest you think about that in the context of the questions asked as to whether Respondents owned physical gold or physical silver, and what their current strategy is with respect to holding, buying more, or selling part or all of their holdings.

With respect to ownership of physical gold and silver, 55% and 60% of Respondents said they currently owned physical gold and physical silver respectively (directly or indirectly).  43% of Respondents said they would hold the gold they owned – 40% said they would buy more.  For Silver the comparable numbers were 32% and 57%.  23% of Respondents who said they didn’t currently own gold said they were considering purchasing some and 17% were undecided, while 34% of those who don’t currently own physical silver said they were considering purchasing some and 18% were undecided.  Only 2% of Respondents said their current strategy included selling all or part of their physical gold holding (silver – 3%).

Interestingly, 48% of respondents said they thought the silver market is illegally manipulated, 18% said they didn’t think it was, and 33% said they didn’t know if it was illegally manipulated or not.  This is obviously a contentious issue, and one I will be ‘going out a limb’ and addressing in an upcoming e-mail.

From my vantage point, if this survey says nothing else, it says the preponderance of opinion is on the side of an upward trend price in both gold and silver over the next nine months.

Final comment:  As I reviewed these survey results, I realized I had failed to ask what % of their investable assets Respondents held in physical gold and physical silver.  I should have asked that question.  I plan to run this survey at the end of each quarter, and will include that question next time.

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In yesterday’s e-mail I introduced a Gold – Silver Price Trend Survey.  So far over 90 e-mail Subscribers have completed it.  The results are interesting, with one respondent adding the comment ‘Dumb Question’ to the first question asked.  I can only presume the respondent who said ‘Dumb Question’ believes the price of physical gold has nowhere to go but up this calendar year.

In any event, I will greatly appreciate it if those of you who did not complete the Survey yesterday do so today.  I will publish the results in tomorrow’s e-mail.  Take the Survey by clicking here – it shouldn’t take you longer than 2 minutes to complete the Survey, or a little longer if you add comments to the twelve questions asked.

Whether the author of an article published yesterday titled ‘The biggest threat to financial markets‘ – reading time 2 minutes – proves to be correct or not obviously remains to be seen.  However, this article raises what I think is a very interesting and worrisome issue having to do with the current financial markets.

The author (MoneyWeek Editor John Stepek) states that “When it comes to nasty surprises, what bothers markets more than anything else is uncertainty as to their extent”.  He then says that the “three big obvious worries” for (current) financial markets are Japan, the Middle East turmoil (presumably including North Africa), and the Eurozone – with in his view the Eurozone being the biggest source of uncertainty.  Mr. Stepek then goes on to say that the biggest threat to general financial markets is the end of U.S. Quantitative Easing #2, and that investors are expecting U.S. Quantitative Easing #3 to follow QE2 soon after it ends in June.  Mr. Stepek doesn’t say what he is basing this view of ‘investor expectations’ on.

Under any circumstance, I can’t see how the U.S. Federal Government can continue to subsidize what it then promotes as U.S. economic growth given its huge (and constantly growing) cumulative National Debt.  If the financial markets really are depending on U.S. Government continuing its so-called Quantitative Easing measures, and currently are ‘pricing this in’, it seems to me that the U.S. today has to be living in a very tenuous economic recovery, if U.S. economic recovery really exists at all.  Given the continued importance of the U.S. economy to world economic health, I suggest that if Mr. Stepek is correct with respect to ‘investor expectations’ and the importance of QE3 to the financial markets, at some point the ‘hatches need to be battened down’.

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As I am sure is evident from my e-mails, I think we are living in ‘interesting times indeed’.  I trust that if you are an investor in the equity markets you are reading a great deal of ‘economic related news and views, and are likely spending time in regular communication with your investment advisors.  This in aid of me concluding that it was opportune to send out a survey soliciting your views on what you believe will be the likely physical gold and physical silver price trends between now and the end of this calendar year.

The survey consists of twelve (12) questions, and ought to take you about 4 minutes to complete – perhaps a little longer if you choose to comment extensively.  I think many of you will find the survey both timely and interesting.  I am particularly interested in your responses to a question with respect to ‘silver price manipulation’.  One reader has asked me to comment on this, and I plan to do that in an e-mail later this week.  I will publish the results of this survey in my e-mail either tomorrow or Thursday.  Complete the Survey.

Short of personal health, family emergency, or other emergency, in my view any investor in the equity or money markets should have watched, and carefully listened to, President Obama’s nationally televised speech that dealt with America’s involvement in Libya.  I can’t imagine anyone questioning President Obama’s oratory abilities.  That said, I think his repetitive reference to America’s ‘values and interests’ bears serious contemplation.

The first thing that struck me about the President’s speech was his repeated reference to America’s lead in the allied aggression in Libya that has occurred over the past 10 days.  Early in all of this was a recurring message that America ‘was not taking the lead’.  The second thing that struck me was what I heard as an inconsistent explanation as to why America would not be a ‘peace keeper to the world’ (my words) yet was prepared to intervene in Libya.  To me the reason for Libyian intervention, like most things, isn’t complicated.

As I see things, for America not to promote and participate in intervention in Libya would have put (and may yet put) oil flows from North Africa and the Middle East to America at greater risk than the U.S. Administration must believe will be the case with U.S. intervention taking place.  The result may prove to be that Gaddafi is ‘put down’.  However, while the end to the current Libyian unrest may come quickly, it may not.  In either case, I think there is a lot more to this story to come, and I continue to think the equity and money markets may not as yet fully factored in the North Africa and Middle East societal disruptions and potential disruptions.

On a separate note, I found it interesting as I listened to President Obama to hear him near the end of his speech talk about the ongoing need for America to work with its allies, and implicitly state (as I heard him) that America as the world’s supreme military power could not afford (I heard in a ‘monetary sense’, and if I heard that right I agree with it) to ‘go it alone’ (my words) to suppress world conflict that is contrary to America’s interests.

Again, all that said, I for one can’t say enough about President Obama’s oratory ability.  All he didn’t say – with a Boston accent – is “my fellow Americans, ask not what your country can do for you, ask what you can do for your country“.  For those of you who weren’t around, John F. Kennedy famously said that in his 1960 inaugural address.

You might want to read one or more of the following related articles that appear in today’s news: ‘Since 90′s, cost of Libya operation 2nd only to wars‘ – reading time 2 minutes; ‘A War by Any Name‘ – reading time 2 minutes; ‘Why the Latest From Libya Won’t Really Affect the Oil Market‘ – reading time 2 minutes; ‘Wow That Was Fast! Libyan Rebels Have Already Established A New Central Bank Of Libya‘ – reading time 4 minutes; ‘The U.S. just agreed to lift oil sanctions for Libyan rebels‘ – reading time 1 minute.

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And so it continues, and I think almost certainly will be ongoing.  An article titled ‘Some 200,000 in Germany Protest Nuclear Power‘ – reading time 1  minute – reports that perhaps as many as 250,000 people marched in rallies in Germany’s four largest cities this past Saturday.  Protesters are reported as having shouted “Fukushima, Chernobyl: Too much is too much” or “Switch them off”.  It seems to me that whether or not the Fukushima incident deteriorates from here, and reports yesterday and last evening suggest further bad things may be happening, the nuclear industry has hardly heard the last of Fukushima’s repercussions.  I think this is clearly something to watch if you hold or are considering now buying shares in uranium explorers and producers.

You might also want to read ‘Fukushima Open Thread – Tue 3/29‘ – reading time one minute, much longer if you read one or more of the four links and/or some of the appended comments.  The article, published this morning, links to four news releases titled (1) Toxic Pools Threaten to Spill into Ocean, (2) Fukushima radioactive fallout nears Chernobyl levels, (3) Plutonium found in Fudushima plant soil, and (4) TEPCO shares halted/Japanese stocks fall.

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