2013 Preview

France’s Goncourt brothers, Edmond Louis Antoine Huot de Goncourt (May 26, 1822July 16, 1896) and Jules Alfred Huot de Goncourt (December 17, 1830June 20, 1870) were French writers who, in lifelong collaboration, produced a series of popular histories, novels and works of art criticism. The brothers are now chiefly remembered for their Journals, kept from 1851 to 1895. Something they wrote in the Journals applies very much to 2013: “Nothing happens more than once in a lifetime. The physical pleasure that a certain woman gave you at a certain moment, the exquisite dish that you ate on a certain day: you will never meet either again. Nothing is repeated, and everything is unparalled.”

That said, here are some things we can watch for and expect during 2013:

The world doesn’t move in aß circle. It moves in a spiral. So events that are cyclic are parallel, but not the same. The US is in the early stages of some sort of Civil War and the only parallel to it is the US Civil War 1861-1865. How this war between the two separate countries that have replaced the United States will play out we do not know, but the struggle between them is already just as fierce as when it began the first time, in 1861.

Steel will trend higher: look for the Bloomberg Euro 500 Steel Index to head to the 125-130 range and stay there and for the NYSE Arca Steel Index to clear 1500.

In the Global Economic Spotlight Spotlight: Brazil, and its astoundingly strong economy.

In the Global Spotlight during 2012: the European Union and the possibility of its coming apart as a result of a number of countries with utterly different economic and social values choosing a unified currency that left some countries the recipients of value (Greece Spain Italy) and other countries (France Germany Belgium Holland) holding the bag. The EU has- still- not come apart. But it is likely to in the long run. The effect of Germany’s having to pay for everything: Germany’s GNP growth rate is flat.  Nevertheless the Euro, headed back toward $1.40, says that the EU will muddle through 2013.The surprisingly strong Eurozone economy in 2013: France.

In the Global Spotlight during 2013: The USA itself, which has broken in two, split into two separate and distinct countries, The leftist People’s Republic of America, a Third World Country and the result of the first industrialized nation on earth to fall back into Third World status, and the heartland Former United States of America, which remains a wealthy and quite Middle Class country.  

The member states of the Former United States of America: The New Wealth Belt States Texas Arkansas Louisiana Mississippi Tennessee Kentucky West Virginia North Carolina South Carolina and Georgia, plus the states of the American Old West (Idaho Montana Utah Nevada Wyoming the Dakotas). Plus the states of the Agribiz Grain Belt Nebraska Iowa Kansas Oklahoma Indiana. Plus Alaska.

Can these two countries peacefully coexist? If they cannot, some ugly scenarios will present themselves.

The domestic US may endure 2013 more peacefully than it did in 2012, but the populations of what are now two separate countries have irreconcilable differences in beliefs values philosophies and agendas…and it may take two or three more years before that great divide comes to a head and engenders a true split into two separate nations. As we’ve seen during 2012 (somewhat tragically, since the USA’s failed mental health system does not red-flag potential sociopaths or the dangerously mentally-ill though the markers are obvious) the United States is still very much a country that believes in weapons as a means of problem resolution. That means an actual split might be amicable. And it might not. A particularly disturbing aspect of this split is the establishment of the National Counterterrorism Center in McLean Virginia which although established by the Bush 2 govt in 2004 following the Islam 9/11 crisis, appears now to be directing its efforts  toward those states and those citizens who have chosen to distance themselves or have turned against the People’s Republic of America.

The geo-economic world is in enormous transition: China is about to become- within 18 months- the world’s largest GDP country. And within a few years, the world’s largest car market and the world’s largest diamond market. China’s 8%+ GDP Growth Rate will, despite what you read in US financial publications, continue.

The geo-economic world is in enormous transition: Latin America is taking over from Western Europe and the United States as the wealth-generating that engine powers the global economy.

Who’s wealthy: Brazil the world’s 5th largest country. Brazil’s 197 million people still do constitute a population redolent of a developing nation but are headed toward a strong Middle Class. Brazil’s unemployment rate is 5.3% and Brazil has led Latin America in reducing poverty over the past twelve years, with its middle class expanding by over 42%. Although over the next few years that leadership may move to Mexico. Brazil does actually still remain a Developing Nation (only 17% of the roads are paved) but its cities its economy and its culture are magnificent, as the world will discover in 2014 and 2016. Brazil also has 14% of the world’s fresh water, blue gold, an issue increasingly important as water heads toward becoming the most important commodity. At a time when the US and Europe are in financial crisis, Brazil’s government is investing $7.6 billion in windfarms. Brazil will invest about $20billion in wind energy now through 2020.

As 2013 begins, the US especially the economies in the People’s Republic of America states, is the world’s broke-est developed nation. Broker than Greece. Broker than Spain. Latin America is the world’s strongest economic regionand it is no longer completely controlled by the Catholic Church much less by North America:  in the Western Hemisphere, Brazil is no longer in the shadow of the USA, and no one thinks Chiquita Banana is cute any more. Brazil’s economy is smaller than but stronger than, the USA’s.

The US also is no longer the world’s Superpower, for the most part due to a failure of US leadership and an intentional plan to weaken the US. The US was the world’s last Superpower but is no longer. That title is China’s next, if China wants it. China is busy building a navy, and planning to rule the Pacific, as Japan once did.

2013 may be the first year of the start of widespread 21st century famine.  And it may not. Here’s why: Two factors are pulling in opposite directions: (A) global weather patterns are in fact changing. The jetstreams, especially, have moved, and the earth in fact is in a warming phase. This caused a severe drought in the US and Canada in ’12, affecting wheat and corn. If this is a permanent shift, we have a real problem: not enough basic food. The most vulnerable: wheat. Wheat stands to fare the worst in the years ahead because it is the grain most vulnerable to high temperatures ( it’s no accident that our USA Dakotas produce huge wheat crops) and (B) genetically –modified crop plants are a reality, and wheat corn rice soybeans et al can be modified to prosper in these new conditions. This not only affects US crops, it promises huge wheat crops from Russia in the future. The amount of arable farmland necessary to feed the world’s people is at an all-time high. Genetically-modified grain crop seeds that can thrive under these new conditions promise huge crops and can likely allow an area more than twice the size of France to be released from the rigors of farming, and more or less returned to nature, over the next three to five decades. A third factor:

Brazil's Mato Grosso is taking over from the US as the world's breadbasket.

Nevertheless, genmod seeds, Brazil breadbasket or not, we are headed for $8 corn $10 wheat $16 soybeans and $15 rice as Basic Price Floors.

Who’s wealthy: Indonesia, the world’s 4th largest country (735,000 square miles) with a population and 238 million people, a population predominantly Muslim but also industrious and energetic and ambitious, a far cry from the Islam of the Middle East, concerned with sharia and with returning the West to the 14th century.

For the most part due to the economic activity in the New American Wealth Belt states, the US economy is surprisingly strong. In 2013 the People’s Republic of America economy will worsen, while the economy in the Former United States of America states will continue to strengthen.

Watch for the coming expatriation of several major American companies especially some big multinationals, moving HQs and reincorporating outside US borders to escape a 39% corporate tax, the highest in the world, and to avoid exorbitant health-care overhaul fees…


… leading to a massive exit of more American jobs within these companies as some of the biggest US companies and re-base and re-incorporate over the next two to three years. Many smaller American companies that are able to will likely re-base into the New American Wealth Belt States which have begun to resist certain oncoming economic federal laws

Fewer Americans in the PRA will be able to afford a car, and the gasoline insurance and upkeep for it. The value of the US dollar will continue to deteriorate. Poor and desperate means that the world around you is a more dangerous place than it was a year ago. 

Race relations between US blacks and whites have deteriorated to the point at which the US is a racial tinderbox in 2013 as it was during the late 1950s era of MLK and Malcolm X  and as much so as during the 1965 Watts riots and the era of the Oakland Black Panthers. An incident could kick off a conflagration that could quickly rage out of control into Charles Manson’s helter skelter scenario. This has not been helped by Quentin Tarantino and his race-goading film Django Unchained.

Second Amendment issues, firestormed by horriffic sociopathic mass murders in 2012, will lead to attempts by the PRA government to disarm the general population within the People’s Republic and to some extent to try to disarm the citizens of the New Wealth Belt & the Old West states of the Former United States of America, whose residents own lots of firearms and have no intention of giving them up. The Former United States believes in the 2nd amendment, is armed, and is stockpiling ammunition. In the PRA only outlaws (urban street people, criminals, organized crime members, outlaw biker club members) have guns. The People’s Republic of America population wants guns in civilian hands outlawed. The Former United States of America population wants armed guards at public schools to protect children from the mentally disturbed and from sociopaths seeking fame via violence. Two utterly different workdviews. No compromise is possible.

Gunfight at the OK Corral: Neither side is speaking to each other. One side, led by the media’s Cult of the Snide (Jon Stewart, Garry Trudeau et al) sings Born in the USA tra la la and continues to goad the other side, which really was born in the heartland USA, owns trucks and land as opposed to living in an apartment, and is heavily-armed. The populations of the Former United States of America states have little or no allegiance to the People’s Republic of America and have nothing but distain for its Washington DC government. Something’s going to happen.

The rise of resource nationalism: sovereign governments cannot create wealth. They can only issue currency, which is for the most part issuing debt. Mining companies create wealth. Governments want a piece. A larger and larger piece.

We will see $4.00- $4.25 copper and considerably higher prices also for tin zinc lead nickel palladium niobium and moly.

But even stronger will be global prices for Agribiz commodities,   especially soybeans and wheat.

You’ll hear and read a lot about the end of the early 21st Century  Gold Rush, and gold possibly may visit a Floor Price of $1500…but gold’s Fair Value price moving into 2013 is around $2400, and it would be a very bad idea to sell your gold ETF or gold mining co shares.

Look for gold to temporarily cross the $2000/oz border at some point in 2013.

One of the strongest economic forces on the planet, gambling and gaming, is not about to go away, but is gaining clout. Humans spend a billion dollars a day on slot machines alone.

2013 will be the first year the US and the US Economy will spend without Steve Jobs, not only a design genius but one of the most important American industrialists of all time. Apple had taken severe criticism last year for where and under what circumstances Apple products were manufactured, APPL shares are as low as $500, and Apple has lost its visionary leader, replaced by Tim Cook, a teriffic CEO but no genius or visionary. Nevertheless, do not sell this stock short, it’s headed far higher. Watch also for an Apple dividend that moves closer to 4% than 2%.

Intel’s CEO, Paul Otellini, retires this spring. He is most likely to be replaced by: Nvidia’s Jen Hsun Huang, as Intel buys NVDA or the co’s merge. The 2nd most likely is someone from Apple for whom NVDA makes chipsets, and the 3rd is someone from Microsoft, under similar circumstances.

As the USA’s Defense Budget goes flat and shrinks and as the Washington DC govt of the People’s Republic of America continues to provide only limited support to the military,  the prices of what we call in Market Witch issues War Stocks will flatten or decline.

Russia is rich: gold salt wheat water copper iron lumber etc. and is about to get richer. Scientists in Russia recently announced a find of a 62-mile-wide volcanic crater filled with Kimberlite. Diamond pipes. Enough diamonds to supply the world’s needs for three thousand years.

Mexico’s manufacturing and mining economy, despite the druglord chaos, is coming on strong in the Twenty-TeensNew president (Nieto) and strong economy. Solid starter Middle Class of tekkies, white collar and blue-collar manufacturing workers. Note that Mexico’s Bolsa is above 42,000 and is headed for 50,000.

The govt of the People’s Republic of America will allow Iran to have The Bomb, will allow Iran to join the world’s Nuclear Club. With dire consequences: one of them will be that the rift between the two countries of the now broken-in-two USA will move further apart and with greater animosity.

Watch for the return of the fine arts in both of the breakup countries that comprise the United States. Populations in both the two new US countries hunger for art, sculpture, antiques, “vintage” things of all kinds, painting, photography theater and great storytelling (tho in our day and age that means movies not literature). Even low-rent TV show Pawn Stars has become essentially an antique show. Most Americans have had it with Lowest Common Denominator-style entertainment, media, and  arts. So long, reality TV. So long, American Idol. So long, Dance With the Stars.

Regardless of what happens in the domestic US, the Global Infrastructure Buildout goes right on as the years pass. And although Europe and especially the US need considerable rejuvenitive Infrastructure Rebuilds, particularly the harbors of NYC and New Orleans and its source the Mississippi River. Neither region can afford these rebuilds. Whether they’ll do it any, with borrowed money, remains to be seen.

The primary US market indexes (S&P, Dow, Russell 2000, Nasdaq, NYSE Composite) now nearly completely dissociated from the Mainstream American populations, (‘ordinary Americans’ no longer prosperous, no longer invest, they are busy trying to buy gasoline and peanut butter) will trend higher this year almost regardless of what happens socioeconomically inside the US and no matter what happens to the US dollar. This holds true also for the primary European Indices (Dax, FTSE, CAC 40 et al) and it holds true for the Bovespa, the Bolsa, Indonesia’s Bursa Efek, and the various Chinese exchanges (Shanghai composite,  the Hong Kong Hang Seng, etc.)

We’re strongly optimistic re the 2013 global economy although we think the US economy is still in the midst of its collapse and Godknows what will happen here, but we remain very strong on USA High Net Asset Value stocks (MMM CMI DE IBM etc and far more importantly global mining and resource equities.

We don’t want to see USA chaos between these two countries but we are aware it may happen.

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