Here’s a good time to look back over the past year and see if some of the predictions I made back in January are still in play. Keep in mind that most predictions by ‘analysts’ are waaayyy off base so here goes:

• Prediction #1: Deflation will intensify as real oil prices increase, even if nominal prices fall.

This looks like a pretty good prediction so far, the nominal price of crude is + $80 a barrel but the effects of $80 oil are accelerating deflation which can clearly be seen in the Eurozone periphery and Ireland.

• Prediction #2: nominal oil prices will decline slightly but the real price – oil against the cost of other inputs such as wages – will be high and continue to increase.

WTI prices are lower now than they were in January however input costs outside of crude have been constrained by the recession and increases in unemployment. Additionally, much of the US input category is overseas as our ‘factory floor’ tends to be found in Mexico and China. There are also different ‘real’ categories such as oil price measured against inflation, oil price measured against industrial output and productivity rates. Nevertheless, this also looks like a pretty decent prediction.

• Prediction #3: the US will avoid a 3d war in the Middle East, but become embroiled in a South American proxy war between Colombia and Venezuela.

There hasn’t been nearly as much public discussion about Venezuela as there has been about Iran. Venezuela has the largest oil reserves outside the Middle East and is relatively ‘next door’. The Chavez regime is despised by the US establishment. Meanwhile the drumbeats for a new war in Iran grow louder with the inept boob David Broder stating it would be good for the economy! Sez Broder: “as tensions rise and we accelerate preparations for war, the economy will improve.” How? What about the two wars we are already embroiled in? Not a good prediction for all the wrong reasons! Not bat- shit crazy enough!

• Prediction #4: There will be sovereign repudiation of debts.

I wrote this as Iceland was in the process of giving British speculators the finger. Never happened but the usual suspects orbit the drain. Let’s see what happens at the end of the year. Not a good prediction .. yet!

• Prediction #5: a large- scale terrorist attack on the US.

  Look for this as a ‘false flag’ incident orchestrated by US intelligence agencies. The rather idiotic terrorist escapades of the past months suggest a significant encore.

Was the latest Yemen imbroglio another false flag publicity stunt or the real deal? Only Obama’s hairdresser knows for sure … So far, a dud.

• Prediction #6: a second and very destructive unwinding in finance markets. 

Even though this hasn’t happened yet, the forces are more aligned right now than they were on January 8. The markets are propped up by central bank liquidity and little else. Once the ‘bigs’ decide it’s time to go short and take money from the few witless speculators still long and still hopeful the market will cave. When? It could happen tomorrow as Fed chief Bernanke’s offer of QE II will certainly displease someone. Not a good prediction … yet! Keep in mind the predictions have to take place this year, not in 2011. I am prepared to take my lumps.

• Prediction #7: the credit unwind will mean there will be no buyers at any price for most debt which will be rendered noncollectable.

I keep hearing this from other finance analysts who are not Robert Prechter! Nicole Foss comes to mind at once. So far this hasn’t happened.

• Prediction #8: there will be hyperinflation in China.

I pretty much nailed this one last June and the Chinese inflation beat goes on … and on … and on … Keep in mind that all inflation due to the addition of new currency into circulation by the establishment – rather than money expansion due to increase in business activity – is hyperinflation. Good prediction!

• Prediction #9: the S&P will end the year below 650.

With the S&P @ 1150 this doesn’t look like it will happen this year. But … It’s not a good prediction … yet!

• Prediction #10 is more of an observation; finance as a strategy to create value has failed utterly. 

Our current deflation is a logical and predictable outgrowth of rapacious and unconstrained industrial growth, which consumes the resource base upon which it absolutely depends. Finance is only a marketing enabler of this consumption, it seeks to expand markets for industry’s goods. It cannot create wealth, only redistribute it from the future to the present. The current failure of finance in its hour of greatest need suggests a future of great poverty. Future earnings have already been brought into the present, there is no wealth remaining.
2010 means the end of ‘money making money’. There are no/few good investments. There are no hedges against deflation.

Money will have to be made by work, talent or service, none of which provide much of a return now. To get to a point where work has value, revulsion must and will take place within the ambit of investment. Investment promises great returns on absolutely nothing but luck and the passage of time,  the promise itself is a fraud. It violates the 2d law of thermodynamics which guarantees a decline in organization – and unrationalized value – over the passage of time.

I realize there is a lot invested in the idea of finance and that lot has to be played out. There are many clever and powerful men who will do whatever it takes to keep the finance machinery turning. At the same time, the actions of the financiers themselves – by removing dollar liquidity for themselves and hollowing out their enterprises – indicates they see the end of the road.

This not really being a prediction I will leave it at ‘neither’.  So far it looks like I made three of ten good predictions (1, 2, 8) with six duds (3, 4, 5, 6, 7, 9). In the next two months some positions might switch, for instance China’s real estate bubble may suddenly deflate and causes a crash. If that happens #3 would be wrong but many of the six duds would turn out to be correct as stock indexes worldwide would melt down and the debt overhang start to disintegrate.

Problems start tomorrow as the nincompoop wing of the Republican party looks to gain control bent on destroying the Obama presidency and little else. So much for leadership …