The Great Depression Online

Great Depression Online Archive Issue:

2011: The Year of the Big Energy Breakthrough

Great Depression Online
Long Beach, CA
December 28, 2010

Inside This Issue You Will Discover…

*** Like 2008, Only Worse
*** Inflation’s Coming to a Store Near You
*** 2011: The Year of the Big Energy Breakthrough
*** And More

Like 2008, Only Worse

Today we’re shelving our humility and replacing it with conceit.  We do so, however, not for ego or arrogance; but rather for entertainment and amusement.  We’re on the eve of a new year, after all, and what good would this little newsletter be if we weren’t to pause one day a year to offer a guess or two at what the new year will bring.

So to get right to it, 2011 will be like 2008…only worse.  Inflation will rule the day until suddenly it doesn’t.  That’s when a monumental financial bust heaves the economy back into the abyss.  Here’s why…

Several weeks ago Ben Bernanke told the world on 60-Minutes that he’s “one hundred percent” confident he can control inflation.  Bernanke, no doubt, is a clever man…and he knows it.  Yet that’s what worries us about him most.

~~~~~~Food Crisis Survival~~~~~~

How to Survive the Coming Food Crisis

What would happen if a natural, civil or economic disaster prevented us from growing, transporting and importing food?

Food prices would rise and supermarket shelves would go empty.  Within three days there’d be no food left in most people’s homes.  Chaos and anarchy would break out.  Thousands (if not millions) would starve.

Are you prepared for such a situation? 


Has there ever been a Federal Reserve Chairman more convicted of his own power to control the economy with monetary policy?  Even Alan Greenspan seemed to know he was engaging in quackery.  But Bernanke’s a true believer.

Nonetheless, despite his perfect conviction, Bernanke’s not doing a very good job at controlling inflation…

Inflation’s Coming to a Store Near You

Over the last 12-months cotton’s up 116 percent, coffee’s up 51 percent, corn’s up 37 percent, wheat’s up 30 percent, aluminum’s up 18 percent, copper’s up 26 percent, iron ore’s up 80 percent, nickel’s up 35 percent, tin’s up 69 percent, uranium’s up 27 percent, and crude oil’s up 9 percent.

In other words, everything’s going up.  What’s more, these price increases are coming to a store near you…

General Mills, maker of Cheerios, Chex, and Wheaties, recently raised cereal prices, and are planning to raise prices for baking mixes, like Betty Crocker, Bisquick, and Pillsbury, on January 3rd.  “Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs,” reported Bloomberg last month.  We’ve even heard Wal-Mart garb’s getting squeezed by higher cotton prices. 

Then there’s gas.  Have you filled up your car’s tank lately?  From what we gather the nationwide average is $3 a gallon, up 13 cents a gallon since November.  Here in Long Beach we recently paid over $3.30 a gallon for the cheap stuff.

Thus, despite the consumer price indexes November increase of 0.1 percent, reported by the Bureau of Labor Statistics, inflation is coming.  So in 2011 expect to pay more for the things you use on a daily basis – like food, clothes, and gas.

Now for the specifics…

2011: The Year of the Big Energy Breakthrough

The stock market should fall at least 10-percent in the first quarter.  When it comes down to it, at the moment, only dumb money investors – average Joes – are buying stocks.  Smart money investors – professional investors – have been quietly taking their money out of stocks. 

Right now the Smart/Dumb Money Confidence Index, prepared by SentimenTrader, shows the difference between the two has moved to levels that presage a swift decline.  It’s just a matter of time.  Yet, once the stock market correction is behind us, the inflation trade will be on in earnest.  In other words, stocks and commodities will go up and the dollar and bonds will go down.

With the exception of a brief countertrend when the stock market corrects during the first quarter, bond yields, including Treasury and municipal debt, will move up.  By summer look for a large state government default – perhaps Illinois or California.  The true acid test for markets will be if Bernanke lets them default or if he bails them out with funny money.  We fear he’ll opt for the bailout…when that happens the dollar route will really take off.

Oil and precious metals are perennial favorites for speculators hedging against a falling dollar.  In 2011 we’ll again see oil prices in the triple digits and $1,500 per ounce gold.  But our favorite opportunity for capitalizing on the inflation trade is agriculture…

As noted above, cotton, coffee, corn, and wheat all had substantial increase in 2010.  In 2011, agriculture prices will continue to rise due to both market conditions and monetary conditions.  The USDA’s crop reports have been cutting production estimates throughout the fall.  Thus a reduction in grain supplies and crop yields will naturally result in an increase in food prices.  We suspect food prices will also be pushed up by Bernanke’s infinite supply of digital monetary credits.

One idea for profiting from rising agriculture prices is the PowerShares Multi Sector Agricultural ETF (DBA).  Since June 1st this ETF is up over 40 percent.  But we think it will go much higher in 2011.

At some point during the year, perhaps in the fall, the inflationary melt up will become extremely speculative.  While it will go on longer than you can fathom it will eventually crack the economy. What follows will be a market crash and social disruption for the history books.

On a high note…something else for the history books will be written in 2011 too… 

Right now, in cities across the globe, brilliant minds at the fringe of scientific propriety are but one experiment away from the big energy breakthrough humanity’s been waiting more than 40-years for.  Unfettered by academic zealotry, or even the need for a posteriori instantiation, this new scientific discovery will not come from a leading research or government institution; it will come from a small team of eccentrics operating out of an unassuming corner of sublet office space.

What we mean is, in the words of the late Gordon MacKenzie, “Orville Wright did not have a pilot’s license.”

Should be a wild year!


M.N. Gordon
Great Depression Online

P.S.  Through the monetary policy of a madman the stage has been set for an epic inflationary blow off followed by an equally epic financial crash.  If you thought 2008 was bad – when oil prices spiked over $140 per barrel and wheat prices rose 130 percent just before the whole financial system blew apart – prepare yourself for an epic blow off.  Yet in the middle of it all a food crisis will occur.

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