This in depth analysis is second in a series of three that seeks to generate accurate forecasts for UK inflation, GDP growth and interest rates for 2010 and beyond.The whole analysis and implications of will be published as an ebook that I will make available for FREE, ensure you are subscribed to my always free newsletter to get the completed scenario in your email box and check current ongoing analysis at http://www.walayatstreet.com.

UK GDP Forecast 2009 - Britain's Great Depression

Britians Great depression is expected to end in the third quarter of 2009, the trend for which has been accurately mapped out in the in depth analysis and forecast of 17th February 2009 (UK Recession Watch- Britain's Great Depression?), that both called for severe peak to trough economic contraction of -6.3% for 2009 at a time when the likes of the UK Treasury were forecasting contraction of less than half at -3%. The analysis also concluded in a strong debt fuelled economic recovery for 2010 to coincide with a summer 2010 General Election. As of the revised ONS GDP data (ABMI Chain linked at Market Prices) total peak to trough contraction is now 6.23% virtually exactly inline with the forecast for -6.3%. Annualised contraction for the third quarter is at -4.56% with trend on target for -4.75% for the fourth quarter.

UK Recession Projection / Forecast Conclusion

In the final analysis, the projected course of the recession over the next 2 years is as illustrated by the below graph in that the severe recession is expected to bottom at an annualised rate of -4.75% GDP in the fourth quarter of 2009 (small quarterly gain on the 3rd quarter), which will be followed by a recovery as the rate of annualised GDP contraction improves as government stimulus measures announced to date and deep interest rate cuts as well as future stimulus during 2009 kick into gear. The UK economic recovery is expected to continue into the fourth quarter of 2010 i.e. after the general election. The total recession from peak to trough is expected to see GDP contract by 6.3% and therefore this will be the worst recession since the 1930's Great Depression.

Therefore this analysis seeks to update the prospects for 2010 GDP growth forecast of 2.1%, as well as project the trend out for at least 2011 and possibly further out, which is in the face of over bearing mainstream press commentary that has jumped onto the double dip recession band wagon.

Labour's 10 Year Economic Boom Evaporated into an Even Bigger Bust

John Majors Conservative government handed the New Labour government a lean mean economic growth machine back in 1997, which during the first 2 years of the new government the Labour party managed to restrain its traditionally tendencies of wasting money by sticking to strict limits on government spending. However increasingly following these first two years, the Labour party let rip with out of control public sector spending with a vengeance on the back of North Sea Oil revenues and the Casino Banking Sector profits that ensured that Britain skipped the Dot Com / Sept 11th recession of 2001-2002 that hit many other countries including the United States.

Unfortunately both Tony Blair and Gordon Brown took this as a sign that they had acquired the midas touch, thus further escalating spending on the public sector that despite booming revenues from fictitious profits from the mark to market banking sector (for the purpose of paying huge bonuses) the Labour Government repeatedly broke its own Golden rules of balancing the countries finances over an economic cycle. If Labour had stuck to its own rules during the good times as they had repeatedly promised the electorate at each election then Britain would not now be peering over the financial abyss of an hyper-inflationary debt spiral.

NHS Spending Black Hole

This out of control public sector spending is no better illustrated than the more than tripling of the NHS budget from £37 billion to more than £120 billion, which ignited a Gordon Gecko style greed is good ethos that gripped the NHS and wider public sector that sought to not only match the private sector in terms of pay but beat when pension entitlements are taken into account.

GP Pay illustrates the greed factor more than anything else that contributed towards the 2009 MP Expenses Scandal. When New Labour came to power in 1997 average MP pay was £43,722 against average NHS GP pay of £44,000, so both were inline with one another at that time. However as the below graph clearly illustrates in 2003 something started to go seriously wrong with GP Pay which took off into the stratosphere as GP's decided to award themselves pay hikes of more than 30% per annum at tax payers expense that has lifted average GP pay to over £126,000 per annum against £64,000 for MP's.

This was as a consequence of the now infamous GP contracts where basically devious greedy GP's hoodwinked a gullible incompetent Labour government health ministers into signing up to contracts which were meant to deliver greater value for money for the tax payer but were instead designed to do the opposite and resulted in GP's pay doubling whilst at the same time cutting back on hours worked. This was not only a total fiasco for the nations health and finances but also ignited jealousy amongst MP's that directly led to the adoption of the policy of claiming expenses to the maximum so as to fill the ever widening gap between MP's and NHS GP's, as MP's could NOT get away with awarding themselves pay hikes of 30% per annum without losing their seats at the next general election in response to voter outcry, therefore across the board systematic abuse of expenses started to take place which basically means real average MP pay is currently approx £98,000 per annum.

This example illustrates why the Labour party appears destined to leave office with the economy left in the worst state since any time since the Second World War. No British Government since WW2 has ran an annual budget deficit of 15% of GDP and it is this deficit as a consequence of the public sector spending black hole that the next Government will have to come to grips with which implies deep spending cuts of as much as 10% or £60 billion.

UK CPI Inflation Analysis and Forecast for 2010

The in depth analysis forecast conclusion for UK inflation for 2010 (http://www.marketoracle.co.uk/Article16085.html) included the following analysis points and conclusion that build towards the forecast for UK GDP growth for 2010 and beyond, therefore these analysis points are not being repeated in this article.

• Inflation Forecast 2009
• The Inflation Mega-trend
• UK Retail Sales Signal Debt Fuelled Election Consumer Boom
• M4 Money Supply Adjusted for the Velocity of Money
• UK Unemployment
• Debt Fuelled Economic Recovery Heading for Double Dip Recession?
• Debt and Liabilities
• UK Interest Rate Being Kept Artificially Low For Bank Profiteering
• UK House Prices Continue 2010 Government Debt Fuelled Election Bounce
• UK Producer Prices
• Stocks Bull Market Signaling Strong Economy
• British Pound to Wobble Lower During 2010

Conclusion and UK CPI Inflation Forecast 2010

The sum of the above and recent analysis is for UK inflation to spike higher in the coming months during early 2010. This is inline with my view that the Labour government has succeeded in sparking a strong debt fuelled economic recovery that will become clearly visible during the first quarter of 2010. I expect UK inflation as measured by CPI to break above the Bank of England's upper CPI target of 3% very early in the year, and stay above 3% for most of the year only coming back below 3% late 2010 as a consequence of the next governments attempts to bring the unsustainable budget deficit under control.

Stock Market the Key Indicator of Economic Strength of 2009

Key conclusion of the inflation analysis projected to a strong bounce back in the economy which implies higher inflation, all of which was strongly indicated by the stock market that began a stealth stocks bull market back in March, that only now nearly 9 months and 60%+ later are most analysts looking in the rear view mirrors are starting to drop the bear market rally mantra and recognising the fact that the stock market is THE LEADING ECONOMIC INDICATOR . The article 2009 The Year of the Stocks Stealth Bull Market recaps my analysis that began with the birth of the Stocks Stealth Bull Market in March, all the way into a year end target of 10,500+ on the Dow. My analysis for the stock market for 2010 will follow in January.

Budget Deficit Cutting Solutions to Britain's Debt Crisis

The next government's primary objective will be to to get an urgent grip with Britain's out of control budget deficit that risks an out of control inflationary debt spiral due to ever escalating interest payments exacerbated by a depreciating currency as a consequence of continuing money printing (QE) to monetize the deficit.

The Labour Governments most recent updated projection for the annual Public Sector Net annual deficit remains unchanged against Alistair Darlings April 09 targets, as well as my original estimate of November 2008 (Bankrupt Britain Trending Towards Hyper-Inflation? ).

The target PSND of £1,300 trillion would approximately equate to 100% of GDP by 2013/14. This is against my original target as of November 2008 of £1.48 trillion by the end of 2003/14 at a projected 114% of GDP.

The existing government deficit reduction targets as of the November 2009 budget is to reduce the deficit by £23 billion per year for the year 2010-11 onwards. However as I pointed out in the article Britain's Inflationary Debt Spiral as Bank of England Keeps Expanding Quantitative Easing, reducing the deficit by £23 billion per year does nothing to stop the deficit from expanding by a further £510 billion or 42% of GDP, i.e. there is NO DEBT REDUCTION, Instead DEBT Escalates by a further £510 Billion. Therefore the Labour governments deficit reduction targets are NOT sustainable, as the market will NOT allow £510 billion of new debt to be issued on top of the existing debt mountain of over £1 trillion. Which is leaving aside for the moment total liabilities that look set to expand to over £4.75 trillion.

Solution to Britain's Debt Crisis

The only solution to the path Britain is on is for a balanced budget, in that regard the best way to achieve a balanced budget is to grow ones way out of debt i.e. increase revenues, failing that the option available is to inflate ones way out of debt which is what the Labour government has enacted through its policies of Quantitative Easing, Zero Interest rates and increased public spending. However what a government should not do is to listen to the deflationists and trigger another recession.

So it is going to be a tough balancing act for the next government as it will need to cut spending, increase taxes AND grow the economy so as to bring the deficit under real control, not the nonsense of cutting the deficit of £23 billion per year for the next four years which as I have illustrated means at least an extra £510 billion of debt.

The current financial years deficit is projected to be £185 billion or 15% of GDP, this needs to be cut to below 5% of GDP or £60 billion, within a short period of time but WITHOUT triggering a Double Dip Recession, which would just bring Britain back to square one i.e. were we were 6 months ago.

How to Really Cut the Deficit

Spending Cuts

Both Labour and the Conservatives have made loud noises of making severe cuts to public spending but when one looks at the actual figures pumped out they are non existant for the Conservatives and show INCREASED public spending for Labour. This is clearly electioneering therefore without any real contract figures before me I can only guesstimate that cuts of approx 4% will follow in the post election budget which is significantly less than the 10% that would be necessary, which is not going to happen when the mega spending departments of NHS, Education and Welfare have been ring fenced for growth, which means a 10% cut is impossible. Public sector spending cut by 4% would equate to about £24 billion.

Economic Growth

My existing forecast for the UK economy is on track for 2%+ growth for 2010, therefore this should like for like imply a 2% cut in the annual deficit or £24 billion by means of increased revenues due to economic growth.

Tax rises

Tax rises have already been scheduled by Labour party to start kicking in during 2010, with the first on 1st of Jan 2010 when VAT goes back up from 15% to 17.5% with NI scheduled to follow in April. Add to this the projected post election tax hikes of an increase in the basic rate of income tax to 24p and higher upper band increased from 40p to 45p.Though a further VAT hike to 20% may be overkill and could trigger the feared double dip recession that would be a disaster, so I doubt if 20% VAT will follow, but it is a tough call as it could raise a further £12 billion per year. In conclusion total tax revenues could increase by a sizeable £30 billion a year and contribute to a significant dent in the deficit.

Cutting the Deficit

There putting all of the probable spending cuts, tax rises and increased revenues from economic growth all together, then by the start of financial year 2011 the budget deficit could be cut by £78 billion to approx £100 billion instead of the Labour governments target of £162 billion. A deficit of £100 billion would still equate to about 8% of GDP, so would still require more money printing to monetize government debt, but the cuts would not be so severe as to trigger a double dip recession and therefore allow the government to both grow and inflate its way out of debt during the subsequent years i.e. the country will experience below trend growth coupled with higher inflation that would target a rate above the Bank of England's 3% limit, which suggests that the next UK Government may set a NEW Inflation band of 2% to 4%, which is inline with the outlook being painted by the inflation forecast.

On this basis the deficit could be cut to about 4% of GDP by the end of the third year of the next government, so hope for saving Britain from the debt spiral is not lost, but it does require urgent action as the longer the country accrues budget deficits of approaching £200 billion the greater will be the price paid in terms of debt interest payments that are already at £44 billion per year and could easily pass £80 billion if the Labour party's current 5 year deficit reduction plan is followed.

Learn the Lessons from the Financial Crisis

I hope the next Government will have learned the primary lesson from last years Financial Crisis, which is that the longer you leave a crisis to fester the greater will be the eventual crash. With regards Britians Debt Spiral, that crash would be for UK Government Bonds and Sterling, which would trigger panic reactive measures. So it is infinitely better to grab the debt bull by the horn BEFORE the inevitable debt collapse occurs.

The Election Cycle.

The next government will have 5 years to prepare for the next general election of 2015. Therefore it has at its disposal the valuable asset of time to engineer an economic boom into 2015. This suggests two harsh years of economic activity i.e. below trend growth, followed by two years of above trend economic recovery into the 2015 election.

Bank of England Quantitative Easing Gilts Market Smoke and Mirrors Dangerous Game

The Bank of England's actions throughout 2008 and 2009 have shown that it's primary objective is to massage the UK Government Bond market. The evidence for this is in the fact that the vast majority of the £200 billion of Q,E, has been utilised for the purpose of monetizing government debt i.e. buying gilts to prevent Gilt auction failures and higher yields.

The original story of Quantitative Easing or Money Printing in statements made by the Governor of the Bank of England during February 2009 was that QE would be utilised primarily for the purchase of corporate bonds to help companies that were unable to sell debt / bonds to the banks. This is NOT what has transpired as most of the QE to date of £200 billion has been utilised for the purchase of Gilts, where even what little corporate bonds that have been bought are expected to be sold in the coming months.

This tells me that those analysts that look to the Bank of England for possible answers for the UK economic growth indicators are following a red herring, as that is NOT the BoE's primary administrative function, the number 1 priority is massaging the Gilt market, yes inflation and economy come 2nd and third but only in so far as they impact the Gilt market. So the Bank of England could be a problem during 2010 as it continues to adopt a blinkered attitude towards the economy much as it did during the Great Recession of 2008-2009, in that the Bank of England sat twiddling its thumbs whilst the economy burned and it was only after the Prime Minister took control of interest rates away from the Bank of England on 8th of October by announcing the first of a series of cuts in UK interest rates from the Prime Ministers Despatch box rather than by the Bank of England as I mentioned around the time.

UK 1% Interest Rate Cut

The MPC meeting is widely expected by the consensus to cut UK interest rates by 0.5% today, however as my recent articles (Credit Quake Persists Ahead of UK Interest Rate Cut of 1%?) have concluded that effectively Gordon Brown cracked the MPC round table in half when he stood up at the House of Commons despatch box on 8th October to announce the interest rate cut of 0.5%, which was followed by the Bank of England's announcement. This suggests that the Monetary Policy Committee is now no longer totally in the control of setting UK interest rates and therefore in many aspects control has been transferred back into the Governments hands.

At the end of the day the Bank of England will first look after fellow bankers and then placate the government by giving lip service to the wider economy for were it the institution that many think it is then it would not have contributed in a big way towards pushing the UK economy over the edge of the cliff during 2008 by sitting on interest rates of 5% for a whole year AFTER the credit crisis broke and the UK housing market peaked. The Bank of England coupled with the FSA contributed to towards the creation of the financial crisis through means de-regulation of the banking sector that ensured that bank officers turned their banks into hollow husks for the purpose of maximising bonuses on the basis of fictitious profits, with the liabilities at the end of day being dumped onto the tax payers. Had the Bankers that run the Bank of England done what the people thought they were there to do then the banking crisis would not have happened! For we are not talking about a new institution on a learning curve that is just a few years old, but rather a 300 year institution that knows full well the ins and outs of the banking system that it created over the centuries that exists primarily to turn everyone, including the government into debt slaves. The mainstream press instead of holding the Bank of England to account is praising the bank for its actions in preventing an Economic Depression.

The Bank of England whilst talking about halting QE several times throughout 2009 that the mainstream press lapped up in July, which at the time I mentioned was NOT possible, as the BoE will continue with QE to ensure Gilt Auctions do not fail. The BoE will also put increasing pressure on the government to cut the deficit asap so that the Gilt market is under less pressure, regardless of the impact of a too severe cut in the deficit i.e. triggering a double dip recession.

The Bank of England embarked upon a programme of printing money or Quantitative Easing during March 2009 with an initial print run of £75 billion of a total set at £150 billion in an attempt to wave the central bank magic wand to increase the supply of credit. However as I warned at the time (5th March 2009: Bank of England Ignites Quantitative Inflation) that once started the Bank of England would continue printing money right into the May 2010 General Election targeting an print run of as much as £450 billion and therefore igniting Quantitative Inflation during 2010.

Virtually all of the mainstream press swallowed the Bank of England's hints and winks that Quantitative Easing had ended at £125 billion during the summer months, which at the time I stated was not possible (8th July 2009: Irrelevant UK Base Interest Rate on Hold as Real Rates have Already Begun to Rise)

This confirms my view that the Bank of England will continue printing money into year end to beyond the current arrangement of £150 billion and probably as high as £250 billion.

I projected a Quantitative Easing total towards £250 billion by the end of 2009 with the current tally now standing at £200 billion of money printed as a debt consequence of the Labour Government's objective of both aiming to maximise the number of seats retained at the next General Election as well as to deliver a scorched earth economy to the next Conservative Government. Therefore the Labour Government also wins because it gets to hide this Quantitative Easing debt as theoretically purchases and sales cancel each other out in the fantasy land of central banking accounting and feeble government auditing. I.e. by magic approx £200 billion of new government debt has vanished into thin air, for if had not been hidden under the carpet then UK Gilt interest rates would be much higher due to the increase in supply of approx 33%.

The real damage of this game of smoke and mirrors is that the markets are not stupid and when they eventually do react to the progressive trend of QE it will be Earthquake style and that is to dump UK assets, bonds, stocks, cash and therefore hit sterling hard in a matter of hours let alone days or weeks which would send interest rates sky rocketing i.e. to discount the £200 billion of new hidden Q.E. debt.

In the final analysis money printing as I have repeatedly pointed out over the past year is a scam perpetuated upon existing currency holders, i.e. savers. The Bank of England's actions of the past 12 months amount to alleged theft of the value of savings from savers by means of zero interest rates and the printing of money that seeks to destroy the value of capital / savings both gradually through the process of inflation AND at the point of time of a currency crisis.

What this means for the UK Economy is that a. serious efforts will be implemented by the next Government to cut the deficit, and b. whilst the deficit is above £80 billion per year then Quantitative Easing will remain and continue to expand which suggests several more years of QE rather than several more months as the BoE officially continues to always allude to, which given its actual primary objective is not going to happen.

China Leads the Way for Strong Global Growth 2010 and Beyond

China is leading the way to the return of global growth with expectations for GDP growth for 2010 of as much as 10%, which further confirms expectations for the potential of a global growth story surprise to the upside for 2010. Whilst at the present time many analysts / commentators worry about China market bubbles, much as they worried about the "stocks bear market rally" that was always destined for an imminent demise during 2009 which instead was one of the greatest bull markets in history.

I don't see why China is not going to keep growing strongly for 2010, 2011 and beyond especially as domestic consumption becomes an ever larger part of China's growth story with other emerging markets not far behind. Having originally called the China stock market as a Great Buy at SSEC 2,000, with the index now at 3,200 up 92% from its bear market low just continues to prove how wrong the China doom mongers have been found out to be as the continue harping on about how China has to at some point withdraw the huge economic stimulus of 2009, though without understanding that with growing reserves of $2 trillion they do not have to as I pointed out back in June 2009. China Mega-trend Stocks Stealth Bull Market Update, SSEC Up 47%. Many of the comments I made at the time of China boosting World trade and commerce is coming to pass and will increasingly do so during 2010.

So regardless of volatility during 2010, China will continue to notch up a further gains during 2010 AND 2011, We could easily see the Chinese stock market end 2010 above SSEC 4,200 which 'should' help elevate all major stock markets higher, just as the Chinese economy helps elevate the major economies higher.

China's thirst for resources and energy also sets the scene for the continuing commodities bull markets right across the board as part of the inflation mega-trend scenario, which ensures mineral producing countries such as Australia and Canada and oil exporting countries will see China lift their economies higher as prices are driven higher.

UK GDP Growth Forecast Conclusion

The sum of the above analysis is for a strong economic recovery into the end of 2010 which given the pessimism today I term as the Stealth Election Boom that followed the Stealth Bull Market of 2009, the economic 'boom' will continue in to a peak in Q1 2011, which will be followed by weakness during 2012 and 2013 and strong recovery for 2014, and into a 2015 summer general election, breaking this trend down into GDP terms for end 2010 +2.8%, 2011 +2.3%, and taking account of the election cycle preliminary GDP projections for 2012 of +1.1%, 2013 +1.4%. 2014 + 3.1% with expectation of strong Q1 growth for 2015.

Therefore I just cannot see this double dip recession that the mainstream press and so called think tanks are obsessing over at this point in time, no year on year economic contraction or even a quarter on quarter dip is visible.

The following graph illustrates my trend forecast for quarterly GDP growth over the next 2 years 2010 and 2011.

UK Strong Economic Recovery 2010 +2.8%, Q1 2011 peak of +3.4% (year on year), 2011 End +2.3%. Q4 2009 +0.6%, Q1 2010 +1.1%. Q2 2010 + 1.3% Election Boom. Q3 2010 +0.9% Q4 2010 +0.6%, NO Double Dip Recession, NO Negative Quarters for 2010 or 2011..

Implications for Savers and Investors will follow in my ebook which I will share for free on completion early January 2010, ensure you are subscribed to my always free newsletter to get this in you email in box. My next in depth analysis and forecast that builds on this analysis will be for UK interest rates for 2010.

UK General Election

This analysis further reinforces my expectation that the public and mainstream press will be surprised during the next few months as the UK economy bounces back strongly in the first quarter and continues for the whole of 2010. If only Gordon Brown had one more year how things could have turned out so differently than what seems like the inevitable defeat that Labour are heading for. For all of Gordon Browns many faults he has succeeded in delivering an Election Economic Bounce for the Labour party. Which means that I will now have revise my UK election forecast as of June 2009 during January that projected Conservatives on 343 seats, Labour 225 and Lib Dems on 40.

Mainstream Press and Think Tank Current UK Growth Forecasts for 2010

UK Economic Growth 2010 - LoveMoney - 30th Dec 2009

Considering the OECD recently had to double its growth forecast for 2010, it's clear forecasts are unreliable.

CBI Predicts Fragile Economic Recovery - BBC 21st Dec 2009

The CBI predicts that the UK will exit recession in the fourth quarter of 2009, helped by consumer spending ahead of the VAT rise in January. But the group says the economy is unlikely to have returned to pre-recession levels by the end of 2011.

It says unemployment will peak at 2.8 million - lower than first forecast. Annual growth of 1.2% in 2010, followed by growth of 2.5% in 2011

What will happen to the economy in 2010? - ThisisMoney 29th Dec 2009

This growth should prove sustainable well into 2010, and the average prediction from leading UK's economist is for Gross Domestic Product (GDP) to rise at a rate of 1.4% next year.

As you can see there is a wide range from a cluster around 1% to the Bank of England at the upper end of 2.1% which is the most nearest to my own forecast for 2010 of growth of 2.8%.

One thing that stands out to me is that academic economists and so called think tanks apparently do not understand the critical concepts of trend and momentum which has to be at the core for those that successfully trade the financial markets, some food for thought to end on.

Source and Add Comments Here: http://www.marketoracle.co.uk/Article16167.html

Wishing you all a happy and prosperous New Year!

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

The UK inflation forecast for 2010 is first of a three part series of in depth analysis as part of the inflation mega-trend, with UK interest rates and GDP growth forecast to follow in the coming week. The whole scenario and implications of will be published as an ebook that I will make available for FREE. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent analysis on the unfolding inflation mega-trend at http://www.walayatstreet.com.

Inflation Forecast 2009

The UK Inflation forecast for 2009 (30 Dec 2008 - UK CPI Inflation, RPI Deflation Forecast 2009) proved remarkably accurate with the road map contributing towards the generation of many accurate projections for subsequent trends throughout 2009 and not least for UK savers that for those that followed my cue of fixing savings at rates of above 5% for 1 - 2 years would not have been burned by the subsequent crash in UK interest rates to pittance of as low as 0.1% on savings accounts across the bailed out banking sector and later for stock market investors that monetized on the stealth bull market that began in March 2009 the genesis for which was in the preceding inflation analysis forecast.

Conclusion - UK Inflation Forecast 2009

The UK is heading for real deflation during 2009 as the below graph illustrates in that the RPI inflation measure is expected to go negative and spike lower around June / July 2009 as the RPI is sensitive to falling mortgage interest rates. The CPI will also continue to fall sharply into May 2009, which is targeting a rate of just below 1%. However the more money the government borrows as the difference between spending and tax revenues then the greater will be the eventual resulting inflation as there is no such thing as a free lunch, that will reverse many of the trends we have observed during the past 6 months and will continue to see during virtually all of 2009. However I am only expecting a mild up tick in inflation late 2009 due to the deflationary nature of economic contraction.

Therefore the conclusion is for UK inflation CPI to bottom at just below 1% by July 2009 and RPI inflation to bottom at -1.2% also by July 2009.

Risks to the Forecast - At this point the risks to the forecasts are more to the downside than the upside, meaning that inflation could spike still lower during mid 2009 than forecast above.

The Inflation Mega-trend

The UK Consumer Price Index (CPI) clearly illustrates that all we saw from mid 2008 and into early 2009 was a minor deflationary corrective wave amidst an ocean of year on year inflation. Subsequent inflation has far surpassed the in-consequential deflation seen during 2008 and into early 2009. Therefore the facts are completely contrary to the headline grabbing mainstream press and blogosphere scare mongering of price deflation.

There has been NO SIGNIFICANT DEFLATION, despite economic contraction of more than 5% GDP, despite Unemployment soaring to above 2.5 million, despite asset price destruction ranging from between 25% and 50% into the early 2009 lows. In fact the deflation that we witnessed is probably mostly due to the sharp drop in commodity prices such as Crude Oil's collapse from mid 2008 into early 2009.

My Inflation Mega-trend scenario analysis continues to conclude towards the Government and the Bank of England as with other central banks around the world mistakenly continuing to be fixated with fighting deflation whilst at the same time stoking the fires for a surge in inflation during 2010.

UK Retail Sales Signal Debt Fuelled Election Consumer Boom

The mainstream press and academic economists have been surprised by the most recent headline retail sales data that showed a decline of 0.3% against expectations of rise of 0.4% i.e.

BBC News 17th December - news.bbc.co.uk/1/hi/business/8417860.stm

UK retail sales fell in November, according to official figures, despite analysts' predictions of a rise.

The figures came as a surprise to many economists, who had hoped for consumer spending to fuel economic recovery.

However I recognised the inaccuracy in the published retail sales data many years ago which prompted me to generate my own retail sales data which more accurately reflects the condition of the high street then the official data which typically results in a highly volatile retail sales series which feeds through into yo-yoing mainstream headlines which are in most cases contrary to what is actually taking place on Britians high streets as the below graph more clearly illustrates.

The adjusted retail sales data clearly shows that UK retail sales act as a leading indicator of economic activity and inflationary pressures of as long as 6 months. Retail sales led the price deflation into mid 2009, and now are again acting as a leading indicator for forward inflation and resurgent economic activity during the first half of 2010. The trend is extremely strong and continues to confirm the analysis of June 2009 that stated that Britain had embarked upon a debt fuelled economic recovery into a May 2010 General Election.

Very little of this strong retail sales trend is visible in any of the official or academic economic data that continues to look in the rear view mirror of what is "old news". The actual trend shows that the Labour party has succeeded in igniting a debt fuelled election consumer boom that will increasingly become apparent in mainstream press as we approach the May 2010 election deadline, but it is also indicative a steep upward curve in UK inflation and we are talking about inflation hitting the upper end of the Bank of England's 1% to 3% CPI Band during the first half of 2010 which politically suggests the UK General Election may take place much earlier than the consensus view for a May 2010 General Election, perhaps as early as mid February i.e. before the release of January inflation data.

M4 Money Supply Adjusted for the Velocity of Money

Whilst the mainstream press have been obsessed by headline M4 data throughout the past 12 months, however as I voiced in last years inflation analysis and forecast that the key to interpreting money supply data is to look at M4 adjusted for the velocity of money that implied imminent extreme deflation that has come to pass -

UK Money supply M4 (blue) has risen sharply from the 10% targeted low of mid 2008 to the current level of 16.6%, on face value this is highly inflationary and has been taken by many economists and market commentators to suggest much higher forward inflation. However the money supply adjusted for the velocity of money which takes into account the state of the economy as a consequence of the credit freeze tells a completely different story. The UK economy is now in extreme real monetary deflation of approaching -5%. The leading indicator of the implied money supply, is suggesting recent deep interest rate cuts of Novembers 1.5% and Decembers further 1% cut will lift future money supply growth out of extreme deflation, however it will still be far from supporting the levels north of 15% which accurately forecast forward inflation during 2008.

The M4 Graph shows opposing trends, it shows M4 falling from an extremely high level of near 20% that was jumped on earlier by the press to imply higher inflation, to now nudging below 10% to imply credit contraction deflation. However the real indicator of money supply shows the consequences of Quantitative Easing and near zero interest rates in that Money Supply adjusted for the velocity of money bottomed from a crash into March 2009, and it is only now that the money supply is breaking positive.

This suggests that the Bank of England and majority of economists remain mistakenly fixated on the headline M4 which has nudged below 10% and therefore continue with the policy of Zero Interest Rates and Quantitative Easing. What is remarkable in the most recent inflation data is the surge higher in both RPI and CPI (1.9%) despite weak money supply data, this strongly supports the view that the UK economy has drifted into a period of stagflation where models based on spare output capacity keeping inflation in check will fail ! I.e. we GET Inflation WITH spare capacity i.e. high unemployment, this is because the government is attempting to fill the output gap by increased public spending which is uncompetitive hence inflationary.

Therefore the expectations is for UK Money Supply adjusted for the velocity of money to continue surging higher and supportive of a strong trend higher in the RPI and CPI inflation indices that will leave the vast majority of the academic economists still mistakenly fixated on deflation scratching their heads.

I can easily see MS Implied surging higher to above 10% and M4 Adjusted passing above zero within the first quarter of 2010 on route to pre-credit crash levels during 2010, this also suggests a turnaround to some degree is also imminent in the M4 headline data.

UK Unemployment

The UK unemployment forecast as of October 2008 (July 08 data) forecast UK unemployment to hit 2.6 million by April 2010. The actual data to date of 2.49 million to Sept 2009 is inline with this trend, with unemployment benefit claimant count registering a small fall from 1582 to 1569 for November. The moderating unemployment data has surprised academic economists as it is much milder than their economic models suggest it should be by this point. However the data is strongly indicating to me of a strong STEALTH Economic Recovery underway which implies headline data is near an imminent peak and therefore should start to fall early 2010.

Academic economists have collectively converged during 2009 into the consensus 2009 that UK unemployment would soar to between 3 and 3.2 million by the time of the next general election (May 2010). Now with the slowdown of the unemployment growth in the face of a strong economic turnaround in the fourth quarter these same institutions will be busy revising forecasts for UK unemployment much lower in the coming months.

European Commission - May 2009 - It expects UK unemployment to rise to 9.4pc by 2010 leaving 3m workers jobless.

British Chambers of Commerce - April 2009 - Last month, data confirmed that the total number of people out of work surpassed the 2m mark in the three months to January, taking the official unemployment rate to 6.5pc – the highest since 1997. The BCC believes the total could hit 3.2m by the third quarter of next year.

Bank of England - Blanchflower - April 2009 - Warned unemployment was likely to top 3 million by the end of the year and there was a 'good chance it could go much higher still'.

CBI - Feb 2009 - The UK’s leading business group predicts the recession, which began in the third quarter of 2008, will last throughout 2009. The economy is expected to contract by 3.3 per cent and unemployment will reach close to 2.9 million by the end of the year.

I have long questioned the accuracy and validity of the official unemployment data which over several decades and much manipulation by successive governments has been tweaked many hundreds of time to under report true unemployment for political purposes. Current official unemployment stands at 2.49 million for September data release against which the total recorded as economically inactive of working age stands at 7.99 million which in my opinion is reflective of the true rate of unemployment as the below graphs illustrate.

The real unemployment trend clearly shows a sideways trend channel of between 8 million and 7.8 million, Having hit the upper channel it is now strongly suggestive of having peaked and targeting a trend back towards the lower end of the channel i.e. projecting towards a decline of 200,000 during 2010.

In conclusion the headline UK unemployment rate of 2.49 million is just a stone throw away from the 2.6 million target which suggests little upside momentum left in the unemployment data and therefore indicative of an imminent peak and decline unemployment statistics to be announced during Q1 2010, which therefore confirms my view of a much stronger than expected economic recovery and therefore has much higher inflationary implications as well as political implications of improving Labours election prospects.

Debt Fuelled Economic Recovery Heading for Double Dip Recession?

UK GDP for the 3rd Quarter was revised marginally higher to minus 0.2% from the earlier ONS estimate of minus 0.3%. The year has witnessed 'think tanks' and academic institutions flailing in all directions as optimistic forecasts of earlier in the year proceeded to be continuously revised lower in terms of economic contraction and then by late summer in advance of third quarter GDP data starting to anticipate an economic recovery in the third quarter with consensus for a 0.3% growth which failed to materialise.

The GDP trend for the UK economy has been accurately mapped out in the in depth analysis and forecast of 17th February 2009 (UK Recession Watch- Britain's Great Depression?), that both called for severe peak to trough economic contraction of -6.3% at a time when the likes of the UK Treasury were forecasting contraction of less than half at -3%. The analysis also concluded in a strong debt fuelled economic recovery during 2010 to coincide with a summer 2010 General Election. As of the revised ONS GDP data (ABMI Chain linked at Market Prices) total peak to trough contraction is now 6.23% virtually exactly inline with the forecast for -6.3%. Annualised contraction for the third quarter is at -4.56% with trend on target for -4.75% for the fourth quarter.

The UK economy remains on track to bounce back strongly during 2010, as indicated by June's in depth analysis, however this economic recovery is based largely on debt as shown by the graph below, as the Labour government's strategy is to deliver the next Conservative government a scorched earth economy.

Alistair Darling's forecast for government net borrowing for 2009 and 2010 in November 2008 totaled just £70 billion. However, since the amount of projected borrowing has mushroomed to £350 billion, which is set against my November forecast of £405 billion for 2009 and 2010 alone, with continuing subsequent large budget deficits thereafter of well above £100 billion a year.

Whilst many economists were surprised by Alistair Darling's April forecast that the UK Economy would grow by 1.25% in 2010 and 3.5% in 2011. However we need to consider the following in that 1.25% growth on the annual GDP of £1.2 trillion equates to growth of just £15 billion and for 2011; 3.5% growth equates to just £42 billion. Therefore the government is borrowing a net £175 billion for 2009 and £175 billion for 2010 to generate £15 billion of growth, and then a further £140 billion for 2011 for £42 billion of growth. Thus total net borrowing of £490 billion to grow the economy by just £67 billion, (£595 billion my forecast) which shows the magnitude of the scorched earth economic policy now implemented that literally aims to hand the next Conservative government a bankrupted economy that will be lumbered with the consequences of continuing huge budget deficits and therefore deep cuts in public spending.

Debt and Liabilities

The total liabilities as a consequence of bailing out the bankrupt banks and debt fuelled economic recovery remains on target of £4.75 trillion by the end of 2013/14, which confirms my view that to cope with the debt burden the bank of England will have to keep monetizing government debt which puts Britain on the path towards many years of stagflation, which my UK GDP forecast will next cover in greater depth.

Meanwhile the Bank of England remains skeptical of a UK economic recovery during 2010 as the Guardian reports on 23rd December-

The Bank of England is leaving the door open to a new year £200bn money expansion programme after revealing that it remains unconvinced about the economy's ability to emerge from the deepest and longest recession on record.

"Jonathan Loynes, chief European economist at Capital Economics, said: "We continue to expect interest rates to remain at their current level until the end of 2010, if not considerably longer."

Whilst I agree that the bank of England will continue to monetize debt, however my economic analysis is concluding towards a strong bounce back and hence the Bank of England's policy of further QE ensures that the inflation flames are being stoked higher, which suggests above trend inflation and growth rates.

UK Interest Rate Being Kept Artificially Low For Bank Profiteering

The UK interest rate forecast of early December 2008 for 2009 forecast that UK interest rates should decline to 1% (from 3%) by early 2009 and remain there into the second half of 2009. However following the cut to 0.5% in March 2009, the Bank of England has continued to pursue an artificial banking system by keeping interest rates at an extreme historic low of just 0.5% into the end of 2009 so as to flood the bankrupt banks with liquidity to enable them to rebuild their balance sheets by overcharging customers against the base interest rate and manipulated interbank market rate of 0.66% against rising real market interest rates which have been in a steady climb since March 2009 which increasingly means that the base interest rate has become irrelevant to the retail market place as explained in the article - Bailed Out Banks Not Lending, Sitting on Tax Payers Cash.

The artificial banking system means that the bill for low interest rates is being paid by Savers who along with all tax payers are being forced to pay for the bankster's crimes as tax payer bailed out banks such as HBOS pay a pittance on instant access savings accounts of as little as 0.1% against a requirement of 2.3% just to cover CPI inflation of 1.9% plus the 20% tax charged on interest.

Money is being sucked out of the pockets of savers and being deposited onto the balance sheet of bailed out banks that have no incentive to pay a decent rate of interest when they can borrow at 0.5% from the Bank of England and marginally higher from other UK banks. The artificial banking system is resulting in unprecedented huge profit margins for the banks as market interest rates charged to retail customers continue to rise regardless of the base rate being held at 0.5% well into 2010 which is inflationary in terms of rising mortgage and other debt interest costs as these rising costs will show up to varying degrees in the RPI and CPI inflation indices. I will cover the UK interest rate forecast for 2010 in-depth in the coming week.

UK House Prices Continue 2010 Government Debt Fuelled Election Bounce

The UK housing market bottomed in March / April 2008 which was recognised in the May analysis and has since continued the debt fuelled bounce as a consequence of money printing and zero interest rates as the Labour government has succeeded in inflation the UK economy out of recession in time for an early 2010 General Election.

As is the case with virtually all market junctures, back in March if this year the Telegraph and other mainstream media ran with a scare story that UK house prices could crash by a FURTHER 55%, this was after UK house prices had already fallen by 22% and whilst house prices had yet to bottom the Telegraph story at the time seemed to be a completely ridiculous scare mongering purely for the purpose of sensational headline grabbing rather than presenting something that their readership could utilise to their advantage.

12th March 2009 - Telegraph Runs with Improbable UK House Price Crash Forecast of Another 55%

The mainstream press as illustrated by The Telegraph has run with a house price forecast by Numis Securities (NS) that states that UK house prices could fall by a further whopping 55%, that is a rather incredible forecast to make in light of the of 22% fall to date. NS states that a buy to let investor panic will trigger an avalanche of further selling. I am not aware of Numis Securities past forecasts, however analysis of the perma-bear Capital Economics that has consistently been cropping up with bearish house price forecasts since at least 2002 in the mainstream media illustrated the propensity to reprint press releases with-out checking the facts as to whether the forecast is actually probable or not.

The Telegraph wrote: House prices 'could fall by further 55 per cent

"People who bought buy-to-let flats are expected to “begin panic selling” and the average home value could drop below £100,000."

“Despite UK house prices already having fallen 21% from the peak, we do not believe that the correction is anywhere near over.

“Our core headline forecast is that UK property prices remain between 17% and 39% overvalued based on fair valuation. Moreover, history has shown us that when property…which has experienced a price bubble corrects, the price tends to fall below fair value for a period of time, as confidence in that market remains low. Prices could fall a further 40-55% if the over-correction was as bad as the early 1990s in our view.”

Subsequently, UK house prices bottomed in April / May 2009 and have embarked upon a debt fuelled bounce into a May 2010 General Election that has already seen UK house prices RISE by more than 5% from the April / May low rather than to CRASH toward another 55% drop.

Whilst many are focused on the headline unemployment data, however back in August 2009 in the analysis (UK House Prices Tracking Claimant Count Rather than Unemployment Numbers), the conclusion was that the focus should remain on claimant count rather then the headline unemployment rate, in this regard the claimant count is turning positive in the most recent data and is therefore supportive of a continuation of the trend higher in UK house prices.

The above chart indicates that there does exist a strong relationship between house price trends and the unemployment benefit claimant count, more so than the unemployment data. The possible reason for this is that those made unemployed that do not claim benefits are not in as financially distressed state than those that have no choice but to claim benefits, therefore house prices can and have risen in the past whilst the official rate of unemployment rose, if at the same time the claimant count did not rise.

The recent bounce in house prices is tracking quite closely with the stabilisation of the unemployment claimant count numbers, which therefore suggests that as long as those claiming unemployment benefits continues to stabilise at the current level of 1.6 million then the outlook remains positive for UK house prices to continue drifting higher, this is despite official unemployment data that looks set to continue to rise towards 3 million from 2.43 million.

My on going research suggests that the debt fuelled economic recovery is expected to continue into mid 2010 that could see house prices up by as much as 10% year on year and therefore contrary to the widespread view of flat house prices during 2010, however this warrants in depth analysis to formulate a higher probability forecast which I aim to complete during January 2010.

In conclusion the trend of inflating UK house prices into mid 2010 is supportive of the trend of inflating general prices that will play catch up during early 2010 and continue upward into the second half of 2010 due to increased consumer spending as a consequence of some of the return of the feel good factor amongst consumers.

UK Producer Prices

Producer Input and Output prices bottomed in June 2009 and have bounced strongly from deflation back into inflation. The trends again act as a leading indicator for consumer prices that lag by a couple of months or so. The momentum behind the recovery in producer prices is suggestive of a trend towards extremes in the coming months i.e. PPI Output to above 10% and PPI Input to more than 5%, both of which suggest that the imminent spike higher to follow in retail and consumer prices towards the upper bands will be sustained into at least mid 2010.

Stocks Bull Market Signaling Strong Economy

The stocks stealth bull market of 2009 has been one of the greatest bull market rallies in history and for its duration has been explained away by academic analysts as an aberration, a bear market rally who's demise was always imminent that illustrates the difference between theory produced in ivory towers for the primary purpose of gaining letters after ones name than to actually attempt to monetize on probable trends as the consequences of being wrong for the latter is loss of real money. The fact is simple, the stocks bull market of 2009 is by far the strongest indicator of a strong economic recovery than anything seen in any economic data that academic economists and even many market analysts / mainstream press commentators pursue with a vigour whilst ignoring the biggest indicator of all that is staring them right in the face. The birth of the bull market right from early March has increasingly indicated to me that we are heading for much stronger economic activity during 2010 and therefore much higher inflation.

British Pound to Wobble Lower During 2010

The existing U.S. Dollar bull market scenario analysis calls for the Dollar to rally towards a target of 84, with the initial buy trigger of 77.00 achieved during the past few days this now sets the scene for sterling weakness against the Dollar, which has already seen the GBP nose dive from £/$1.68 to below £/$1.60. A U.S. Dollar index rally to 84 would coincide with a drop in sterling to below £/$ 1.50, therefore presents a bearish starting point for chart analysis.

Two items stand out from the GBP chart:

1. That sterling is targeting immediate support at £/$1.57 which implies it may temporarily bounce from there back through £/$1.60 before the eventual break.

2. That a break below £/$1.57 would target a trend to below £/$1.40.

On a longer term view, the chart is indicative of trading range between £/$1.57 and £/$1.37, on anticipation of the eventual break of £/$1.57. On average this implies a 10% sterling deprecation against the trend of the preceding 6 months or so. I expect sterling to fall against other major currencies such as the Euro where it targets a drop of 10% or so from the current 1.12.

What could drive sterling lower during 2010 apart form Dollar strength ?

The obvious thing that comes to mind is the Bank of England keeping UK base interest rates artificially low (UK interest rate forecast for 2010 will follow in the coming week- newsletter) whilst the economy recovers, inflation rises and the trade gap widens, therefore this WILL impact on the currency and result in relative weakness as commodities such as crude oil are priced in dollars and thus will result in an inflationary feed back loop. Neither is the currency helped by open ended money printing to monetize the huge amount of government debt issuance as a consequence of a 12%+ budget deficit.

Conclusion and UK Inflation Forecast 2010

The sum of the above and recent analysis is for UK inflation to spike higher in the coming months during early 2010. This is inline with my view that the Labour government has succeeded in sparking a strong debt fuelled economic recovery that will become clearly visible during the first quarter of 2010. I expect UK inflation as measured by CPI to break above the Bank of England's upper CPI target of 3% very early in the year, and stay above  3% for most of the year only coming back below 3% late 2010 as a consequence of the next governments attempts to bring the unsustainable budget deficit under control.

My next analysis in this series will cover the UK economy and then UK interest rate projections for 2010 all of which will culminate in the Inflation Mega-trend ebook that I intend on completing and make available for free within the next 2 weeks. Ensure you are subscribed to my always free newsletter to get this analysis that money cannot buy in your email in box.

Risks to the Inflation Forecast

The obvious risk is of the collapse of another major financial institution triggering a deflationary financial armageddon, though the risks of this are now infinitely smaller for 2010 then they were in the lead up to the Lehman Bankruptcy. The real risk is of countries imploding but whilst this would hit the economies however the consequences of imploding countries is inflationary rather than deflationary as panicking governments with citizens rioting in the streets tend to ramp up the printing presses to full steam and similarly induce a collective panic amongst other central bankster's to do likewise, therefore this suggests to me that the actual risk to the forecast is more to the upside then the downside, though yes government debt defaults will not look pretty in the financial markets which like 2008 would induce extreme market volatility.

Implications of the Inflationary Surge

Greater depth and scope of implications will be covered in the Free Ebook that I aim to complete by the end of December. (free newsletter)

UK General Election 2010 - Expect the public and press to be surprised during the next few months as the UK economy bounces back strongly in the first quarter. For all of Gordon Browns many faults, and whether or not he actually wins what is likely is a much tighter election campaign as the polls narrow, Gordon Brown HAS succeeded in delivering a Strong Election Bounce for the Labour party into mid 2010. I will have to probably revise my UK election forecast as of June 2009 during January 2010 that projected Conservatives on 343 seats, Labour 225 and Lib Dems on 40.

Inflation / Deflation Debate - I increasingly recognised the imminent return of Inflation by mid November 2009 that resulted in the article Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend. I expect so will many presently fence sitting analysts and economists during early 2010 in the face of visibly rising inflation in the various inflation indices across the world, which only leaves the perma-deflationist behind who will continue to mistakenly cling on to a non existant deflationary argument as a consequence of the deleveraging deflationary corrective wave of 2008 into early 2009 amidst an ocean of inflation as my earlier article illustrated.

UK Interest Rates - Will the Bank of England be able to keep UK interest rates artificially low during 2010 ? More on this in the coming week in my UK interest rate forecast, but what I will say is that the market interest rates WILL continue to rise, so good news for savers, but bad news for borrowers.

UK Government Bonds - 2010 will be the year Quantitative Easing debt monetization does Battle with the forces of Rising Inflation and Market Interest Rates, the crunch point will culminate in a sharp drop in sterling (10%) as the market wins as bond Investors demand higher yields for UK Junk Government Bonds.

Stock Market - Will the stealth bull market continue during 2010 ? I don't see why not, at least into mid 2010 but this does demand in-depth analysis that will follow during January as the deliciously and excruciatingly impressive 60% gains off of the March lows on face value imply 2010 will not be such an easy free central bank liquidity driven lunch for stocks bull market trend monetizing investors as inept central bankers increasingly start to hit the panic buttons in the face of rising inflation.

Source and Add Comments Here - http://www.marketoracle.co.uk/Article16085.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

1. The Stocks Bear Market Bottom of early March 2009 (Dow 6470).

2. The birth of the Stocks Stealth Bull Market that saw many indices soar by more than 60% over the next 9 months.

The primary purpose of analysis is to generate market scenario's that have a high probability of success for the primary purpose of monetizing on these trends that are usually contrary to the consensus view.

In this regard the stock market bottom of early March fulfills this as the whole subsequent rally has been called by the vast majority of analysts across the board a bear market rally to SELL into, virtually every correction has been followed by calls that the market has topped and the resumption of bear market lows as imminent. The most notable crescendo of the crash is coming calls was during the October correction when widespread commentary spread forth of an imminent crash that AGAIN FAILED to materialise.

The purpose of this article in advance of ongoing work on the formation of a stock market scenario for 2010 is to recap on my key analysis and projections for the stocks stealth bull market during 2009.

Dow Jones Stock Market Forecast 2009 - 20th Jan 2009

Dow Jones Mid 2009 Low 6600 - 70% Confidence; End 2009 at 8,600 (During December 2009) - 65% Confidence

Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 - 14th March 2009

Now watch ! How this STEALTH bull market will consistently be recognised as just a bear market rally to sell into and NOT to accumulate into. All the way from 6,600 to 7,600 to 8,600 and even beyond, the move will be missed by most as consistently bearish rhetoric and data will ensure only the smart money accumulates, for the small investor has now become Conditioned to the Bear Market Rallies of 20% and subsequently plunges to fresh lows. Many, many months from now, with stocks up 30%, investors will then WAIT for THE BIG CORRECTION, THE RE-TEST to buy into the apparent BULL Market , Well these investors will still be waiting as stocks pass the 50% advance mark, AGAIN only those that will have profited are the hedge funds and fund investors (Smart Money) WHO HAVE BEEN ACCUMULATING , as I elaborate upon next.

In Summary - We have in all probability seen THE stocks bear market bottom at 6470, which is evident in the fact that few are taking the current rally seriously instead viewing it as an opportunity to SELL INTO , Which is exactly what the market manipulators and smart money desires. They do not want the small investors carrying heavy losses of the past 18 months to accumulate here, No they want the not so smart money to SELL into the rally so that more can accumulated at near rock bottom prices! Therefore watch for much more continuous commentary of HOW this is BEAR MARKET RALLY THAT IS TO BE SOLD INTO as the Stealth Bull Market gathers steam.

Stealth Stocks Bull Market, Sell in May and Go Away? - 26th April 2009

Conclusion - Immediate term conflicting analysis, will there be a continuing rally into early May or not ? Clearly early week will be weak and a lot now depends on whether the support of 7,800 holds, the 280 point gap between the last close and support should give the market plenty of swine flu room to breath, it is a tough call but after that early week wobble, I would go with a continuation into early May to set up for the main move which is for the significant correction that targets a decline of about 14% or Dow 7,500 from 8750. If 7800 fails early week that implies Dow 7,100. So just as the herd is starting to pile in the smart money will be positioning for a significant correction and importantly the move will be TRADEABLE, none of these 1 or 2 day falls that have suckered the bears in during the rally, but for a sustained down trend though swine flu may bring this forward to the start of the week. Note this is an interim update, my in depth analysis will attempt to more accurately map out the Dow swings of several months so make sure your subscribed to my always FREE newsletter to get this on the day of publication.

Vicious Stocks Stealth Bull Market Eats the Bears Alive!, What's Next? - 23rd July 2009

CONCLUSION - My earlier fears about a bull trap appear to be unfounded, the stock chart is talking that we are in a stocks bull market, and is suggestive of a trend higher towards a 2009 target of between 9750 and 10,000, with a high probability that we may get there before the end of October!. Key danger areas for this scenario are a. for the trend line to contain corrections, and b. that 8080, MUST HOLD.

The Crumbliest Flakiest Stocks Bull Market Never Tasted Before - 7th Sept 09

The target for the termination of the current phase of the bull market rally was between 9750 and 10,000. As mentioned above, I am not expecting an easy ride for the fifth wave as clearly it is an obvious pattern to interpret following waves 1,2,3,4. What does this mean ? Well wave 3 is screaming weakness, so that suggests a weak push higher rather than something that resembles wave 1.

Stocks Bull Market Correction Continues, U.S. Dollar Bears Running Out of Time? - 4th Oct 09

Stocks Bull Market Forecast Update Into Year End - 2nd Nov 09

There is nothing to suggest at this point in time that the stocks bull market is over which means that that corrections are for accumulating into, the overall trend is for stocks is to continue climbing a wall of worry whilst investors are scared by the vocal crash is coming crowd that will continue to re-write history to always be right in hindsight to again come out with more crash calls over the next few months as the Dow chart of the 1930's gets it's start / end date manipulated again so as to fit fresh crash calls.

The stocks bull market that has raged since the March low has fulfilled the original objective for a 50% advance, therefore upside for the next two months looks limited with greater risk of downside in the coming weeks though pending a break of the major support trendline which implies a rally in the immediate future. All in all this is suggestive of a downtrend towards 9,400 into Mid November with a year end rally to back above 10,000 targeting a rally high in the region of 10,350 to 10,500 during December.

Stock Market Santa Rally and Election Weapons of Mass Deception - 13th Dec 09

My concluding thought, we get the santa rally to a new 2009 high for the Dow into the last few days of December and then the market starts the significant correction, and I'll try and get my forecast for 2010 completed before it begins!

As for where I think the stock market is headed during 2010?

The analysis is underway and will culminate in final conclusions / forecast trends in the following sequence - Inflation, economy, interest rates, housing, stocks, other markets. To ensure you get analysis that money cannot buy, subscribe to my always FREE newsletter.

Source : http://www.marketoracle.co.uk/Article16062.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

This is the next in a series of articles as part of my unfolding inflationary mega-trend scenario that is an important stepping stone towards the formulation of a inflation forecast for 2010 and beyond. I am to complete the whole scenario and implications of before the end of December which will be published as an ebook that I will make available for FREE. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent analysis on the probable inflation mega-trend at http://www.walayatstreet.com

What is Deflation ?

en.wikipedia.org/wiki/Deflation

In economics, deflation is a decrease in the general price level of goods and services.[1] Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate), resulting in an increase in the real value of money – allowing one to buy more goods with the same amount of money. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when inflation decreases, but still remains positive).[2] As inflation reduces the real value of money over time, conversely, deflation increases the real value of money – the functional currency (and monetary unit of account) in a national or regional economy.

www.investopedia.com/terms/d/deflation.asp

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.
 

Deflation is the decrease of general prices in an economy. The most widely recognised measure of which is the Consumer Price Index (CPI), the composition of which aims to standardise the measure of prices of economies across the world to enable easier comparative analysis.

Unfortunately many analysts mistakenly pick and choose alternative measures against which to support their own point of views at a particular point of time. This pick and mix attitude to analysis is not just limited to deflationists, but inflationists also have been seen to seek propaganda over facts. Inflation or Deflation is not measured by comparing one asset value against another i.e. Comparing Gold Prices against House Prices. Whilst they may form PART of a deflationary or inflationary scenario, they ARE NOT AT THE CORE of Inflation or Deflation, so such arguments as if they represent Inflation or Deflation are NOT analysis but rather PROPOGANDA.

Now, whilst my Inflation mega-trend analysis is primarily focused on the UK economy for obvious reasons as that is where i reside, however the same could apply to the United States and most other Western developed economies.

UK Consumer Price Index (CPI)

The UK Consumer Price Index (CPI) clearly illustrates that all we saw from mid 2008 and into early 2009 was a minor deflationary corrective wave amidst an ocean of year on year inflation. Subsequent inflation has far surpassed the in-consequential deflation seen during 2008 and into early 2009. Therefore the facts are completely contrary to the headline grabbing mainstream press and blogosphere scare mongering of price deflation.

There has been NO SIGNIFINCANT DEFLATION, despite economic contraction of more than 5% GDP, despite Unemployment soaring to above 2.5 million, despite asset price destruction ranging from between 25% and 50% into the early 2009 lows. In fact the deflation that we witnessed is probably mostly due to the sharp drop in commodity prices such as Crude Oil's collapse from mid 2008 into early 2009.

What does this suggest?

It suggests that severe economic contraction, debt deleveraging and asset price destruction only succeeded in generating a minor corrective wave against the inflationary mega-trend, which therefore looks set to return with a vengeance over the coming years which my Inflation Mega-trend scenario analysis continues to conclude towards as the Government and the Bank of England as with other central banks is mistakenly continuing to be fixated with fighting deflation.

UK Retail Prices Index (RPI)

Whilst the CPI is the governments preferred measure of UK inflation i.e. because it is less volatile then its predecessor the RPI index, which is the more recognised measure of UK inflation by the people of Britain as it pre-dates the CPI by many decades.

The above graph shows that the RPI has experienced stronger deflation than that seen in CPI. However this is due to government intervention, specifically in forcing UK interest rates down to an artificially low rate of 0.5%, coupled with funneling near unlimited tax payer cash to the bailed out banks by means of quantitative easing, capital injections and bad debt loan insurance has created an artificial banking system that generates huge unprecedented profit margins for the banking industry for the purpose of the banks to rebuild their balance sheets, though as we have seen with bank bonuses this is not what the bankster's are actually doing instead choosing to pay out artificial profits as bonuses, which is tantamount to more fraud on the tax payer.

Basically the artificial banking system has forced mortgage costs artificially lower to enable the bankrupt bailed out zombie banks to survive, and it is this which is reflected in the RPI Index, accounting for much of the extended downtrend into early 2009 coinciding with the low in UK interest rates of 0.5% and the start of the bounce in UK house prices.

The subsequent trend looks set to complete the process of retracing the whole of the deflationary downdraft during the coming months as the RPI also confirms that the deflation of 2008-2009 was just a corrective wave amidst an ocean of inflation.

My UK inflation forecast for 2010 and beyond will be completed during the coming week which will aim to project the likely trend for both UK CPI and RPI, ensure you are subscribed to my always free newsletter to get this in your email box.

UK Inflation Forecast 2009

The Inflation mega-trend scenario is now starting to manifest itself in UK Inflation data for November which shows the Governments preferred measure CPI inflation surging higher to 1.9% up from 1.5% and RPI reversing October Deflation of -0.8% to now stand at Inflation of +0.3%.

Deflationary forces as a consequence of the the bursting of the asset bubbles has fulfilled the deflation forecast for 2009 as per the original analysis of December 2008 - UK CPI Inflation, RPI Deflation Forecast 2009 that forecast RPI Deflation into Mid 2009 targeting -1.2% and CPI Inflation of +0.9% to be followed by an uptrend into year end back into RPI inflation of +0.9% and CPI of +1.6% as illustrated by the below graph.

U.S. Consumer Price Index (CPI)

Just to make sure that the UK economy is not experiencing a case of freakanomics, here is the CPI inflation graph for the United States of the past 10 years.

Leaving aside the conspiracy theorists that say that real U.S. Inflation is at 7% rather than that of official data, U.S. CPI Inflation has followed a similar trend to UK RPI Inflation in that real deflation from mid 2008 into early 2009 has subsequently reverted back to the long-term inflationary trend. The U.S. CPI deflationary corrective wave was due to the exact same influences as that witnessed in UK RPI i.e. housing bear market and the commodity price crash (primarily crude oil).

However the graph does not support the deflationist argument that has in some cases been in existence for more than 10 years with a cluster following the dot com bubble bursting, following which time inflation has continued to erode the value of money at trend.

I need to remind readers again that the inflationary uptrend from early 2009 has been during a period of severe economic contraction and weak recovery, if we were in a deflationary environment then U.S. CPI should be either declining or flat-lining. Which suggests that if the U.S. Economy stagnates then the INFLATION trend will continue upwards, however should the U.S. economy surprise to the upside then the Inflation trend will accelerate even higher, either way there is NO DEFLATION at the present nor in the coming years which just leaves me shaking my head at Deflationists that continue conjuring deflationary outlooks that have little if any basis in the actual data.

Japan Deflation?

The only major economy that is said to have experienced general price deflation is Japan, but even there when we take a close look at this so called Japanese price deflation all I see is overall FLAT general prices i.e. neither inflation nor deflation. Therefore a worst case scenario for the Inflationary mega-trend would be along the lines of Japanese style outcome of flat prices over the next decade rather than REAL deflation.

The Illusion of Deflation

The corrective deflationary wave has suckered many, many analysts and perma academic economists into the deflation argument, perhaps rather than harking back to 1930's deflation the deflationists need to take a step back and look at big picture of the inflationary mega-trend. This is NOT the 1930's, unlike the 1930's the bankrupt banks are not being allowed to go bankrupt. Instead governments are hell bent on inflating their way out of the crisis which means even higher inflation, more so than trend inflation.

The flaw in the deflationists argument is staring them right in the face, in that during the 1930's the academic economists looked to the series of economic crisis following the Great War, and therefore their proposed actions resulted in the deflation of the 1930's. Whereas today's academic economists look to the 1930's as though it is a caste in stone road map of what is to follow, whereas it is the same academic economists that are feeding input into Governments of Deflation that surely will result in the contrary outcome, just as the deflation of the 1930's was contrary to the high inflation of the early 1920's.

In Britain at the time of writing the National Audit Office has declared that the British tax payer has assumed a liability of £850 billion as a consequence of bailing out the bankrupt banks. When a country effectively doubles its national debt within a year is that the sign of Deflation or nearer Zimbabwe style inflation? No i am not saying Britain is heading for hyper inflation but the trend is strongly in favour of inflation much more so than the illusory Deflation trend that is taken as fact when it only really exists in the ivory tower of academics.

The Markets Discount the Future

Whilst debt deleveraging continues in the present, however market participants should be reminded of the fact that the market discounts the future and not past or present!, Therefore the whole debt deleveraging scenario should be IGNORED, much as I voiced in March 2009 that the whole scenario of contracting corporate earnings should be IGNORED, in that is not what the market will discount next, In March my view was that stocks will discount a flood of liquidity and economic recovery ( 15th Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470) and has subsequently soared by as much as 60% during 2009. Now my analysis continues to converge towards the inflation mega-trend which the market will again start to discount well in advance of.

UK Interest Rates & Economy

The UK base interest rate is being kept artificially low so as to enable the bankrupt banks to rebuild their balance sheets by overcharging customers against the base interest rate and the interbank market rate of 0.59% as the real market interest rates have been in a steady climb since March 2009 which has increasingly meant that the base interest rate has become irrelevant to the retail market place as explained in the article - Bailed Out Banks Not Lending, Sitting on Tax Payers Cash.

The outlook remains for rising market interest rates charged to retail customers regardless of the base rate having been held at 0.5% into the end of the year, which is inflationary in terms of rising mortgage costs.

Savers Forced to Pay for Bankster Crimes

Savers are being hit by the double whammy of 1.9% Inflation plus the 20% tax on savings and therefore require a minimum interest rate in the order of 2.30% just for savings to keep pace with inflation and taxes. This is set against the tax payer bailed out banks such as the Halifax paying a pittance of just 0.1% on across the range accounts from current accounts to savings accounts with other mainstream institutions not far better, which is a consequence of bailout out the bankrupt banks that has resulted in an artificial market heavily skewed in favour of the bailed out bankrupt banks making huge profits so that tax payer capital injections can be repaid, in-effect the government giving free cash to the banks to enable the banks to repay capital for political reasons. In effect the Banks and the Labour Government are systematically stealing the value of Savings.

The situation is even worse for Cash ISA holders as the tax payer bailed out bankster's hit new depths of paying ISA holders typically 20% LESS than comparable accounts, therefore are defrauding Cash ISA holders of their tax free allowances.

Under a free market system the banks would be forced to raise interest rates paid to customers to entice savers, however in today's market the Treasury and the Bank of England fund the banks to the tune of liabilities of £1.5 trillion that has resulted in the countries liabilities doubling from £1.7 trillion at the end of 2007 to £3.4 trillion by the end of this year on route towards liabilities of £4.75 trillion.

Debt Fuelled Economic Recovery Heading for Double Dip Recession

The UK economy remains on track to bounce back into the 2010 election, as indicated by June's in depth analysis, however this economic recovery is based purely on debt as shown by the graph below, as the Labour government's strategy is to deliver the next Conservative government a scorched earth economy.

Alistair Darling's forecast for government net borrowing for 2009 and 2010 in November 2008 totaled just £70 billion. However, since the amount of projected borrowing has mushroomed to £350 billion, which is set against my November forecast of £405 billion for 2009 and 2010 alone, with continuing subsequent large budget deficits thereafter of well above £100 billion a year.

Whilst many economists were surprised by Alistair Darling's April forecast that the UK Economy would grow by 1.25% in 2010 and 3.5% in 2011. However we need to consider the following in that 1.25% growth on the annual GDP of £1.2 trillion equates to growth of just £15 billion and for 2011; 3.5% growth equates to just £42 billion. Therefore the government is borrowing a net £175 billion for 2009 and £175 billion for 2010 to generate £15 billion of growth, and then a further £140 billion for 2011 for £42 billion of growth. Thus total net borrowing of £490 billion to grow the economy by just £67 billion, (£595 billion my forecast) which shows the magnitude of the scorched earth economic policy now implemented that literally aims to hand the next Conservative government a bankrupted economy that will be lumbered with the consequences of continuing huge budget deficits and therefore necessary deep cuts in public spending.

Bankrupting Britain Debt and Liabilities

The total liabilities as a consequence of bailing out the bankrupt banks and debt fuelled economic recovery remains on target of £4.75 trillion by the end of 2013/14, which confirms that Britain remains firmly on the path of a probable decade of economic stagnation coupled with high inflation i.e. stagflation.

For more on my inflationary mega-trend ensure your subscribed to my always free newsletter, especially as I converge towards including major forecasts for all key markets for 2010. I.e. what will become of the stocks stealth bull market that has soared during 2009 ? What about the debt fuelled UK housing market and economic bounce.

Are GLD and SLV ETF's Good Proxies for Gold and Silver Bullion Investing?

My recent analysis on Natural Gas and UNG ETF (22 Nov 2009 - Natural Gas Screaming Long-term Inflation Mega-trend Buy, But UNG...) concluded:

The second chart illustrates that there exists a perpetual tendency for the ETF to under perform the futures over time, which deploys a similar trick to the Leveraged ETF's in utilising % of daily movements. What this means is that UNG IS NOT A GOOD LONG-TERM INVESTMENT ! If you invest in UNG, you have to get your timing right, else TIME will erode the value of your investment even if Natural Gas DOUBLES in price! However on top of this we have PROFITS which are SKIMMED from investors as indicated by UNG that FAILS to rise when the Natural Gas price goes up!

This analysis continues the study of the price trend relationship between Gold : GLD and Silver : SLV as part of the inflationary mega-trend investing as the following graphs illustrate:

Both graphs show that during the past 3 years and at the present time, the spot prices of Gold and Silver are highly correlated in terms of trend with their GLD and SLV ETF equivalents for a similar period of time.

ETF Expenses

Investors should note that both GLD and SLV ETF's deduct annual expense ratio's of 0.4% for GLD and 0.5% for SLV which over time will erode the value of the funds and result in a significant discount to the spot price for investments spanning several decades, though it should also be noted that the expense ratios compare favourably to the fees charged for bullion storage that can amount to more than 1% per annum. For instance Gold is up approx 20% over the past 12 months, against the expense ratio of 0.4%, therefore is not of any real significance for medium term investments (upto 5 years).

ETF Risks

I understand that a number of rumours are doing the rounds during the past few weeks of potentially 1.4 million fake tungsten gold bars in existence, of which many form part of the GLD ETF holding.

However the GOLD:GLD price trend relationship suggests that there is no substance to these rumour's for if these rumours were true then GLD would be trading at a significant discount to the spot Gold price. Though that it is not to say that some future event may bring about such a large discount.

Leaving aside the risk of fake gold, there is also the risk of that during a currency crisis the U.S. Government seizing the Gold held in New York, maybe if it were disbursed across several vaults in several countries this would ensure greater security. Other risks exist as with all ETF's i.e. that of the risk of theft and fraud.

Though as I have pointed out earlier, if in the future a problem with the GLD and SLV did start to occur, we would see it manifest itself in the spread between GLD and Gold, as the smart money would start to exit the fund first.

Recent articles on the unfolding inflationary MEGA-TREND outlook include :

• 03 Dec 2009 - Britain's Inflationary Debt Spiral as Bank of England Keeps Expanding Quantitative Easing
• 22 Nov 2009 - Natural Gas Screaming Long-term Inflation Mega-trend Buy, But UNG...
• 19 Nov 2009 - UK Budget Deficit Could Hit £200 Billion, 18% of GDP
• 18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend
• 01 Nov 2009 - Gold Bull Market Forecast 2009, 2010 Update

Source: http://www.marketoracle.co.uk/Article15836.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

This is the next in a series of articles as part of my inflation mega-trend scenario that I am in the process of writing up to complete before the end of December and to finally publish as an ebook that I will make available for free. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent articles on the inflation mega-trend at walaytstreet.com

UK Debt Crisis Deepens as Government Plans to Borrow Another £510 billion

The Labour government announced in the recent Queens speech with much fanfare a LAW to halve the public sector net deficit over the next 4 years. Lets leave aside for the moment that the Labour party is confusing calling an objective a law for purely political electioneering purposes in an attempt to place a burden around the next Conservative governments neck. The objective of the Law is to halve the deficit and NOT to pay down the total accumulating debt. What this amounts to is that the annual budget deficit of approx £185 billion for 2009/10 being halved to an annual deficit of approx £93 billion by 2013/14 which suggests Britians National debt is expected to increase by a further £510 billion to an approximate total of £1,300 trillion or 100% of GDP by 2013/14.

The below graph illustrates the updated Government projection for the annual Public Sector Net annual deficit against Alistair Darlings November 08 and April 09 targets, as well as my original estimate of November 2008 (Bankrupt Britain Trending Towards Hyper-Inflation? ) that remain unchanged.

The target PSND of £1,300 trillion would approximately equate to 100% of GDP by 2013/14. This is against my original target as of November 2008 of £1.48 trillion by the end of 2003/14 at a projected 114% of GDP.

Therefore there is nothing announced in the governments targets nor any change in economic circumstances that warrants amending the total liabilities target of £4.75 trillion by the end of 2013/14, which confirms that Britain remains firmly on the path of a probable decade of economic stagnation coupled with high inflation i.e. stagflation.

However the problem for Britain is that whilst the British economy stagnates, many of the other world economies will not stagnate but grow thus forcing up the price of commodities, goods and services and hence result in higher inflationary pressures. Which therefore implies that the budget deficit will be widen further as public spending will need to be higher in an attempt to counter loss of purchasing power of the currency. A higher budget deficit would require higher interest rates and therefore more monetization of government debt which confirms the vicious inflationary debt spiral cycle. The only true answer to escape this viscous inflationary cycle is to get a firm grip on the budget deficit in the immediate future, the longer we leave the debt to grow the more difficult it will become to deal with.

Setting a target of halving the budget deficit over the next 4 years is not going save the economy from stagflation as by the end of this period Britain will still owe far more than it does today so actually be in a far worse budgetary and probable economic state in real-terms.

Quantitative Easing Necessary to Monetize Debt

The Bank of England embarked upon a programme of printing money or Quantitative Easing during March 2009 with an initial print run of £75 billion of a total set at £150 billion in an attempt to wave the central bank magic wand to increase the supply of credit. However as I warned at the time (5th March 2009: Bank of England Ignites Quantitative Inflation) that once started the Bank of England would continue printing money right into the May 2010 General Election targeting an print run of as much as £450 billion and therefore igniting Quantitative Inflation during 2010.

Virtually all of the mainstream press swallowed the Bank of England's hints and winks that Quantitative Easing had ended at £125 billion during the summer months, which at the time I stated was not possible (8th July 2009: Irrelevant UK Base Interest Rate on Hold as Real Rates have Already Begun to Rise)

This confirms my view that the Bank of England will continue printing money into year end to beyond the current arrangement of £150 billion and probably as high as £250 billion.

I projected a Quantitative Easing total towards £250 billion by the end of 2009 with the current tally now standing at £200 billion of money printed which is to mainly buy government bonds issued as a consequence of the huge budget deficit that the Labour government will rack up by the end of this year that projects to £175 according to Alistair Darling which is up from his earlier projection of £38 billion in November 2008 as a consequence of the Labour Government's objective of aiming to both aiming to maximise the number of seats retained at the next General Election as well as to deliver a scorched earth economy to the next Conservative Government. Quantitative Easing is critical for the purpose of monetizing government debt for without it UK long dated interest rates would have to be much higher as a consequence of lack of demand for the huge amount of new debt issued.

The debt outlook for subsequent years remains bleak with budget deficits expected to continue for many years as Alistair Darling's own forecast for government net borrowing over the next 4 years has grown from a deficit of £120 billion in November 2008 to £608 billion as of the budget, which is still below my forecast total of £735 billion and therefore the expectation remains for further revisions to the upside over the coming years. This confirms my view that the Bank of England will just continue printing money regardless which on face value is both inflationary and supportive of the economic bounce in the immediate future, both coupled together i.e. economic bounce and money printing imply a surge in UK inflation is only just around the corner.

Britain's Debt Spiral Ensures Quantitative Easing Will Continue

Quantitative Easing now totals £200 billion which equates to about 15% of GDP which compares against U.S. Q.E. at approx 5% of GDP which illustrates that Britain is further on the path towards higher relative inflation than most major economies and therefore targeting a weaker exchange rate despite competitive devaluation.

The Bank of England will not stop printing money whilst huge budget deficits persist that will not be borne but he open market which would demand much higher interest rates. As the total national debt grows then so will the interest payments demanded to service this debt which means that the deficits will expand further which means even more money printing. Back in 2007 public sector net debt was about £534 billion which demanded interest payments of about £24 billion, now it is over £1 trillion demanding about £36 billion in annual interest payments. However as the government is eventually forced to raise interest rates by the market then so will the debt burden grow both as a consequence of the higher rates and higher next public debt that in 4 years time could demand annual interest payments as high as £100 billion per annum. Therefore Britain HAS entered into a vicious money printing cycle towards much higher inflation than we have experienced during the past 10 years where even if the economy grows increasing tax receipts will not be able to bridge the ever growing gap between income and expenditure including ever higher interest payments hence the perpetual debt spiral.

The implications of the debt spiral should be seen in the currency markets which does not bode well for a stable exchange rate, off course as mentioned earlier competitive devaluations as a consequence of other countries also to varying degrees immersed in their own debt spirals suggests that the real impact will be seen in inflation data and fiat currency alternatives such as GOLD.

Money Printing to Monetize Debt.

The Bank of England recently week announced that it would conjure another £25 billion out of thin air bringing the print run to a total of £200 billion that has a money supply multiplier effect through fractional reserve banking of approx £600 billion, normally this would be X20 to X40 but the Taxpayer bailed out bankrupt banks are just sitting on the cash hence the multiplier is much lower at this point in time, that and the fact that the bulk of the money is being used to monetize Government debt. In response to this Mervyn King has threatened negative short-term interest rates to force the banks to lend.

Money Printing Only Solution to Debt Financing

Without Quantitative Easing the Gilt auctions would fail as there is no way the market can swallow near £200 billion of new debt per annum or 15% of GDP, add to this maturing debt that needs to be rolled over which means that there is no end in sight to Bank of England money printing in ever escalating amounts to keep monetizing the debt. So again no matter what the Bank of England states about bringing Q.E. to an end, it is just not possible given the debt fundamentals to do so as we will see today's £200 billion extended to £250 billion then £300 billion onwards and upwards to eventually £500 billion or more than 40% of GDP.

Bankrupt Governments Following Bankrupt Banks into Debt Defaults and Bailouts

Last weeks major market event came late in the week whilst American's took the day off on Thursday for Thanksgiving, Dubai declared that it will be freezing repayments for at least 6 months on part of its approx $90 billion or so of visible debt at the state run Dubai World company ($20 billion). The ratings agencies responded by cutting the ratings on Dubai bonds to junk status.

Whilst the consequences of Dubai's debt fuelled real-estate boom and subsequent bust should not come as any surprise, however oil rich Abu Dhabi coming to its own inevitable shock realisation that it just cannot afford to keep footing bailout bill after bailout bill for their buddies just a few sand dunes away which triggered the market reaction as the consensus expectation had been that they would. However this is not September 2008 and Dubai Worlds debt freeze / default is not on anywhere near the scale to that of Lehman's bankruptcy so the perma-crash is coming NOW crowd were AGAIN disappointed, just as they have been on EVERY stocks correction during the past 9 months!

Analysts for the more mainstream agencies such as Routers called the news out of Dubai a black swan event (A black swan in the desert), well to the mainstream press these days virtually everything is now a black swan! I assume Nassim Taleb never meant for events such as Dubai's debt freeze to be termed as a Black Swan? After all the whole point of the black swan theory is to suggest that black swan's are rare and totally unexpected events, i.e. along the likes of Arch Duke Ferdinand's assassination triggering World War 1, and not one of the the dozen or so in-debted teetering on the brink economies eventually going pop !

I mean there is a long trail of suspect economies dating back to September 2008 when Iceland first went pop, with a dozen or so contenders other than Dubai including Ireland, Venezuela, Argentina, Greece, Portugal, Spain, the whole eastern block and not forgetting Britain! Its only a matter of time before another country goes pop, which one could be next ? Well going by the credit default swap risk prices on sovereign debt, Venezuela tops the list, though closer to home I would definitely be wary of Greek stocks and bonds! the safest in terms of default risk are France and Germany which by and large missed out in the debt fuelled boom.

I specifically warned about Dubai back in March 2009 that the 22% drop in property values at the time where not even half way there, that projected to something along the lines of an average drop of 50%. Where are we today ? You guessed it average property prices in Dubai are now 50% lower than the peak! Which says a lot for the so called Dubai property experts back in March who were calling a bottom for Dubai property prices, though if one took an look under the bonnet one would see that these 'experts' had a vested interest in rising prices! Much as we saw with our very own soon to be bailed out mortgage banks in the UK such as HBOS which pumped out soft landing propaganda during 2007 and first half of 2008, which I repeatedly ridiculed as utter gobbledygook.

March 2008 - UK House Prices Tumbling- Interest Rate Conundrum

Britains biggest mortgage bank also gave a positive spin on UK House prices in March 08, the Halifax's Chief Economist continued to suggest that there will be no fall in UK house prices this year. - "strong underlying fundamentals will continue to support the market throughout 2008". "Over the past year, the average price of a home in the UK has increased by £4,390 to £196,649," he commented. "Whilst the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices,".

My earlier analysis of February 2008 illustrated why it was impossible for UK house prices to avoid going negative in April 08, not only that but even if house prices stabilised and no longer fell, that the property market would still be heading for a sharp year on year fall for the quarter April to June 2008, which the media would eventually term as a mini-crash for the UK property market as the below table from the February article illustrates.

8th March 2009 - Dubai Property Market Crash

A warning to those investors being swayed, the Dubai property crash has only just begun which seeks to correct a 6 year property boom. The Dubai construction boom is expected to come to an imminent halt with many partially finished projects littering the landscape as investors walk away from the off plan deposits in the wake of the ongoing crash in property values. It remains to be seen how much of this excess supply will eventually be reclaimed by the desert as many foreign investors in off plan Spanish properties are painfully experiencing. My expectations are for an average 50% retracement in Dubai property prices from the peak, with many of the more over-leveraged high end properties possibly crashing by as much as 75%.

So where next for the Dubai property market? Well the crash is NOT over, we are in free fall territory towards a 75% drop! Maybe the worst case scenario may yet come true i.e of the desert reclaiming large chunks of abandoned developments?

The Dubai debt crisis gave plenty of skin deep copy text for deflationists to continue betting on another imminent Market Collapse, that FAILED to materialise Friday! However to interpret what is probably likely to follow one needs to peel away several layers than opt for the obvious i.e. debt deleveraging deflation, as I continue to develop the inflationary mega-trend over the coming weeks as a consequence of ever greater money printing in the face of escalating debt burdens that ensure INFLATION. Your money will be worth significantly LESS as a consequence of Money Printing! The Deflationists Advocate the WORST solution of cash being King. Stocks are Up more than 50% since March, Gold is up more than 25% over the past year, does this sound like cash is king to you?

My good Deflationist buddy, Mike Shedlock questioned my inflationary logic earlier in the week to which I replied here - Mike Shedlock, a Deflationist Lashing Out at Nouveau Inflationists?

Don't get me wrong, to be of a deflationary mind set from mid 2008 and into March 2009 was correct, but being stuck there for the past 9 months is tantamount to giving up Most of not ALL of any gains for being right during the DEFLATIONARY downdraft, which my analysis has concluded was a temporary corrective wave in a ocean of inflation. Will we have more deflationary corrections ? Off course we will (great buying opportunities!), Will they be as severe as 2008/09? No Chance! How will one protect ones wealth and make money ? By gearing towards accumulating towards higher overall inflation and its consequences which I will continue to elaborate upon during the coming weeks.

Britain at the Core of the Dubai Property Bubble

Out of the $80 billion or so of Dubai debt at risk of default, some $50 billion of that is with UK banks or near 66%! Why ? Because it is symptom of the spread do the British disease of blowing property bubbles that eventually burst. As UK house prices reached to the stratosphere during 2005 to 2007, British speculators of all sizes spread their wings further a field across Europe (East and West), across the Atlantic (Florida) and Across the Middle east into Dubai, where the smaller the local market and less regulated the greater the subsequent boom and hence the greater the subsequent bust. What does this mean ? It means as property induced bubbles continue to explode right across the world, the impact of them will be even greater on Britain than the local economies, as UK government will once more have to step forward to bailout bankrupting UK banks, failing that to provide teetering on the brink banks with ever greater amounts of liquidity in an attempt to kick start lending.

Higher UK Interest Rates Are Inevitable

Regardless of the objective of the Bank of England to KEEP UK interest rates at ZERO for the foreseeable future, the fact is that the growing government debt issuance and despite monetization of the debt via money printing which has the effect of driving sterling lower is that the market will eventually FORCE the Bank of England to RAISE interest rates, i.e. gradually we will see the Government losing control over the levers of power as the market will not stand to watch losses mount on government bonds as inflation statistics respond to the real world increase in commodity prices. My interest rate forecast for 2010 will expand on this, ensure you are subscribed to my newsletter to get this in your email box.

Declaration of War on Savers

The people of Britain are being hoodwinked by the politicians and inept mainstream media into thinking that money printing is a free lunch, there is no such thing as a free lunch, printing hundreds of billions out of thin air is akin to running a fiat currency ponzi scheme, the price of which is paid by the holders of existing currency i.e. investors, bond holders and savers who are hit by the double whammy of -

a. Artificially low interest rates of 0.5% which results in NEGATIVE REAL INTEREST Rates, increasingly so as I expect inflation to rise considerably as part of the inflation mega-trend.

b. The devaluing currency as the money supply increases well beyond that of the average of the past 10 years. Again don't be fooled by the British Pound holding steady against other fiat currencies as all of the worlds central banks are engaged in their own ponzi schemes aimed at defrauding exiting currency holders of their real value.

Ever escalating money printing is a silent declaration of war on the value of every British citizens hard earned current wage and accumulated savings. All prudent savers are suffering in terms of the loss of quality of life as interest rates have been slashed in many cases to less than 0.5%, making life time accrued savings of more than £100,000 worthless in terms of income generation with worse to come as money printing seeks to stealthily destroy the capital value as well.

Inflationary Consequences of Escalating Debt and Money Printing

The consequences are INFLATIONARY, inflation means RISING CONSUMER PRICES which in the UK means rising RPI and CPI indices. Inflation rises as more fiat currency chases a limited supply of commodities, goods and services, more so in a stagnating economy which over time sees diminishing output, it is only that in the present that the consequences of debt deleveraging is MASKING the building inflationary forces that will let rip with a vengeance which we are already witnessing in the commodities markets as many markets such as gold and crude oil have doubled from the Post September 2008 lows.

Recent articles on my inflationary MEGA-TREND outlook include :

• 22 Nov 2009 - Natural Gas Screaming Long-term Inflation Mega-trend Buy, But UNG...
• 19 Nov 2009 - UK Budget Deficit Could Hit £200 Billion, 18% of GDP
• 18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend
• 01 Nov 2009 - Gold Bull Market Forecast 2009, 2010 Update

For more on my inflationary mega-trend ensure your subscribed to my always free newsletter, especially as I converge towards including major forecasts for all key markets for 2010. I.e. what will become of the stocks stealth bull market that has soared during 2009 ? What about the debt fuelled UK housing market and economic bounce.

Your mega-trends investing analyst

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Whist most commodities have soared during the year, however Natural Gas has been one of the few commodities lagging behind and therefore may present an opportunity to scale in at rock bottom prices for the Long-run as have mentioned several times during the divergence between Crude Oil and Natural Gas over the summer months.

Do You Wish You Had Bought Crude Oil at $35 ? Stocks at Dow 6600 ? Gold at $700 ?

Much as past great market opportunities, at the low no one wants to buy for a multitude of reasons. However taking a look at the long-term charts, you do not have to be a genius to arrive at the conclusion that Natural Gas is cheap, the only way a future Natural Gas spike to the upper ranges of many multiples of the current price is not possible is if Natural Gas suddenly became an redundant energy resource, which given that it is a far cleaner form of energy than other fossil fuels seems extremely improbable!

Remember Natural gas is not a stock therefore its not going to go out of business to ZERO, nor is it likely to be displaced from the market place by new technology during the next decade at least.

Natural Gas Fundamentals

High prices bring on stream new supply, low prices bring about reduction in supply and investment, the longer Natural Gas trades at higher prices the greater will be the eventual new supply and subsequent crash in prices. The longer Natural gas trades at ultra low prices the less the forward supply investment and thus the greater will be the eventual spike higher in Natural Gas prices. What this suggests is the best type of price action for commodities is that of highly volatile highs and lows where sustained trends tend to resolve to extraordinary spikes in the opposite direction. The current Natural Gas price trend has been that of a sustained downtrend, which is primed to resolve to much higher prices to eventually more than the normal range. Off course this would also require Natural Gas position holders to ensure they are ready to distribute INTO such a spike else like many novice investors they may end up giving back most of the gains on the way down!

Natural Gas is CLEAN ENERGY

Natural gas is the dream fossil fuel of global warming proponents, as it is by far the cleanest of the three major fossil fuels of gas, oil and coal. Developed countries could cut their electricity generation green house gasses by at least 33%by making he switch to natural gas, whilst at the same time saving money.

Natural Gas in Dollars

Natural Gas price range is typically between $9 and $6. Last close was at $4.66. Natural Gas is in short-term downtrend therefore suggesting lower immediate term natural gas prices. The price collapse form $13.7 to a low of $2.62 in September resulted in a powerful bounce to 5.83 that now brings Natural gas to its present day downtrend at a much shallower velocity than the preceding uptrend, Natural Gas. However Natural Gas HAS given a Buy Signal and therefore now targets a higher low (than the Sept low). Once the higher low is in then that will mark a strong stepping board for a sharp rally higher to significantly above the September peak taking Natural Gas into the Normal range, in the meantime my opinion is that of a great long-term accumulation opportunity with Natural Gas trading below the normal range.

Natural Gas in Sterling

Sterling (GBP) Natural Gas is exhibiting a similar trend suggesting that sterling's trend is not an important factor given the magnitude of natural gas price movements i.e. the near doubling of price from 0.016 to 0.035 during September and the fallback now to 0.028.

Natural Gas - Crude Oil Relationship

The Natural price collapse is most evident when compared against crude oil which saw the relationship drop to levels not seen in over 10 years, even after the recent September bounce the Natural Gas is still trading at near 10 year lows. Natural Gas has the potential to play catchup to Crude Oil in the order of 300%. I.e. even if Crude oil does rally any further, Natural Gas could triple in price.

UNG ETF Performance Relative to the Natural Gas Price

Now we come to the crunch point, having identified Natural Gas as being at an opportune level to accumulate into are the Natural Gas ETF's of which UNG is the most widely followed actually going to make us any money or not ? After all many an investor has dived blindly into ETF's on the suggestion of mainstream media hacks that rarely invest their own money on their commentaries to only find that they have lost money rather than made money which is especially true with regards Leveraged ETF's that should be ALWAYS AVOIDED AT ALL COSTS !

Back to UNG - The following charts UNG and the UNG / Natural GAS relationship.

I have highlighted two areas that are suggestive of caution on the first chart. One in mid 2007 and second following the September spike. What we are witnessing is serious divergence between the Natural gas price and UNG, that is NOT subsequently resolved. Natural Gas gave a solid buy trigger in September, there was NO SUCH buy trigger on UNG, Natural Gas is making a significantly higher low, UNG is trading at fresh lows ! Those that bought Natural Gas Futures in early September would be sitting on a profit of 76%. Those that bought UNG are sitting on a LOSS! Is this like a SCAM or what ? Make your own minds up!

The second chart illustrates that there exists a perpetual tendency for the ETF to under perform the futures over time, which deploys a similar trick to the Leveraged ETF's in utilising % of daily movements. What this means is that UNG IS NOT A GOOD LONG-TERM INVESTMENT ! If you invest in UNG, you have to get your timing right, else TIME will erode the value of your investment even if Natural Gas DOUBLES in price! However on top of this we have PROFITS which are SKIMMED from investors as indicated by UNG that FAILS to rise when the Natural Gas price goes up!

The UNG website states -

The investment objective of UNG is for the changes in percentage terms of the units’ net asset value to reflect the changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire, less UNG's expenses.

What a Load of B. S.! As always, the chart tells the REAL truth of what REALLY HAPPENS!

Okay don't get all disheartened after having been built up towards a Natural Gas position. What this means is that you can expect between 40% and 70% of any Gain in the Natural Gas price to be skimmed off of ETF investors. Would Natural Gas rising to $13 result in UNG trading anywhere near 63.89 ? I doubt it. More likely Natural gas of $13 would equate to UNG price level of anywhere between 25 and 47. Though more probably in the region of 37 i.e. the expectation is to enjoy approx 50% of the gain in your ETF than that of Natural Gas futures.

Therefore whilst investing in ETF's can yield a profit (of sorts), however unlike much of the hype surrounding them, they are NOT the one stop shop for investors, so there is no excuse for not doing your own home work in identifying individual stocks that could benefit hugely from a rise in the Natural Gas price, and again DO NOT EVEN THINK ABOUT Investing in LEVERAGED ETF's.

INVESTING LESSON - Before you invest a single penny in any ETF, make sure you check its performance against the underlying market, better to find out the truth now then wake up one morning to find that you have not made any money whilst the underlying security soared in price! Unfortunately many and I truly mean many analysts FAIL to perform this exercise after having performed analysis of the underlying market then jump straight into recommend an ETF. I don't want excuses or explanations of why the expected return never materialised. I want an investment to do what it implies it is going to do rather than draw on small print to explain why investors have been hoodwinked into generating profits only for the fund managers!

ETF's increasingly remind me of the Guaranteed Equity Bonds of 10 years ago that were designed only to make the issuers money and nothing for the investors But sold as sure thing big profit investments!

Natural Gas Conclusion

Yes you missed the September low, but the recent correction gives you another bite at the cherry AFTER the initial trend change buy trigger has already occurred. I.e. the risk of a loss is far lower now than accumulating before the September buy trigger occurred. Now I am NOT saying that Natural Gas is going to rocket higher in the coming days or weeks, but what i am saying is that it is not unreasonable to assume that Natural Gas will spike higher at some point during the next 1-2 years that would lift Natural Gas to at least $13 from the present $4.66. Especially as many commodities are busting OUT of their upper ranges which could conclude in an eventual spike significantly higher than $13. As for the UNG ETF? Khoick Phuhh.

This is part of a New series on the INFLATIONARY outlook, ensure your subscribed to my always free newsletter to get access to full the scenario on completion as well as the many implications in your in box it will be one of my seminal pieces much as The Stocks Stealth Bull Market Scenario of March 09 and Crude Oil Top of July 08, or the UK Housing Market August 07 Top and Bear Market were before it amongst many others.

Financial Market Forecasts Quick Update

November 1st's in depth analysis (Stocks, Dollar and Gold Bull Markets Inter-market Analysis) gave updated projections for key markets into the end of 2009 and early 2010 as summarised below:

Gold Targeting $1200 by March 2010, $1350 2010.: $1,150 ($1,046) + 10%

Gold soared and silver played catchup. The target for March is $1200 the current price of $1,150 is well ahead of schedule, on face value this either signals some sort of impending currency crisis, or more probably Gold is short-term overbought and due a correction back through $1,100.

Dow Targeting 10,350 to 10,500 During December 2009 :10,437 (9,712) + 7.5% target achieved.

The Dow hit the mid target range of 10,425 and started a 'normal' correction that continues to target 9950 to 9900 (as per last weekends newsletter).

USD Targeting 84 during December 2009 : 75.61 (76.36) - 1%

The U.S. Dollar eeked out a small gain for the week as it continues to attempt to build a base at 75, with the nearest buy trigger remaining at 77.00.

Source:http://www.marketoracle.co.uk/Article15238.html

Your Natural Gas Investing Inflation Mega-trend Analyst.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.