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Mike Lathigee
E C O N O M Y A N A LY S T

Contents
1 Introduction and
Background

2 I Was Wrong 3 The Real Facts 4 The Current Ination 5 The Real Numbers 6 Recent History 7 So What Am I Doing... 8 Let Me Prove It To You 9 The Currencies 10 Universities plus Obama 11 Food Riots? Mass Chaos?

THE PARTY IS OVER...

LATER 2014 WILL BE BAD AND 2015 WILL SEE A TOTAL WIPEOUT!
Thursday, January 23rd, 2014

I have not written a newsletter in more than two years but at this stage, I felt that it is essential that I communicate what will unfold over the next 24 months and what you can do to protect yourself.

here are several situations that could unfold in 2014 and 2015. Things could continue along with a positive outcome however, I wanted to write this month what I see happening in a worst case scenario. We could continue with a stock market rally and housing recovery over the next 2 years but I felt it was my responsibility to allow you to ponder on what can potentially occur. Although I believe the occurrence below has a high probability of occurring by the end of 2015 there are still additional games the Feds could play that could further delay what I believe to be the inevitable outcome below.

Background:
I certainly do not have a 100% track record in my predictions. Here are my major predictions in the past:

Gold: In 2001, I predicted gold to escalate and

for us to see a commodities boom. I wrote in countless newsletters to overweight up to 20% of your portfolio in gold. I did this at a time when traditionalists still discussed a weighting of only 2% in gold as a hedge, and I took much criticism. My guidance and timing were perfect and gold ran from under $300 an ounce to well into four digits.

Uranium: In 2003, I discussed the supply and

demand imbalance of uranium. Given the fact the vast majority of uranium mines were shut down, and it would take years to reopen, I urged investors to get positioned at under $10 a pound and buy a basket of uranium stocks. The price surged from $7.10 a pound to over $120 a pound. The gains on uranium stocks were in the 1000s of percentage points.

e have entered 2014 after a surge in the stock market to unprecedented levels. The wealth creation, for the most part, was enjoyed mainly by the already wealthy, and I believe that the later part of 2014 and 2015 are shaping up for an ugly unravel.

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Oil: In 2001 after several visits to China and

seeing China move from an agrarian society to a capitalist powerhouse; I was convinced China would move from an oil exporter to an oil importer. This would have a profound upward movement on oil prices. In addition, all the cheap oil was gone and oil recovery on new fields would be much more expensive, which would also cause higher oil prices. For this reason, I wrote extensively that investors should overweight their portfolio in oil. The conclusions proved to be all correct as oil increased 400% in the next five years and has hovered in the $85 to $100 range for the last three years.

I WAS WRONG. In 2008 after the collapse of

Lehman Brothers, TD Bank called the $20 million line of credit from the company I oversaw as CEO, even though all payments were current. It was a harsh uncalled-for move that I did not expect. To see the story, go to YouTube and type Michael Lathigee Writes Letter of Complaint to TD Bank. Please write a comment, as many investors were hurt from this needless action by TD Bank. So I want to say that the thoughts that follow are my opinion and in no way are they guaranteed to happen, but after going two years without writing a newsletter, I feel compelled to express what I really see happening and hope it serves as a protection for yourself. The Feds talk about an improving economy. Lower unemployment rates, earnings growth, and the stock market rally are examples they cite for a return to glory days but the facts are missing. I felt the easiest way to write this letter was to overwhelm you with facts on what is really happening and let you draw your own conclusions. The mainstream media like CNN, FOX, CNBC, etc. is owned by special-interest groups that control everything you see and filter it in a manner that manipulates how you react. The true facts are never really brought to your attention in an organized manner that presents the whole picture.

So I want to say that the thoughts that follow are my opinion and in no way are they guaranteed to happen...

Sub Prime Mortgage Crisis: I definitely

called this one wrong. The American Banks were providing no document, no credit loans and packaging these debts as AAA debt for resale. It was a catastrophic event that was inevitable. However, at the time I was living in Canada and overseeing a large development project in Edmonton, Alberta. I told investors, that although I was concerned about the American Banks and the blow up, I did not see Canadian Banks taking extreme action and tightening. The reason is they were much more conservative in their lending practices and still followed traditional lending models.

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L
The reality is Wall Street got Rich, and Main Street got poorer. Why? It is simple...

ets face it, when there are so many important issues around the world happening, why do we have to endure countless hours of the George Zimmerman Trial or the Jodi Arias Trial. The reason is the press deflects your attention away from what are the real issues today. I get appalled when I see thousands marching and chanting things like hang Zimmerman when they dont realize they are just pawns for exactly how the powers in charge want to divert your attention.

These companies that have massive stores of cash in the bank, then borrowed money at very low rates and started to buy back shares. This would cause shares to be retired from corporate treasury and stock prices to rise. In fact, the 300 richest Americans gained over $500 billion in net worth in 2013. Sadly, this party was only enjoyed by the ultra wealthy as Main Street could still not secure a loan from a bank. In addition, this use of capital buy backs, creates no jobs and does not build infrastructure, which really is what is needed. This was not the best use of Fed Funds but the Fat Cat Bankers and ultra wealthy thought it was the best luck they had ever had. My stomach turned as companies with no profits, and no profits for the foreseeable future, hit outlandish valuations.

So here are the real facts of what I see happening.

n 2013, stocks went up no matter what happened. If there was good news in the economy stocks went up. If there was bad news, stocks went up because investors knew the feds would continue to flood the market with liquidity. The reality is Wall Street got Rich, and Main Street got poorer. Why? It is simple. The S&P 500 which is 500 of Americas largest companies have almost $2 trillion in the bank. When the Feds bought 10 year and other longer-term treasury bonds, it forced down interest rates to decades low rates.

witter is a seven-year-old company that has not ever made a single dollar in profit and has a valuation of more than $40 billion dollars. In fact, it lost $64 million last quarter alone and the stock surged on the news. More concerning is the fact that traders and investors are trading at a level of margin never

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before seen. In other words, people have been borrowing huge amounts of money to buy stocks.

I estimate with the printing of more and more money, inflation is really at 8%. That is a number you never hear communicated by the media

y conclusion is this entire situation will not end well. Once the Feds stop their buy back program, and interest rates start to climb above 3%, then 4%, then 5%, we are going to see an exodus out of stocks and a collapse that will make the 2008 Great Recession look like a bump on the road. In addition, stock valuations in many cases trade on their earnings. As Marco Mavens website points out of the approximately $530 billion in corporate earnings growth since the market bottom in 2009, $320 billion of that was due solely to lower interest costs for companies. As you will read later I believe rates will go much higher and another reason for downward pressure on the stock market. Americans have to feel outraged at what is happening. Every dollar the Feds borrow has to be paid back. The U.S. National Debt is sitting at about $10 trillion dollars and more and more of our tax dollars are used to pay the debt. If state and municipal debt are factored in, the total debt of the government is closer to $20 trillion. You say, but the government cant go bankrupt? Yeah right... look at Detroit!!

What happens if interest rates hit 8% or 12%, then what? That would mean almost every tax dollar would be used to pay debt and there would be nothing available to pay for roads, medical treatment, hospitals, schools, etc., etc. Meanwhile, this game continues as the bankers shine with glee every time the Feds print more money. The Middle Class is being decimated and has a lower standard of living than 20 years ago. More on that later.

estimate with the printing of more and more money, inflation is really at 8%. That is a number you never hear communicated by the media. They dont want you to know that number. The definition of inflation if more money supply chasing the same amount of goods and services. Based on my calculations money supply is growing by 8% per year and the if you keep your money in bank at 1% return you are losing 7% purchasing power on your money every year. I know the average Americans salary is not growing by 8% a year. For Canadians reading this, rest assured a major collapse in America will impact you. Remember 60% of your trade is with America. The old saying when America sneezes, then Canada catches a cold, definitely applies here.

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L
In America today, 6 Million Americans between the ages of 16 to 24 are not in school and are not working.

ook I dont profess to understand the derivatives market, but I do know that if interest rates go up by several percentage points, many trades go bad. Many of the largest banks in the world have ratios at 20 or 30 to 1 with respect to derivatives, which means they go bankrupt. So we know the rich are doing just fine and wont be in a soup kitchen line anytime soon but how about the Middle Class and our poorer brethren? Well today, there are close to 50 million people living in poverty in America and more than 100 million are getting some money from the federal government every month. God help us if the derivatives market blows up. Forget about any government support. It will cease! There will be a government shutdown with no services operating, and I suggest every American has three months supply of canned food, water and a rifle for protection... I am not kidding!!

recovery. Yes, folks the Middle Class is withering away and becoming an extinct species. Remember the Arab Spring in the Middle East. We saw several dictatorships in the Middle East toppled. Yes, it was a struggle for more rights and freedoms, but the underbelly of the factor causing it was high youth unemployment. In America today, 6 Million Americans between the ages of 16 to 24 are not in school and are not working. I get sick to my stomach when politicians and the Feds talk of the unemployment rate dropping from 11% to 7% and still dropping. That is complete bullshit! Yes, I said it, because lets call a spade a spade, and since no one pays for this newsletter, I can write whatever the hell I want! The only reason why the unemployment rate has dropped is because there are so many Americans who no longer qualify for unemployment benefits and as a result theyre not counted in the numbers of the unemployed.

ow to make matters worse unemployment benefits may be cut for 5 million Americans in 2014, and 47 million Americans have already had their food stamps benefits reduced. Can any politician be serious when he says that things are improving? The sad fact is that government dependence has soared to all-time highs even in the midst of a so-called

ets discuss the real numbers of what is really going on. Before the Great Recession in 2008, about 63% of all working-age Americans had a job. Today that number is below 59%, so the whole notion of an economic recovery is nothing but a flat out lie to the masses who watch and

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Now if you dont believe what I am saying about my concerns, particularly about the stock market, lets revisit recent history...

believe the media. Thank God I am not alone in my outlook. Several well known economists and public figures have made similar comments:

Maybe my comment earlier of having a three months supply of canned food and water plus a rifle is seeming more realistic now!

conomist Harry Dent (who I have shared a stage with in the past) said, The U.S. economy is likely to suffer a major crash in 2015. Mike Maloney, who I have a ton of respect for, recently stated in his video about how the Federal Reserve Really Works, I think the crash of 2008 was just a speed bump on the way to the main event. The rest of the decade will bring us the greatest financial calamity in history. It is a must watch video and can be seen on YouTube. Jim Rogers who I talked with on the phone, and also invited him to speak at an event I was doing in 2010, is known worldwide for his economic predictions. He said, You saw what happened in 2008-09... the next problem is going to be worse than in the past because we have unbelievable levels of debt and money printing. Jim goes on to predict a total economic collapse. Financial editor Jeff Berwick said: If they allow interest rates to rise, it will effectively make the U.S. government bankrupt and insolvent, and it would make the U.S. government collapse. It is obvious and it will happen, and it will be scary and very dangerous.

exican Billionaire Hugo Salinas Price is most concerned about interest rates and the derivatives crisis it will ignite. Once again, derivatives are a world that very few people understand but here is a quote from Hugo: There are over one quadrillion dollars of derivatives and most of them are related to interest rates. The spiking of interest rates in the united states may set that off. What is going to happen in the world is eventually we are going to come to a moment where there is going to be massive bankruptcies around the globe. (Please note I did not capitalize united states because with all that is happening, she may not be so mighty anymore!) Now if you dont believe what I am saying about my concerns, particularly about the stock market, lets revisit recent history. When QE1 ended there was a substantial stock market correction. The same thing happened when the Feds shut down QE2. This will happen again when QE3 ends, but the sell-off will be much more dire because interest rates will spike higher and quicker. Janet Yellen may become the most hated woman on the planet as the Federal Reserve policies

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collapse on her watch. Yes, Greenspan and Helicopter Ben both set it up nicely, but she will be the Fall Gal.

on having no government services and make sure you have a few months supplies and necessities.

So what am I doing. First, I am loading up on silver and gold. It is the only real currency and is a hedge against uncertainty

So what am I doing. First, I am loading up on

silver and gold. It is the only real currency and is a hedge against uncertainty and market failure. Traditionalists say hold 2 to 4% of your portfolio in precious metals. I say it is prudent to bring this up to at least 10%. Continue to invest in the stock market in the first half of 2014 but when the Feds starts tapering off, pull your money out. I believe good guidance is 50% of your money out of the stock market by June, and all of it out by the years end. Hey, if I am wrong that is not an issue, as most American stock investors have made a fortune in the stock market, and it is never bad to sit on a pile of cash and wait for opportunities.

t this point, there is no positive outcome for what is happening. If the Feds keep printing money like it is, most likely other nations will lose confidence in the U.S. bonds and stop buying them, causing the interest rates to spike to never before seen levels. If the Federal Reserve stops printing money, the party on Wall Street ends, and we will experience a crisis much worse than 2008. Now if I see any possible chance of the U.S. economy surviving, it will be based on consumer spending, which drives two-thirds of the economy. Unfortunately, my outlook for this is sour also. Obamacare and a large number of tax increases, and cuts in government welfare programs, means that I see very little or no hope of this happening. Obamacare has really no impact on the wealthy, and the very poor certainly benefit, but the middle class will suffer as health care costs are going up by over 50% for most working Americans. This will remove a huge amount of discretionary spending from the economy, and that will be bad news for retailers. Now 2014 welcomed in fifty five tax breaks that expired and there are thirteen tax increases. Most American families will have much higher tax bills.

nvest in industries that benefit from a shrinking middle class.Not every stock will become a loser, and I would look at payday loan entities and industries that feed off a more desperate middle class. Yes, it is tough to write this but my guidance is for my readers, and I am simply telling you what I think will happen. You can do with this information as you wish! If the derivatives market collapses, put steel gates around your yard, buy a second gun, count

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Ok, let me prove it to you. If interest rates go to 6%, which is a real possibility, then the Feds will be shelling out a trillion dollars a year...

This happens at a time of inflation despite what the government is telling you, and a time where the median income has decreased by 8% since 2008. For those of you who think you can use your house as an ATM because housing prices will continue to increase like they have in the past two years... sorry wrong again. We are now seeing a huge drop in home sales, and mortgage applications nationwide are down 66% over the last few months. On top of these factors sucking money out of the pockets of most Americans, we are going to see higher interest rates, which mean steeper debt payments. Remember, earlier I said that 5 million people were having their unemployment benefits cut this year and 47 million Americans recently had their food stamp benefits reduced.

investors; a real estate collapse and the possible meltdown of the derivatives market. It doesnt make sense to me that the 10-year treasury rate is 3% when the measured new money supply is 8%. This means that the interest rates have to be at 8% just to maintain par with inflation. I am not an alarmist, but I am stating the obvious, and no one is paying attention.

he Federal Reserve is debasing the U.S. dollar by printing money, and the U.S. government is piling up debt with high interest rates it cannot pay back. I know that it is just a matter of time before the Chinese and Japanese and other foreigners stop buying our debt. Ok, let me prove it to you. If interest rates go to 6%, which is a real possibility, then the Feds will be shelling out a trillion dollars a year just in interest payments. This will mean no new hospitals and a massive cutback on all government programs! I see riots!! We got here from the Federal Reserve Policy. Fed Policy is not all bad, and I agree the Feds had to create liquidity, or we would have had a Depression. However, they have gone too far,

ook, dont hate me. I am simply giving you facts. No matter what spin anyone gives you, things look very bad and hardly anyone is talking about it, but I must. You have to prepare! Look, no one can refute that higher interest rates will mean more crippling payments on our debt; financial problems for state and municipal governments; trillions in losses for bond

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When the collapse happens, and it will, the official unemployment rate will hit double digits; millions of families will lose their homes

and we cant get out of it now. Let me tell you also that our constitutional fathers did not agree with having a Federal Reserve which they saw as enslaving citizens. This is not what the U.S. Constitution is all about!

hen the Federal Reserve was founded and set up, it was a system ensured that it would be able to profit from those paying off the debt of the Federal Reserve (which lined the pockets of its shareholders) which is every-day taxpayers. It is no coincidence that the Internal Revenue Service was founded the same year as the Federal Reserve Bank in 1913. Meanwhile, I keep coming back to the derivatives market. There are approximately $441 trillion in derivatives sitting out there, and all the banks are leveraged at a factor of dozens to one. If rapidly rising rates suddenly cause trillions of dollars of those bets to start going bad, we could potentially see several too big to fail banks collapse. However, it will be much worse than in 2008. When the collapse happens, and it will, the official unemployment rate will hit double digits; millions of families will lose their homes, and we will see the Great Depression worse than the 1930s because the Federal Reserve will be unable to flood liquidity into the market as it will also be out of business.

So do I have much confidence in the U.S. dollar... NO? Not unless policy changes happen, but I believe it is too late. You must start owning other currencies. There are countries out there with balanced budgets. Buy their currencies. Avoid the Euro as France and Italy will I believe start making negative headlines this year on a currency that already has too many basket cases in it. You can call your broker and tell him to read this newsletter and ask him to expose you to some exchange-traded funds with a basket of sovereign nations with balanced budgets. Even if you want to do something simple, buy some Canadian dollars. The budget is not balanced in Canada. However, the fiscal house is in much better order.

ook, I receive no benefit for anything you do. I dont make a dime on anything you do. I dont even sell this newsletter. I wrote it because I am worried. I have thousands of investors I have met over the years and I wanted to communicate with you. Please take action now... steps to protect yourself. There is no way I could cover everything I think of in this short newsletter but to conclude; I want to share a few more facts with you that I have not touched on yet:

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When Obama came to office, 32 million Americans were on food stamps. Today that number has grown to 47 million.

Median household income has fallen for five years in a row. Rate of home ownership has fallen for eight years in a row. The number of Americans without a job since 2000 has increased by 27 million. Only 47% of working Americans have a fulltime job at this point. When Obama took office, the average duration of unemployment was 19.8 weeks. Today it is 37.2 weeks. Consumer credit has risen a staggering 22% over the past three years. Just wait until interest rates skyrocket! In 2008, the total amount of student-loan debt was $440 billion; today it is a trillion dollars. Dont waste your money sending your kids to University to become generalists.

with the results they get for graduates. The solution (here is a great business idea that I hope some politician will read)... approach Americas largest companies and get them to fund a oneyear teaching program, to get the graduates ready for employment in specific companies.

ho cares about the economics class of guns vs butter? Will that get anyone a job learning this useless economic class 101 information? Presidents of Universities in the U.S.A. should be ashamed, for the most part, for the system they have created. Most students will take years to pay off their student loans, but that is of no concern to them. Universities in America, for the most part, just dig economic pits and have no accountability for their results.

When Obama came to office, 32 million

Americans were on food stamps. Today that number has grown to 47 million. In fact, one out of five households is on food stamps right now.

niversities are one of the greatest scams of this century, as tuitions go up by hundreds of percentage points without justification, with no link to inflation or living costs. These entities have no performance records of the results they get for their graduates. These monstrosities continue to pile in cash from many unemployable graduates, while fortune 500 companies look to other nations to fill jobs. Something is wrong and universities have to be held accountable, as these entities continue to increase tuition with no basis, especially

According to the U.S. Census, over 100 million

Americans are enrolled in at least one welfare program run by the Federal Government.

Medicaid has increased more than double since

2000. Obamacare will add tens of millions more to Medicaid rolls... estimated at $500 billion plus per annum.

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Medicare has grown from $219 billion in 2000

to $560 billion today and will skyrocket as the baby boomers retire.

The U.S. government has spent $3.7 trillion on

Food riots? Mass chaos? YES!!

welfare programs over the last five years and soon may be at a point where all the money must be used for interest payments on the debt.

Food riots? Mass chaos? YES!!

I hope I am wrong, but the numbers dont lie. Even if I am half right, it is still dire. I had no real interest to write another newsletter, but you can call it my community contribution. Your comments are welcomed, and you can send them to theeconomycall@gmail.com

Michael Lathigee
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