Starting any new year there is an abundance of prediction posts that have been popping up for the past few weeks. Think of it more as an educated guess on what’s to come in the next year.
Making predictions offers a chance at a better understanding of the financial world around us and how to invest in it accordingly. Plus it’s just downright fun! Sometimes we’re right, others we’ll be wrong. But it’s a good exercise for investors to pick up so you can plan your allocation accordingly.
In an effort to get the mental juices flowing after the New Year’s celebration, here’s my predictions for 2012.
Europe
The Euro doesn’t break, but it does become the most expensive currency ever to maintain. The final price tag for keeping the Euro alive closes in on $3 trillion when it’s all said and done. Too bad they didn’t act sooner.
Don’t expect the Euro mess to end quickly either. I’m looking at a timeline of 6-9 months. Sometime around July sounds best. August is a big vacation month over there and no one will want to deal with this after an extended holiday. Until then, expect volatility similar to what was seen this past year. This whole event is far from over.
US
The U.S. economy will look great compared to Europe. GDP stays above 3% for the year, setting the U.S. up for a long term growth cycle.
The unemployment rate continues it’s slow and steady fall ending the year in the 6-7% range. Will the improving job outlook be enough to prevent significant change in Washington? Who knows or cares if more people are working.
Housing sales continue to increase, the bottom is in for most of the country. The sales numbers finally begin to normalize, reaching a more respectable historical national average by years end.
“No change in interest rates” will be a recurring announcement after every Fed meeting in 2012.
Inflation starts to show itself in interest rates in the second half of 2012. After 6-9 months of the European debt mess finally over. The attention turns toward a growing concern of inflation and rising commodity prices.
Once the Euro deal is finalized, the markets will take off, the S&P 500 ends the year up 14.7%. This second half surge is also the start to a long term bull market. We’ve been stuck in a bear market for too long, it’s time for a change.
The bond bull market is over. Long term bond rates start rising towards the end of 2012. If ever there was a time to short long term bonds, it will be then. Short term to mid term rates will remain rather stagnant until the Fed starts to make rate changes, which won’t happen until early 2013.
Politics
A rift in the Republican party between Tea Party and Republicans becomes official with the emergence of a third political party and presidential candidate. Though its emergence only helps the current presidents reelection, stealing votes from the Republican candidate. The new party makes waves at the Congressional level.
China
China has it’s first hiccup in housing. The one problem area that has been a potential concern in China for some time. There’s simply to much supply and the government can’t afford to keep propping it up. One disadvantage of a communist government is the ability to fudge the numbers. If their lying about housing, how many other numbers are way off too?
Stocks
Small cap growth stocks will be the outperforming asset in 2012. Risk will be back in fashion in the second half of 2012 as the Euro mess comes to an end.
Home builders are a buy. Something that has already started with increased multi-family property constructions. But as unemployment continues to drop. Owning a home will again become the American dream. Just a slightly cheaper, smaller dream.
Bank stocks bottom, thanks to the scare in Europe. Once over, it allows bank stocks to return to a more appropriate market value. Though growth will still be lacking in all but the regional banks.
Shipping stocks are a buy. An overabundance of ships and ship orders has kept shipping rates extremely low for the past few years. Growth in this sector has been stagnant, seeing the market value of many of these companies destroyed over past two years. Shipping rates finally started rising towards the end of 2011, a welcomed signal to better times ahead.
JCPenney, soon to be forever known as just JCP, becomes the Apple of retail. The comeback play of the decade, this retailer will forge a new path of innovation in retail marketing under the leadership of ex-Apple exec and new CEO Ron Johnson.
Oil
Oil prices rise from a growing “Arab Spring” and increased concerns in Iran, however increased oil production in the US and Canada helps to offset some production shortfalls. Oil prices peak at $127 a barrel.
Regulation Change
Leveraged ETFs get a regulatory kick in the butt, thanks in large part to continued volatility in the stock market and political scrutiny. Politicians will be looking for something to blame the excessive volatility on and keep the attention off of them.
Rumors of a reinstatement of the uptick rule starts to circulate towards the end of 2012. Something I’m all for, it worked well since its introduction in 1938 all the way up to its removal in 2007.
Coffee
K-Cup patents start expiring and Green Mountain Coffee suffers at the benefit of the consumer. Similar to generic drug makers, increased competition means lower prices all around. Hello cheaper coffee!
Tech
Thanks to a growing majority foothold with its Android OS, Google begins to deal with antitrust issues. It was inevitable when Google gives away an operating system just to benefit its search advertising stronghold and control the mobile sector.
AppleTV is released ahead of its time with too much fanfare and too little sales. The biggest drawback, bandwidth. The average broadband speeds just aren’t fast enough yet to provide the big screen HD quality content that everyone has come to expect from cable. Eventually it will be, hope the cable providers are watching.
The End Of The World
The hysteria over the Mayan prediction causes worldwide panic. Survival supplies sell out faster than during the Y2K scare. The Mayan Calendar was right. But the translators got it wrong. The world is supposed to end in 2013…d’oh!
To A Prosperous 2012
That’s my feeling on the direction of 2012. If you don’t believe me do your homework and see were it leads you. If you do believe me, do your own homework anyways and see if it leads to the same conclusions.
Here’s to a Prosperous, Healthy and Happy New Year. What are your predictions for 2012?
