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Economic Predictions For 2012

19 January 2012 23 Comments

2011 was an extremely volatile year, yet amazingly the stock market indices ended essentially unchanged. What’s in store for 2012. While predicting the future is not exactly easy, here’s what I think happens in the year ahead.

Stocks End Up 10-15%

While I believe volatily will still rear its ugly head from time to time, I think stocks will overall have a good year. At some point in the 1st quarter of 1st half of the year, I anticipate that there will be a European event which causes markets to shake a bit. This will likely be a good buying opportunity.

At some point, I believe that the Fed will also step in and perform more easing. This might not come in the form of a formal quantitative easing declaration, but it might come in the form of pegging future policy to unemployment rates. This will ensure further easing at the expense of inflation to get unemployment down. This will be bullish for stocks. It’ll be even more bullish for gold. While stocks end up on the year, gold will outperform stocks yet again.

The only risk here is that I expect corporate earnings have peaked. Corporate earnings will likely start getting revised lower. Despite this headwind, corporate profits will remain strong, dividends and buybacks will continue to be big and stocks will go higher moderately.

Housing Stays Crappy

While most of the declines in housing is behind us, the good days of housing are still a ways off. With foreclosures and the shadow inventory of houses still dragging down prices, it’s tough for any pricing gains to get traction. Moreover, the fact that unemployment on young people is high prevents new household formations. Lastly, current homeowners have to write a check in order to sell a house – this means they likely won’t have the ability to write a check for a down payment on a new house. The result? They stay put.

Middle Class Struggles

The struggles in the middle class aren’t going away because these struggles are rooted in structural issues in this economy. Unemployment might get marginally better, but it’s still elevated. The standard of living for the masses will continue to decline.

Politics

Politics will continue to be politics. While I’m a huge Ron Paul fan, it’s not likely that he’ll get the Republican nomination despite the fact that he’s doing very well these days. Expect an extraordinary amount of class warfare rhetoric as Barack Obama takes aim at Mitt Romney who has a net worth of $500 million. The Bain Capital private equity stuff that Romney has taken heat on so far… you haven’t seen anything yet. In the age of Occupy Wall Street, this is Obama’s best angle to get re-elected. Ugh, it’s so annoying.

The Good News

Despite an economy that remains sluggish and a political environment that is absurd to say the least, the good news is that your life can be fantastic no matter what is going on in the world out there. Stay grounded, enjoy your family and enjoy life! Happy new year!

23 Comments »

  • Peter said:

    I have to admit I agree with your overall assessment for the year. I think stocks are possibly setting up for a potential technical pullback set off by some sort of news either out of Europe or else where. Just today Consumer Sentiment came in unexpectedly lower. After the pullback though I can see a nice bull run heading into the rest of the year – barring any black swans of course.

    Politically I feel like its going to be a long hot summer with a very divisive and bitter campaign, it’ll get ugly. Personally I’d love to see Ron Paul get the nomination but probably won’t happen.

    In the end though on a personal note I think your right that we have no fate but what we make and as long as we focus on the important things in life 2012 can be a great year!

  • Wealth Mananger said:

    "Stocks End Up 10-15%"

    So far, you look like you're on pace for that prediction. Election year has to do with it?

  • automobilistshub said:

    I agree stocks are going to end higher than at the beginning of the year, if only by force of rebounding after a dismal 2011. Investors have been exhausted in their pessimism and the direction should be up, but reservations apply – as always. One way or another, I wouldn't be fearful of making long-term commitments in the stock exchanges, especially in sold-out markets.
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  • big format printing said:

    The prediction may be fulfill for 2012. Advanced economy growth is expected to slow down as predicted .The pace of economic growth in 2012 is expected to edge higher, with inflation easing and the unemployment rate continuing to head lower It may happened.

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  • big format printing said:

    World is overcome from the problem of recession and i hope we get the better economic progress this year also.

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