My Predictions for 2012

Inspired by Sam over at Financial Samurai, I thought I might as well throw my thoughts out there for 2012.  I will actually give some extremely modest stock picks for 2012 in the January 4th post, so for now I’ll stick to the broader picture.  As usual, I should make it clear the only qualifications I have for this is that I’m opinionated, and a nerd that likes to read.  I definitely have no recognized credentials, so please don’t “bet the farm” on TM’s model (in fact don’t bet the farm at all, one of my predictions is that farms might actually start making money for the first time in a while).  Also, if you do make investments based on this article and get lucky, I think I deserve at least as much as those “experts” on Wall Street get paid to waste your management fees every year, so feel free to donate a tip ;)

Economic Predictions

1) Volatility Stays High

With more and more investors creating illogical market momentum that is almost completely based on headlines and overreaction to certain metrics, the market will continue to be volatile.  The allowance of high-volume trading (ridiculous) means that these irrational momentum shifts will continue to be exaggerated, which of course creates the feedback cycles we seen in 2011.  The 24/7 news media then sensationalizes everything and the end result is that everyone believes that the sky is falling, or we are in the middle of the next bull rally.

2) Western Recovery Sputters Along

The funny thing is that even though the day-to-day volatility will be high, the overall performance of the Western World will continue to be mediocre at best.  The Eurozone will definitely be a drag on the consumer market over the next few years, and while the USA is looking up, it can’t shoulder the consumer load alone.  As we continue to come to grips with our addiction to debt, and stabilize our brutal demographic problems, I think the forecast for the West will be pretty much the same over the next 3 years – mediocre 2-3% growth.

3) Germany Bails Out the Euro Zone – Recessions Narrowly Avoided

Germany will bail out the Eurozone, not because it wants to from some moral interest (although there is some merit to the idea that many Germans still carry around guilt from their history), but rather because it is in their own self-interest.  The German economy is heavily based on manufacturing.  Right now, the Euro is being severely depressed because of all the other countries dragging it down.  This means that Germany can sell all of its products at a reduced rate (similar to what China is doing with the Yen, and what Canada used to do with the CAD relative to the US Dollar).  It also means that the countries that are geographically closest to it can afford their goods.  If Greece goes off of the Euro for example, no one in Greece could afford to buy German goods (still priced in Euros) and the Euro would get a little bit stronger, making it harder to sell their goods around the world.  A recession is technically defined as two consecutive quarters of negative growth.  The Eurozone as a whole might approach this infamous title (Greece certainly will realize it), but it will ultimately avoid it.  As a side note, many people in Germany will score political points criticizing the use of German tax dollars to bail out its Eurozone peeps (I can sympathize), even though they know it’s the best thing for the long-term.  The membership for extremist groups will continue to grow within Germany and within much of the Eurozone (youth unemployment rates can be scary things… just ask an African dictator).

4) China’s Foot Comes Off the Gas Pedal

China will continue to pull off rates of growth that make us Westerners jealous, they just won’t be record breaking.  I get a little more nervous every time I read more information on China’s housing market and the speculation going on there.  At the same time, I believe that the ability of their central government to dictate policy without question is a huge advantage (look at the progress they have made in the fields of infrastructure and renewable resources).  Europe will continue to limit their growth ceiling.  Look for 7.5-8% growth in 2012.

5) Currency Wars Continue

Speaking of China… the race to the bottom of the currency pot will continue.  China is bound and determined to give themselves a competitive advantage relative to that of the USA’s manufacturing sector and it appears they will devalue their currency as much as they need to in order to keep it (no matter how much US officials complain).  The thing is, I don’t believe the USA has a lot to lose by following suit.  By printing more money, Barrack and the Fed can say they are doing their best to help the economy, they drive the dollar lower (great for fixing that pesky trade imbalance) and the debt becomes more manageable since inflation will help take care of it.  The only problem is…

6) Inflation Will Rise

So with countries printing money left and right, and a growing global middle class putting more pressure on food production, I think we’re in for some good ole inflation.  I’m guessing 3.5%.

7) The S&P 500 Finishes Up 3-4% After Late Rally

So after all is said and done, and many news people have declared that both the end is near, and the new rally was going to make us all rich, the US will merely do ok.  While 2011 seen very modest gains (essentially even) I believe the USA will do a little better in the coming year.  Housing costs will see slight improvement in some areas (market saturation by foreclosures will continue to be a problem in other locations), unemployment numbers will shrink somewhat, and businesses will finally begin to spend some of the money they are sitting on.  There is still lots of sideways movement and deleveraging to go before the boom times come back, but hopefully the worse is behind us.

8) Record Bonuses For Financial Sector Continue Against All Logic

Bailed out companies that do very little to add to the standard of living of anyone will continue to give out hundreds of millions of dollars in bonuses every year.  I’m a capitalist at heart, but this just kills me.  I know it’s the free market, but this seems like a way bigger deal to me than taxing “the 1%” who have added value to society.  While some finance people add true value through venture capitalism and other pieces of economical infrastructure, all of this financial engineering (and the scale of it) is absolutely ridiculous.

World Predictions

1) Canada and Australia Stay Hot

Canada continues to have a lot going for it eh!  Our current political environment is nice and efficient relative to our American cousins, our commodity-driven economy looks to be in fine shape.  The banking system is on top of the world because of straight forward regulations, and we have that whole health care thing figured out (well.. kind of).  Oh, and our debt is fairly manageable and it isn’t owned by our natural rival… so there’s that.  Our Commonwealth buddies down under have much the same outlook and will continue to ride the Chinese wave.

2) Mitt Romney Is the GOP Presidential Candidate

The only GOP candidate that doesn’t send most political moderates in the USA screaming in the other direction is Mitt Romney.  The funny thing is, I honestly believe he and Obama have way more in common on a values level than either would like to admit (this should be a good thing, but boo! for polarization).  Romney will likely have a hard time looking himself in the mirror some days as he will have to bash his own healthcare plan (which was a great idea) and take more extreme right wing stances than he would have ever imagined.  The GOP doesn’t like him, but their vitriol for Obama will send those evangelicals into the arms of their Mormon saviour.  Unless…

3) Ron Paul Makes Noise About A 3rd Party Candidacy – But That’s It

This will likely be the last time we see Ron Paul on the big stage, which is too bad because I love his commitment to Libertarian values, his consistent message, and the outside-the-box thinking he always brings to the party.  Since this is probably it for he and the following he has worked so hard to build up, I think he will briefly consider running as a 3rd party candidate (this guy should be the true face of both Occupy Wall Street and Tea Party and what they claim they stand for, but I digress) before bowing out to the traditional format of the USA political system.  It’s too bad, how great would his contribution to debates be?

4) Barrack Obama Wins Re-Election

Once all the attack ads have continued to drive people away from our political system, and the ballots of the baby boomers have been added up, the incumbent POTUS will stay in the Oval Office.  Mitt will have a hard time motivating his base, and the gifted orator will convince just enough people to give him one more chance at change.  Yes We Can! But not if…

5) Political Gridlock Will Continue To Be The Biggest Obstacle For the USA

The political polarization in the USA is a serious issue no matter which Party you traditionally support.  There is plenty of blame to go around, but until “We The People” quit listening to attack ads, get more involved in the political process, and quit looking at compromise as a dirty word, we get what we deserve (as someone who holds both Canadian and American citizenship I get to use “we” going both ways).  Re-drawing election districts among partisan lines, and terrible “infotainment news” programs that are essentially propaganda machines are two huge contributors to this.  The Republican-controlled Upper and Lower Houses will continue to make life difficult for Obama, but it will be interesting to see what happens when he wins in November.

6) The Keystone XL Pipeline Will Not Begin Until 2013

Republicans claim that Obama will be forced to make a decision on this huge development in the next two months.  I abhor that we are playing politics with this potential game-changer of a project (I still don’t understand why we don’t build our own refineries in Canada, but that’s another topic), but that’s exactly what is going on. Obama can’t alienate his base in an election year, but he desperately needs these jobs (along with the rest of the country).  He will find a way to prolong it (Washington seems great at doing this) and then approve it once he is safely ensconced in his second term.

7) Tibet… What Tibet?

Anyone up for criticising the big bad bully these days?  Whats-a-matter guys, doesn’t anyone care about human rights abuses anymore?  Not as much as we care about Yen and Greenbacks apparently.  While monks are literally lighting themselves on fire in protest to the heavy-handed approach the Chinese government has taken, we aren’t seeing anyone complain these days.  “Please China… may we have some more.”  We need China and their growing middle class desperately to keep everyone afloat while the Western world gets their debt-ridden house in order, and the emerging markets stabilize.  No one will be paying visits to the Dalai Lama or saying anything to piss off the biggest holder of US debt

My University Experiences Record Growth Rates!

So modesty isn’t my strong suit!  In our defence, even a relatively small jump would be a record pace for us.  As of right now our Alexa rank has broken 90,000, but out subscriber base is still taking its time to grow.  Hopefully we’ll see our own Malcolm Gladwell-esque tipping point in 2012.  If we don’t, at least we’ll have some fun.

If these predictions stack up for 2012 you can look forward to an annual post.  If they don’t… I’m going to pretend like this never happened.

Any predictions of your own to add, or any reason I’m particularly moronic with these ideas for 2012?

 

 

About Teacher Man

TM is a self-professed nerd about all things related to personal finance. He can be found writing for My University Money, Young and Thrifty, and Canadian Personal Finance Blog. TM blogs in order to continue his quest for lifelong learning and hopefully to help others along the way.

19 Responses to My Predictions for 2012

  1. What, no Canadian housing prediction? I expected your headline to be, Vancouver and Toronto real estate plunges 30% in 2012! You know, outside of rural Manitoba houses cost more than $100k, right? ;)

    I think you’re right on the Keystone project. This is why I can’t stand American politics; everything is about posturing for an election and nothing gets done. Even though the original route through Nebraska makes the most environmental sense, they will be forced to re-route it and delay things even more. Let’s get this going so I can collect some dividend increases from TRP, dammit!

    • Haha If I to say I would guess Toronto is more susceptible to a collapse. There is so much foreign money in BC right now, and their economy is strong enough that as long as interest rates stay low there will be a “soft landing.” I can’t see a 30% even in 2012, but hey that’s how people get on TV right? You make wild predictions that draw attention and if you’re right you’re now an expert and if you’re wrong no one remembers anyway and at least you got exposure on TV. Hmm… maybe I should do a different set of predictions…

  2. Good for you for putting yourself out there! As far as remembering these predictions, you need to report on your predictions this time in 2012. Have a happy and healthy new year.

  3. Wow great predictions, I feel like I already know what 2012 has in store just by reading your predictions. they seem pretty bang on.

    Except that you did miss out on the housing market to jump by 30%, especially Vancouver.

    (KIDDING!! I was just trying to call out the real estate trolls)

    Funny that you say Tibet, what Tibet because I have a post coming up in mid-January about Tibet :) I hate how everyone worries about pissing China off.

    • I hate that people worry about pissing China off too, but at the same time I definitely understand the position these politicians are in. The bottom line is that we absolutely need the growth that China has right now in order to buy ourselves the time to de-leverage and get our own house in order (assuming we are at all capable of doing that, which is probably a bad assumption).

      Love the real estate trolls. I can’t see how Vancouver will ever crash. You might see housing prices go down 10% and stagnate there for a couple years, but I think that is the worst case scenario. I could also see a bit of a mild shock in the condo market given how many are going up, but there is just too much foreign cash pouring in for prices to go down much. I don’t think it’s speculative in nature. People are moving there to live!

    • I’ve been asking my geologist friends this question for awhile now and none of us could figure it out. You’d think a refinery somewhere in Southwest Sask would be perfect. Maybe the cold climate makes costs too intense? You’d think it’d be cheaper than preparing and recovering from hurricanes. The government should look into subsidizing this (I hate goverment involvement, but hey, you’d think this is one area Harper would know pretty well). I was thinking that it would even be economical for the North Dakota and Montana boys to pipe their oil up to Sask if we put a refinery there! How much of a coup would that be?

  4. Wow, heckuva list!

    Gutsy too! :)

    I disagree with Economic # 3, but who knows?

    Totally agree with World # 1.

    I predict oil will be $120/barrel.

    TSX and Dow will be 13,000.

    And…

    MUM has a killer year on the ‘net! ;)

    Cheers,
    Mark

    • So you truly believe Germany will let the Euro fall into ashes?

      Do you think there will be enough demand for $120/barrel going into 2012?

      Interesting Dow prediction

      Glad to hear you’re on board with the us for the New Year. I’m seeing your site advertised more and more around the web (a millionaire nurse was mentioning you in the Globe and Mail the other day).

  5. Awesome list of predictions, can’t wait to see how they all play out! I think your Australia prediction is a good one, we have a two speed economy here, but if you have anything to do with mining it is nothing but good times.

    • Definitely not buying XIV Evan (although it is an interesting index play). I am however investing according to my view on the markets. By purchasing low-cost, broadly diversified ETFs I am investing according to my belief that I have no idea what specific companies will do. I like to keep things simple at this point in my life. When I have a little more of a substantial portfolio I might be open to playing with a 5% speculation portion of a portfolio (more as entertainment than anything) and in that case I would seriously consider the index you referred to.

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