Global Investing Predictions For 2012

At Least You Won’t Likely Get Bit By A Cobra—And Other Predictions For The Year Ahead

“A few weeks ago,” writes Retirement Planning Correspondent Paul Terhorst, “three friends and I went to look at birds in northern Argentina’s jungle, near the Brazilian border. We stayed at a cabin in a nature reserve. One of the young workers there, Jorge, noticed my accent.

“‘You’re not from here,’ he remarked.

“I said, in Spanish, ‘I’m from the United States. California. Ever heard of it?’

“He shrugged. ‘I’m not really up on that kind of stuff. Is there a jungle in California?’

“I later learned that Jorge left his rural school in the third grade.

“These days Jorge has a wife and a couple of kids; they’ve never wandered farther than 100 kilometers from home. They’ve never been to Iguazu Falls, one of the world’s great natural wonders, only a short distance away. They’ve never heard of California.

“I mention the above in the context of the New Year tradition of making predictions, which I’m doing this year, as I do each year, just like everyone else. You and I may find it useful to think about what might happen next year. You and I may find it useful to know what will happen in the stock markets, exchange markets, real estate markets. But Jorge’s life will change very little. Jorge will continue to do his chores, maybe have a few more kids, ride his horse, maybe get bit by a cobra, and die.

“Here’s our reality as we head into 2012: The U.S. government faces staggering budget deficits. A Wall Street Journal editorial estimated that, to balance the budget, American household earnings above US$75,000 would have to be taxed at 100%.

“America’s education system rewards failure. Lawyers and courts, the government, Greens, and unions punish productive work. Government refuses to get serious about energy, about Social Security and Medicare, about the 50% of Americans said to be poor or nearly so.

“Many believe we’re witnessing the collapse of Western civilization, and I tend to agree.

“Yet I remain optimistic about investment opportunities this New Year. Why? Because the U.S. makes the rules.

“Hollywood and New York control most worldwide media, from news to entertainment, books to magazines, movies to music. The U.S. runs the Internet, interest rates, retailing, and higher education. The U.S. gets to print dollars, still the world’s reserve currency. Wall Street moves markets; until Wall Street goes to work at 9:30 a.m., world markets mostly stay in neutral.

“Perhaps most important of all is language. The rest of the world must learn English, and learn to think in English, the way Americans do.

“For sure the Chinese and Indians, Brazilians and Russians are catching up. But they’re catching up on a U.S. playing field, according to U.S. rules of law, culture, standards, and language. In a very real sense, they’re playing America’s game.

“The rest of the world is pulling the U.S. along, rather than the other way around. But because the U.S. largely makes the rules I see a slow, gradual American decline rather than a crash. In the meantime, U.S. companies should prosper, their earnings up, their stock prices up.

“A year ago, many observers predicted catastrophe. The Chicken Littles were out in force. Some saw hyperinflation. Some saw deflation, a worthless dollar, global carnage. We were on the edge of a precipice, they said. We were going to implode, they said. We were going to fall into a hole.

“I disagreed. I was bullish last year. I predicted corporate earnings up, the stock market up, a more stable housing market with more bank lending, and higher energy costs.

“So what happened? Nothing at all. CNBC called 2011 ‘the year that wasn’t.’ The S&P was flat, the Dow slightly up, the NASDAQ slightly down. Housing started to crank up, albeit very slowly, and oil prices went up.

“I predicted continued high unemployment, and sadly, was right on that. In November unemployment fell sharply, to 8.6%, the lowest level in a year. But unemployment fell mainly because more people gave up looking for work, rather than because more people found jobs. In the U.S., to be unemployed, you have to be looking for work. (France and many other countries look at unemployment differently.) So, in the U.S., whether people find jobs or give up looking, unemployment falls.

“I said the deflation people would prove to be wrong, and they were. The U.S. economy saw a good dose of benevolent inflation, which kept activity moving along.

“I said the dollar would go up against the euro, yen, pound, and Swiss franc. Here I was partially right, as the euro and pound fell and the yen and Swiss franc moved higher. I said the dollar would stay the same or decline again most minor currencies, which it did.

“What do I make of the year ahead? I’ve been investing for 40 years, and I have never seen a tougher call. According to my friend Easan Katir, ‘in the past four months the [daily S&P] index has seen 16 moves of 5% or more. To put this in perspective, there have been entire years in past markets without moves of 5%.’ The U.S. stock market has gone crazy with day traders, speculators, flash traders, hedge funds, and momentum investors.

“But we have to decide, we have to ignore the noise…

“And that’s my real point. I’m making my predictions for 2012, along with everyone else, as I’ve done each New Year for decades now, but I recognize, and I want you to recognize, too, that, really, only one thing matters, in 2012, as always:

“Do what you want with your life. If you want to move, move. If you want to sell, sell. Whatever. You’ll likely avoid getting bit by a cobra.”

Kathleen Peddicord


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