At the doorstep of 2012, I am here again looking at the crystal ball. There are signs
Reworking the Macro
- The Eurozone faces tremendous challenges at the moment. 2012 will see the aftermath of the crisis. I imagine the Euro leaders will be able to patch things back, but substantial political sovereignty will have to be ceded. One hopes the sovereignty will be returned post the resolution of the crisis. In any case, Eurozone will spend the next year in hibernation.
- As I mentioned in previous post, there are currently two systems - Eurozone system and US-China system. 2012 will see stresses in the US-China system rise dramatically. I think as if rhyming with 2011, we will see stress in US-China system next year same time.
- We may see Chinese economy under stress. I am not sure how much will happen next year but China is unusually fast. I think we will see slowing of China - about 5-6% growth level.
- The Arab world will experience post-purchase dissonance with respect to new-found political setup. In worst case it means some new dictators will come up and uprising may start all over again or there may be bigger political discussions.
- I see increased synchronization - both globally amongst markets and within markets among stocks. Thus, old places to hide may not actually work.
- From the investor standpoint, we will be forced to be more in cash or cash equivalents. Correspondingly, even when invested, we must look to highly liquid names. I was hoping to see derivative markets in their full splendor at such times, but MF Global and lack of counter-party settlement systems keeps check on the system.
- The other fall-out of this is steeper moves - on upside and downside. It means we can make or lose money super-quick. Markets may rise 20% in a month, fall 20% in the next. We should see more talk about Vix.
- Funds with specific low-cash rules should find it difficult. I think in general, the strict rule-based fund management should take a beating. Fund managers with broader mandate are likely to deploy the capital better.
All in all an interesting year ahead. My best wishes to you all and I will see you next year. Merry Christmas, Happy new Year and happy holidays. Cheers
Interesting post. Your analysis suggests that 2012 may not be as disastrous as everyone is fearing. But what if 2012 does turn out like 2008? Perhaps , EU leaders fail to come up with a credible solution. ECB waits for things to get worse before stepping in to buy bonds. Chinese property market crash exposes bank losses. Things could crash in first half of 2012 before policymakers get a handle on the situation. 2012 could be a year of two halves: a terrible first half and a massive rally in the second half. As you said, -20% return followed by +20%. Happy investing!
ReplyDeleteThanks Anon! Same to you. It could indeed be a year of two halves.
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