Well Folks, it's time again for
annual investment predictions. Would very much appreciate your
return thoughts (privately).
Analysis of last years predictions: Failure. My only
prediction that came true was the price of oil. Interest rates are
much lower. Stocks higher. Commodities lower. etc. The good news is
that I simply trend traded a diversity of major markets on multiple
temporal horizons and ignored my own predictions resulting in a
decent 17% gain (with insane whip-saws in returns and portfolio
value along the course of the year).
(Non)Predictions for this year:
1) Investing: The entire investing game is now based on
central bank monetary policy and fluid accounting standards. For
one illustration of this effect see:
For now, large banks (for the US - primary dealers) are
soaking up world record mountains of new and un-repayable gov debt
across the globe. The governments of most developed nations are
hugely bankrupt and are continuing to finance a substantial portion
of their economies GDP with these mountains of new public debt. In
the US, about 15% of our GDP is made up of unrepayable gov deficit
spending. Promises these governments have made to their populations
in the form of future social aid/programs (like social
security/medicare/pensions) are an utter ponzi. Specific longer
term predictions of virtually all investment markets for 2012 are a
waste of time. Trend following a diversity of major markets (with
stops) is the only game with a note that some day the debt bubble
will implode. While trading this implosion could be a huge profit
opportunity, temporal predictions of the this implosion are a waste
of effort. Many famous and successful financial pundits continue to
fall on their face with predictions. This global debt bubble will
continue until the mountain becomes so ridiculous that someone
simply stops playing and runs for an exit - or someone let's slip
the dogs of war. The best invest class for 2011 was farm land with
a return of over 25% - hmmmmmm.
2) Economy: The US is stuck in the "muddle through" economy
(see link below). This will continue with the bottom of the economy
being slowly eroded with poor job creation (the few jobs being
created are largely low paying part time jobs with no benefits) and
the top of the economy being slowly eroded by the central banks
zero interest rate policy (people with savings are unable to
generate/live-off safe investment returns). The rate of job
creation is still not capable of putting all the new entrants to
the economy to work. Social unrest and the Shadow economy will
continue to slowly rise.
3) Interest Rates: Interest rates must remain low or the debt
bubble explodes like a nuclear weapon. Unfortunately, this extended
period of zero interest rate policy has now severely depressed
returns in the private sector bond markets. Needless to say, this
also destroys the desire for the population to save money as there
is virtually no avenue for generating acceptable (5%) principle
safe returns.
4) Corporate Profits: Are once again at a very high historic
level with corporations starting to reduce future expectations. In
specific, according to S&P 500 EPS data in Q4, corporate
profits are now contracting at a 3.8% annual rate. This is a
caution signal.
2011 Review, 2012 Predictions
Posted by rreich on 25th of Jan 2012 at 12:03 pm