For the past three years, around this time, we like to foolishly extend our economic and geopolitical “predictions” for the coming year, knowing full well we will be at least partly, if not completely, wrong.
Before We Get To The Wish List For 2012, Here Is A 2011 Recap
Looking back at last year’s predictions, we were wrong about the expectation for higher interest rates, although we qualified that prediction by speculating that due to economic weakness, risk-off investors might flock back into US Treasuries, thus keeping interest rates low and commodities (priced in dollars) more stable or lower than they might otherwise be. This qualification turned out to be mainly correct, with a paradoxically strong US Dollar in 2011 relative to other currencies, particularly the Euro.
How long will investors lend to the US government for 10 years in anticipation of a 2% yield is anyone’s guess, but 2011 was not the year the “herd” fled Treasuries. Perhaps 2012 will be that year. Of course, we had “Operation Twist” courtesy of Ben Bernanke and the Fed, to ensure rates remain low for the foreseeable future. We can only warn that in hindsight, Fed policy will once again be proven as the cause of our problems, not the solution, just as they were leading up to the 2008 crisis.
Emerging market indices performed miserably in 2011 with the SSE down 21%, the Hang Seng down 20%, the BSE Sensex down 23%. Indeed, the Dow Jones was one of the top performing indices worldwide in 2011, up nearly 6%, while the S&P 500 was basically flat.
This trend shows that even a small slow down in China, India and other emerging markets can have a big impact on emerging market stock prices, and also that the big global companies represented by the Dow continue to dominate the world’s key industries and are considered a “safe haven” investment during volatile periods.
Recall that it is credit growth that drives emerging market growth, nothing more, nothing less, so with banks necessarily tightening their purse strings and keeping their risk tolerancy firmly off, this will act as a headwind for emerging market growth in 2012.
U.S. housing has been flat or lower in 2011 depending on which market you track, so most people see this as a “losing investment proposition”. We beg to differ.
Investment “advisers” and mutual fund “managers” will be the last people to tell you to buy rental property in today’s U.S. housing market, since they make not a dime from that advice. But rents in America are up, and rental yields on typical single family homes and apartments in America are often 8% – 12% p.a. which is far better than those “dividend paying stocks” the talking heads on CNBC keep recommending to defend against market volatility and risk.
If mortgaged at 4% interest on a 30 year fixed mortgage, US real estate could easily be viewed as a star performer if properties are selected carefully and purchased at foreclosure prices. Even if you lose a little of your equity as prices fall a bit further, the “bottom” will not fall out of housing from here, like it might in many other asset classes.
While Wall Street was able to suck the life out of the US housing market by repackaging mortgages and selling them to gullible pension fund managers all over the globe, they cannot repeat this process in reverse, and this should be seen as an opportunity for the mom and pop investor to buy foreclosed properties and rent them out (but lock in those interest rates for 30 years!).
Gold was up over 11% this year, outperforming nearly all of the major stock market indices (we don’t have time to skim through every major stock index so if any of them outperformed gold, let us know). Silver lost over 8% in 2011, after being up more than 57% toward the end of April. The trend for gold from here is hard to predict. If don’t have any, get some, if you have plenty, don’t buy any more.
Commodities as a whole lost over 6% according to the Rogers International Commodity Index. Most of this loss could be attributed to US Dollar strength. Commodity values going forward depend on what the world believes about the US Dollar more than anything else.
So What Does All Of This Mean For 2012?
Euro Debt Crisis
The European debt crisis is far from solved and probably represents the single biggest danger to your money and your job in the coming year. Because just like Lehman Brothers and Bear Stearns in 2008, European banks lent far too much money to “sub-prime borrowers” like Greece, Portugal, Ireland, Spain and Italy. The size of these loans dwarf the size of the bad loans made to U.S. home owners leading to the crisis of 2008, therefore, the size of the resulting fallout is potentially much greater.
Case in point, as of a few days ago, when the ECB extended over 400 Billion Euros to European banks to provide “liquidity” (i.e. life preserving bailout funds), those banks re-deposited most of it back with the ECB – this means that European banks do not trust each other enough to lend money to another Euro bank, not even overnight. Why anyone would hold a deposit with a bank that other banks refuse to lend to, even for a day, is beyond us.
This mistrust stems from the fact that all of the Eurobanks are basically bankrupt, but nobody knows who is too big to fail, and who isn’t, courtesy of an opaque policy emanating from a divided Erupean leadership – whether it is Merkel/Sarkozy, the EBC, the Troika, the IMF or whoever – these parties at the heart equally mistrust each other as much if not more so than their respective banks.
When the SHTF none of the banks know who will be saved by the central financial authorities and who will be fed to the wolves as Lehman was back in 2008. This is a big problem for American banks as well, who also have huge exposure to the European banking crisis, even if this fact is played down by the mainstream financial media.
Wish List For 2012
Rather than make predictions for 2012, we’ll make a wish list of dreams and hopes, similar to a Christmas list, and hope that Santa provides:
Global Financial Meltdown
The global banking system finally cracks, brought about by a “credit event” whereby one or more European countries go bankrupt and/or leave the Euro, potentially caused by a ratings downgrade.
The cascading losses will crush the banking system since no real collateral exists to support the loans gone bad. Any collateral we thought existed in the banking system was hyper-rehypothecated (i.e. ponzied) into oblivion.
Global finance will be exposed for the ponzi fraud that it is, and no amount of Central Bank intervention will be able to stop it. Half of the entire global financial industry, it’s bankers, it’s mutual fund pushers, the media that surround and support it, will be let go, similar to the way excesses in the US housing industry has been routed over the last five years.
The entire financial ponzi bubble will pop, because there are no more newbies making deposits to keep the wheels turning. Governments will be forced to nationalize, rather than prop up, the banks.
The result of this epic financial collapse will create some short term turbulence, possibly with some bank holidays and capital controls, but the 99%ers in the world will be largely unaffected as basic commerce and trade roll on, although long distance trade could be interrupted and replaced with regional and community trade, particularly for food and other necessities.
The 1%ers will be substantially poorer, especially the really greedy ones operating on leverage – they will go bust. Those 1%ers left standing will see opportunities to re-invest in the aftermath, leading to the next great boom.
Africa Gets Sorted
As a result of the financial blow up, corrupt governments in Africa will stop receiving international “aid” and Africans will finally develop their own sustainable food supply, beginning a trend that will make Africa as a whole a net food exporter several years down the road, resulting in a sharp reduction in destitute poverty and civil strife.
The Empire Doesn’t Strike Back
Unable to borrow trillions more to expand its militant empire, America will continue to recall hundreds of thousands of troops and continue to take a less aggressive approach toward foreign policy, relying on G20 agreements to establish global unity and stability going forward. A G20 form of NATO will emerge as the new global police.
Office towers previously filled with bankers, which today are typically the most dominant buildings to be found among city centers worldwide, will remain half empty for awhile, until new and far more “value added” businesses fill the vacuum.
Rooftop vegetable gardens will emerge all across urban centers worldwide as the global agri businesses are exposed for being inefficient and unhealthy in the new normal that prevents long-distance agricultural trade from being profitable.
Big Pharma Implodes
Big Pharma will fail and go bankrupt, due to its reliance on large low interest loans from Big Finance, and regulatory gifts from Big Government. A new skepticism and awareness emerges among people who conclude that “pills and meds” don’t belong in the same sentence as “health care”. Disease prevention through the consumption of healthy foods and taking natural supplements will become the new normal. Americans will once again take health back into their own hands, now that Medicare and Medicaid are effectively bankrupt and unable to feed Big Pharma.
New Energy Rises
New energy will emerge to its rightful place in the world. Advancement in battery technology will provide a family with a full year of energy consumption for their homes and cars, at a price that is on par or cheaper than their current electricity and gas expenditures. Batteries can be charged at centralized charging plants fed by massive but highly efficient energy centers, which are fed by a mixture of clean burning coal, oil, wind, solar, hydro and other perhaps new forms of energy. A new boom in alternative energy and resulting infrastructure development will fill the banking towers with high paid jobs and apply corporate logos to the tops of those towers that are currently unknown to us. Our economy will once again be fully employed.
Ron Paul For 2012
Ron Paul will become the U.S. President for 2012, and will either be the cause of, or the reason for, most of the events listed above. Here is a vivid example of why we need Ron Paul:
Well, that is a lot to ask for one year, maybe a lot to ask for one decade, but if even one of these wishes comes true in 2012, it will be a good year.
Best Wishes For 2012!
P.S. Retire Worldwide is undergoing a major “renovation” and 2012 will be an exciting year for many reasons. We think you will be pleasantly surprised with our new look so stay tuned for updates.
P.P.S If you are looking for a business opportunity for 2012, there is still time to become a Retire Worldwide Independent Business Owner and build your own business on the back of our exponential growth. Retirement is one of the few mega trends we can predict with certainty.
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