2011 was the year that wasn't. U.S. stock prices were largely unchanged for the year; commodity inflation appeared to be happening, but then didn't; the credit rating of the U.S. government was downgraded for the first time in history, yet long-term U.S. treasury bonds were among best performing assets in the world.
Collectively, it seems like everyone is holding their breath, waiting for "something" to happen. Small investors have fled the markets. Market timers have been scratching their heads as their trend-following indicators have been getting whipsawed since last summer.
So, with a certain amount of hesitation, I offer the following forecasts for 2012...
Economy: Europe will feel the pain going in the spring and may go into deep recession. With no easy solution, countries will be forced to engage in difficult austerity plans, depart the Euro, or restructure payments to bondholders.
The U.S. will experience a comparatively mild recession, but corporate profits will be hit harder than expected in the first half. People will be surprised and markets unhinged.
Beginning in 2012 or 2013 we may see competitive currency devaluation on a global level. Countries will find that the problem with engaging in a race to the bottom is the possibility of winning. Trade wars may reignite as countries attempt to conserve jobs and cash.
Precious Metals: Look for stronger performance in gold than silver. My target for gold prices is at $2,000+ per oz. by the end of the year, with lows in the $1,500 range.
Stocks: Using "alphabet soup" as an inspiration - if this year was a "w", next year may be a "u". This means a weak first half, followed by a potentially strong rebound in the second half. In the middle is a period of uncertainty and volatility. A retest of the 1,100 level of the S&P 500 (12% drawdown from current levels) is quite possible.
Bonds: Interest rates in the U.S. will hit bottom in the first half of 2012 (if they have not done so already). After that, look for a 20-year long bear market in treasury bonds - as investors wake up to the fact that they are earning net-negative interest after taxes and inflation.
Technology: Wireless everything (including memory storage, printers, speakers, etc.) will continue to be big. Flash memory will be incorporated into more notebook computers, and tablet computers will be increasingly used in lieu of ... tablets.
Everyone will continue to be fascinated by 3-D fabrication technologies. This may be a likely place for a boom to occur, in addition to flash memory, organic LED display technologies, and anything involving graphene. We'll be closer to an "internet of things" as our appliances move towards having social lives of their own.
Politics: Radicalization is the byword here and "outsiders" will gain traction in elections around the world. "Elite panic" will be manifested in the form of increased surveillance and heavy-handedness. On a legislative level, gridlock, delay, and confusion will continue.
Social: This is one area where I am optimistic. While politicians are at wits-end, people are already adjusting their expectations and willing to get back to the basics.
Millennials may become the first "post-consumer" generation, as they continue to digitize everything and reconsider making large financial commitments in an uncertain world.
People are learning how to share, as priorities move from ownership to access.
Social transparency is going to be a big deal. You aren't what you say you are, so much as what other people say you are -- based upon their experiences with you. This will become more and more apparent over time.
With social media, people are organizing themselves and learning about things faster than ever before. We've all watched the political revolutions of the Arab Spring, but there is a much broader yet quieter revolution happening right now in how we think and live.
These are a few of my thoughts for 2012 and beyond. Best wishes for a peaceful New Year!