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Tuesday, December 27, 2011

2012 – Things that will happen

Significant economic and political changes will make 2012 a historical year. The globe has experienced relative calm for the past 24 months. That stability won’t last much longer. Events that are not on anyone’s radar screen will matter the most. The following are the things that I think might happen, but it’s the surprises that worry me.

-Silas Kiplagat will win the 1500-meter race at the Summer Olympics in London. The time will be 3:33:22.

-Obama will drop Joe Biden from the ticket. Obama will want a Veep that has a chance to be a viable presidential candidate. He will chose Hillary Clinton.

-Green Bay will beat Denver in the Super Bowl. (Millions of Christians will be disappointed).

-Mitt (the suit) Romney will be the Republican presidential candidate. The nomination will be a fight to the very end. Newt (the fool) Gingrich will come close, but will not get the nod. Romney will announce that his running mate will be South Carolina Governor, Nikki Haley. Her presence on the ticket will give Mitt a chance.

-Ron Paul will run as a third party candidate (Green) He will get 10% of the popular vote. He will upend any chance the Republicans have.

-The presidential election will go to Obama. Ending up with only 44% of the vote, he will not have a mandate.  The battleground states will be Pennsylvania and Ohio. Billions will be spent on getting the votes in those states. Pennsylvania will go to Obama. Ohio will go with Romney. The electoral vote margin will be very narrow as a result.

-The Kepler spacecraft (link) will identify a planet that has the capacity to sustain life (the ultimate safe haven). The scientists at CERN will confirm the observation  of particles exceeding the speed of light. These developments will result in significant rethinking by the scientific community.

-The Senate will be split evenly between Democrats and Republicans. The new VP will have deciding votes on several key issues.

-Republicans will retain their majority in the House. Gridlock will be the outcome. There will be no new legislation of significance in 2012. A lost year.

-Iran will attempt to disrupt sea traffic in the Straits of Hormuz. Naval exercises by NATO, USA and China will be required to escort tankers through troubled waters. There will be an incident culminating in shots being fired. It will scare the hell out of everyone, but full military action will be avoided.

-Iraq will fall into sectarian violence. Car bombings will beset the country. The Kurds, in the north, will attempt to separate themselves from Baghdad. Turkey will get involved as a result of border problems. In the south (Basra/oil ports), the local Shia government will ask neighboring Iran, to help bring stability. The Iranians will establish a police presence.

-Brent crude prices will swing between a low of $80 and a high of $155. The highest level will be reached in September.

-Australia will suffer from a significant economic slowdown. The A$ will fall to 90 versus the buck.

-Cyprus will make a significant new gas find. This will result in territorial claims by Turkey. The UN, lead by Russia, will get involved in the dispute.

-Europe’s economic problems will not be solved. Every effort will be made to kick the can down the road. Neither the can nor the road will collapse; that will happen in 2013. EU GDP will struggle to hold zero.

-It will be confirmed that Iran has nukes and the capacity to deliver them. Iran will successfully test fire a Shahab 3c missile. Israel will not attack Iran.

-The US housing market will stabilize. Rental costs will rise by 7%. This, coupled with extremely low debt costs, will increase the demand for homes. In addition, the costs of constructing new homes will soar due to rising costs of materials. Virtually everything used to build a home (from cement to shingles) will rise in price by 10%. Construction of new homes will remain muted as a result.

-During the year, the ECB will be forced to actively intervene in the EU bond market on multiple occasions. Ten-year yields for Italy will range from 5 to 8%. Spanish yields will rise to 10% at one point. French bonds will reach 7%. The enormous refinancing requirements of EU countries and banks will be a constant problem. The market will become obsessed with the weekly bond auctions. There will be many disappointing results.

-The EU banks will struggle, kept alive by LTROs and E150B of new equity injections into the banks (a la Tarp). Public assistance to the banks will exceed E1 Trillion. The EU banks will not adopt the Basel Core Tier 1 capital ratio of 9% in June; the planned recapitalization will be shelved for a year.  There will be much discussion about the scale of the government’s involvement, which will be recognized as unsustainable. By year’s end, the noose will be tighter and the financial options greatly diminished. By December 2012,  the Euro Zone won’t be expected to survive another year.

-The Swiss National Bank will maintain the 1.20 peg to the Euro. By the end of the year, the talk will be about how much longer the peg will continue. The SNB will acknowledge that the peg was a temporary measure. The speculation will be about how long “temporary” actually is.

-The Euro will range from a high of 1.4 to a low of 1.15. The low for the year will occur in November.

-The Yen will (finally) weaken. The low for the USDYEN will be 76.5 the high will be 90. (It’s a great short). The problem for Japan will be its 200% debt to GDP. Global investors will shun the Japanese bond markets. Ten-year yields will rise to over 2% as a result. While Japan has gotten away with its excessive debt for years and global investors always had reasons to park cash in Japanese Government Bonds (JGBs), there will be no reasons left in 2012.

-As the US’s presence in Afghanistan winds down, the Taliban will retake the country. The chaotic US exit will be compared with the end of the Viet Nam war.

-The Syrian government will fall. The country will face an uncertain future. There will be sectarian violence in Libya. Sophisticated weapons, including SAM missiles will be used. In Egypt, Field Marshal Tantawi, will consolidate power.  Protests will continue throughout the region. The MENA economies will broadly suffer.

-The S&P will range from a low of 900 to a high of 1400. The high for the year will occur before June.

-The US GDP will languish. Growth will range from 1.5 to 2%. There will be clear evidence of a slowdown by mid-year. Unemployment will fall to as low as 8.5%, but will end the year back above 9%. The BLS will report 1.6mm of new jobs created during the year but the “birth/death” model will reduce that by 600,000. Labor force participation will continue to decline.

-Modest economic activity and core inflation above 2% will tie the Federal Reserve’s hands for the first part of the year. Politics will prevent it from acting prior to the election. In December of 2012, the Fed will be free to initiate another round of QE –  an $800 billion Large Scale Asset Purchase (LSAP) will follow. The Fed’s new POMO operations will be divided equally between Treasury bonds and Agency Mortgage paper.

-The Vix will be volatile. The average for the year will be 30. It will exceed 45 twice.

-Greece will continue pretending it wants to be in the EU and tied to the Euro, until July. Its deteriorating economy and inability to service its restructured debt will force Greece to leave the EU and re-establish the Drachma. The New Drachma will trade as high as 1,000 to the dollar (800/Euro). When the Drachma is brought back (over a weekend), the Greeks will formally default on their external debt. This won’t be the crisis that everyone fears, but it will add to the instability in the other peripherals. Populations in Ireland and Portugal will protest that their countries should follow Greece’s steps.

- The Academy Award winners:

Best Movie                      War Horse
Best Director                   Steven Spielberg
Best Actor                       George Cloony
Best Actress                    Michelle Williams
Best Support. Actor       Christopher Plummer
Best Support. Actress    Jessica Chastain
Best Orig. Screenplay    The Tree of Life
Best Adapted  ”              War Horse

-North Korea will be a problematic. Counter to expectations, Kim Jung-Un will not be the actual ruler. The generals will conspire with Kim’s uncle, Jan Song Taek, to take over leadership. There will be an occasional pop shot from north to south. The real trouble will come when NK boards and then sinks a S. Korean fishing vessel. This will bring US aircraft carriers off the shores of NK. China will hate this development. A nasty incident is the most likely outcome.

-The Miami Heat will fail to make the playoffs. LA will beat Boston. 

-Keynesian economic thinking will be further discredited in 2012. The pump-priming Keynesians had their day in the sun, and now people will want a different approach. Paul Krugman will write a total of 100 blogs decrying this development. Larry Summers will write an OpEd for the WSJ warning that the US faces a strategic crisis if it does not contain the trajectory of the national debt.

-Gold will be very volatile. It will fall to below $1400 at one point. It will end the year above $2000.

-There is a significant risk of a big economic hiccup at the end of the year. The election has deferred dozens of tax/spending issues to 1/1/13. There is enough deflationary firepower built into the system to trigger a big slowdown. Post election, there will be just weeks to sort it out, or face the music. The drama and the pain of the just completed election will make it impossible to avoid a conflict.

-Japan will confront two divergent issues. Debates regarding the future development of nuclear energy for civilian use will arise as the true costs of the disaster at Fukushima are realized. Significant portions of the country will have to be abandoned. Costs of encapsulating and cleaning up will exceed $50 billion. At the same time, a growing force within the country will push to develop tactical nuclear weapons. The US’s mandatory budget cuts for its military will elicit an extraordinary change which will take years to play out. Japan will lose confidence that its “protector” will be able to protect it.

-India will surprise everyone. GDP growth will fall from 9% to 3% (well under stall speed). Inflation will exceed 10%. The trade and current account deficit will rise. The Rupee will hit 60 per dollar.

-China’s GDP will fall to 4%. China has already overspent in infrastructure development. The buildout of empty cities will slow and unemployment will rise rapidly. This will stress the country and lead to political protests in many cities.

-Tiger Woods will win a major. 

-China will continue to fund the west. It will allocate more capital to the core countries of Europe. China will get trade deals in exchange for its willingness to buy bonds. The holdings of US treasury debt will decline modestly for the year. The Chinese will react to the ongoing pressure from the US to force the Yuan to appreciate by doing precisely the opposite. The CHY will be worth the same next year as it is today.

-Bank of America will be forced to pare down its asset base. The stock will spend most of the year under $5. The subordinated debt will trade cheap.

-Goldman Sachs will go private. There will be many layoffs. The Squid will end up stronger than ever.

-The San Francisco Giants will win the World Series. The Yanks will be the loser.

-In March, it will finally be determined that MF Global used re-hypothecation to fund its operations. The customer losses will be attributed to this activity. Realized customer losses will exceed $1B. JPM will be identified as one of the banks that grabbed MFG assets in the final days. Customers will file civil claims against JPM, but those will be dismissed. Criminal charges  will not be filed against MFG, Corzine nor JPM. The flaws in the system will be attributed to Reg. T. The Fed will promise a thorough review of the country’s margin rules. Nothing will be completed until 2013.

-AAPL will trade as high as $450. It will end the year under $350. The company will come out with a TV that won’t be much of a success. Apple will lose out to Amazon (and others) in the “Cloud”. This will prove to be a strategic error.

-The cost of solar panels will fall to a level where large scale, privately funded solar farms become viable. The debt for these farms will be functionally secured by a public utility and will be repackaged with shorter maturities that have a AAA rating. The lowest tranches of debt will have returns as high as 20%. Wall Street will love it and so will investors. Some utility stocks will do well as they have secured a source of renewable energy that meets the recently legislated requirements (RECs).

-Boeing’s shares will fall to $55. There will be problems with the Dream Liner.

-Dividend stocks will underperform the broad averages. The observation will (finally) be made that this is a very crowded trade and 2% does not compensate investors for their risks.

-Creative Cause (son of Giant’s Causeway) will win the Kentucky Derby. 

-The Chevy volt will suffer from numerous battery problems. There will be fires that result in serious injuries. The future of GM’s electric car will come into question. The stock will fall to the teens. Tesla’s outlook will become uncertain. Obama’s investment in Tesla will be a campaign issue.

-La Nina conditions will persist for the first six months of the year, bringing a series of big storms to Asia. Substantial new flooding will occur in the Philippines and Thailand. West Texas will have another dry year, the central states will have above average rain, and the North East will have a very bad winter.

-Silver will follow gold up and down. It will underperform gold. It won’t hit $50.

-Narco violence in Mexico will escalate. There will be gun play on the border. Mexico will reiterate its position that the problem is the demand from the gringos, not the supply from Mexico. This thinking will lead to renewed discussion on legalization of Marijuana. Phillip Morris’s stock will rise above $90 in anticipation.

-BRIC investments will continue to underperform. Several big hitters will repudiate this investment strategy. That will mark the bottom of these markets on a comparative basis.

-Global food inflation will continue to be a problem. Global growth will advance by 2%, the cost of feeding ourselves will increase by 5%. Asia/India will bear the biggest brunt of the increasing cost of food. Wheat prices will rise 12%.

-US inflation will remain on the high side. Core will average 2.5% (1/2% above the Fed’s target). CPI will come in at 3.8%. Real inflation will be much higher. Treasury Tips will underperform. The Ten-Year Tips/Coupon spread will widen to 2.75%.

-Few countries will avoid social protests and demonstrations. Many will turn violent. America will not be spared. The angst of the people will be directed at their leaders, their lenders and the IMF. A redo of 2011.

-The election will spur debate on the future of America’s entitlement programs. There will be broad based agreement that the time has come to address the problems with Social Security, Medicare and Medicaid. Politicians will try to divert the focus away from Social Security by pointing fingers at the Disability Insurance side of SSA. While it’s correct that this program is a complete disaster, the DI Fund is not the problem.  The Retirement Fund is the real problem. The attention that DI will get is just a diversion from what is actually wrong with America’s favorite entitlement program. This will be a “young” versus “old” fight. Both sides will come to understand this.

-The summer of 2012 will bring the largest polar ice melt in history. The Mayan calendar will end with no consequence.

Comments

  1. Current WR in 1500m is 3.26,00 by Hicham El Guerrouf of Morocco. That’s hard to beat.
    http://en.wikipedia.org/wiki/1500_metres_world_record_progression

  2. Hicham El Guerrouj of course.

  3. But digging into the content, thats a lot of interesting views! Thanks!

  4. Thanks Reinumag! No record. Am I close on the winner and the time?

  5. Come on, Bruce!! Denver doens’t have a prayer of reaching the Super Bowl!

    Otherwise, some very interesting predictions. I agree with a quite a few of them. It will be interesting to revisit this next year if the Mayans were wrong.

  6. Bruce,

    The Rangers will win the World series.

  7. Bruce.. I see the one year bund is already flashing signals that the ltro isnt helping ease pressure in the EZ banking world.. Any thoughts on this?

  8. Bruce,

    Aaron Rogers is a committed Christian who openly shares and lives his faith, so I’m not sure the Christians will be all that disappointed if GB wins.

  9. It doesn’t matter what the GOP does. Donald Trump, I will guess, will come out as an Independent, on May 21st. He’ll make the ballots in 50 states. And, it will be the “story!” … Just like Ross Perot turned 1992 … into a story of his Larry King appearance … leading to his RUINING the elder Bush’s re-election run. And, giving us Bill Clinton.

    The GOP in a 3 way race, comes in 3rd.

    WORSE: In states that would like to leave their democratic encampments … there’s only the overt social conservatives in the GOP in control. (Won’t be pretty.)

    Ron Paul WON’T get 10%. He will vie with Ralph Nader … and between the two of them … you’ll see them splitting about 5%.

    There will be a lot of cheating! And, a lot of screaming in Blue States.

    Florida will go to Donald Trump! It will start the wave … from the East Coast … all the way out West!

    Toss up states, (and there are 12 of them) … will mostly go to Donald Trump!

    New Hampshire’s primary is either in Mitt Romney’s pocket. Or he is through. (Because he lives in New Hampshire. And, for the past two decades … where he goes out every day to shake hands … Everyone in the State knows him. It’s like voting for your neighbor.)

    What Donald Trump does will matter the most!

    Ron Paul is on par with choosing Pat Buchanan.

  10. Please, big guy in the sky, don’t let Carol’s predictions pan out.

    If Americans don’t GET the true character of The Donald, then they are just scary dense and we’re in even more trouble.

  11. Tea will replace coffee as American’s hot, caffeinated beverage of choice.

  12. Hi Bruce,
    W.R.T, “The S&P will range from a low of 900 to a high of 1400. The high for the year will occur before June”

    What will happen between Jan 1 to June 1st 2012?
    Up or down? Thanks.

  13. Now if you’d written Ted Thompson as the next President of the USA, I’d say what a grand idea!

    So much better than European President’s Von Rumpoy, Barroso and Buzek (give me a break! How may president’s do we need? We are so screwed this side of pond!! Really!!)

    Happy New year, Bruce

  14. Ron Paul will be the nominee for Americans Elect, placing him on the ballot in almost (if not all) 50 states.

  15. You know the pity?

    The politicians in Ireland are the worst of a bad bunch!

    While in Greece, however bad (and down the toilet) politicians are … the people are in control of their destinies!

    The Greeks are fighting the Germans!

    The crazy bankers in Dusseldorf just kept throwing money … because they were making money! The Germans are the SHITS. (Which has been aptly described by Michael Lewis.)

    Never expect anything from the Germans! They are always “in it” … and, to them it meant making money!

    In Ireland, the people were handed money by the Germans. And, so they grew a giant bubble. But the Irish banks didn’t have a stake in this! It was the creeps in Dusseldorf!

    What did the Irish politicians do?

    They went and bankrolled the Germans! They OPTED to “guarantee the toxic loans” with the taxpayers of Ireland.

    And, the Irish? Didn’t rebel.

    The Greeks, however, are rebelling!

    And, both Merkel and Sarkozy have known about this diseased state for at least two years!

    2 years ago, there was a crisis! NOT ANY MORE! For the past two years Sarkozy and Merkel have been negotiating for themselves! As if they can squeeze more power out of the European FAILURE!

    If only the Irish politicians had not guaranteed the German loans!

    The Euro has been a disaster for a long, long time, now.

    Wall Street’s gone bust.

    The old “commission” wells have all dried up.

    Just like back in 1942 … when someone (who was a salesman on Wall Street) wrote a book: WHERE DO THE CUSTOMERS PARK THEIR YACHTS?

    Well, JP Morgan had a space for his yacht. Parked nearby his bank on Wall Street.

    From about 1932 … to about 1955 … Wall Street was dead.

    Around 1952, just as Eisenhower became president, the USA grew the Federal Government. And, businesses began to expand, again. THE GI’s who went to college on the GI Bill, began working … and providing the income to families … that let Americans park a car in their garage. (Where you were either are Ford man. Or a GM man.) And, this country had a successful run.

    How long will the current depression last?

    Could the answer be 80 years or so?

  16. Steve in Greensboro says:

    The Supreme Court will find the individual mandate in Obamacare unconstitutional, but will not invalidate the entire law.

    This will enable Romney-Rubio to still run against socialized medicine and win.

    The Republicans will retain control of the House and gain a majority of the Senate since political conditions have not changed substantially since the 2010 rout and since 23 of the 33 contested Senate seats are currently held by Democrats.

  17. The blog is really nice one and full of information we appreciate the kind of information you have provided in this post. The information are useful for all of us and we would like to thank you from the bottom of our heart for this wonderful information.

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  19. Save for Lebron or D-Wade going down the Heat will very easily make the playoffs as a 1st seed.

  20. You forgot one:

    Ben Bernanke will be indicted for perjury charges. After testifying under oath before Congress that he would not use Fed resources to bail out Europe’s mess, he initiated a new currency swap to do exactly that.

    Basic game theory here: the US government must create at least the appearance of rule of law. And if the Fed has billions of free money to lose, why aren’t they using it to help US homeowners in an election year?

    While the US retreats out of Afghanistan (Krasting’s prediction) — the modern Watergate scandal forces a half dozen criminal “regulators” out of office and into the slammer

  21. WOW.

    Thanks for bolding your Oscar picks. Priorities….

  22. Great minds think alike: I posted my predictions about 12 hours before you did and they’re remarkably similar.. but not all. I think Iran will indeed be attacked if only because Obama will need the Jewish lobby to get reelected.

    http://themeanoldinvestor.blogspot.com/2011/12/predictions-for-2012-flames-of-war.html

  23. Conscience of a Conservative says:

    here’s a contra-possibility on housing.
    Banks can’t foreclose on properties delinquent since 2007, and start deciding not to pay the property taxes on more of them, sparking a crisis at the local level where r.e. taxes are a major source of revenue.

  24. Happy New Year, Bruce, ya sodding liberal. Keep the great posts coming.

    You’re still on my a-list, so long as you don’t mind drinking moonshine, and using shotguns on squirrels.

    All kidding aside, Thanks for the year in posts. Looking forward to another insightful year out of you.

  25. Love the Denver super bowl predication! LOL

  26. For all of you who think my predictions were off the mark consider this from Robert Reich this morning. Is he copying me????

    http://www.huffingtonpost.com/robert-reich/obama-clinton-2012_b_1173300.html?ref=celebrity

  27. Conscience of a Conservative says:

    The Hillary thing is a slam dunk. The belief is she adds to the probability of an Obama victory in 2012 and gives the Democrats a plausible strategy on a 2016 transition(Biden is too old and not a likely winner in a future election). There’s also the theory that this was a deal agreed to back in 2008 by Obama & Hillary.

  28. Hi Bruce,

    May I know your supporting facts for yours: “The S&P will range from a low of 900 to a high of 1400. The high for the year will occur before June”

    TIA..

  29. Both the State Dept and Hilary herself have complained bitterly that Obama kept her in the dark on many diplomatic missions. She would meet with a foreign government and tell them “the message” which supposedly was the administration’s… only to find out the White House had very different plans.

    Obama is a modern Tricky Dick — not someone that can be trusted

    I don’t know if Hilary still has aspirations to run in 2016, but if so she doesn’t need to be Obama’s “leftovers” VP

  30. I like what you say about the Mayan Calendar – it’s just a big fat hoax to divert attention from the impending crash in 2013… just like y2k was for 9/11

  31. “LA will beat Boston”

    The Clippers will mangle the Celtics…in the regular season.

    Neither Boston or LA (Lakers) are making the playoffs.

  32. Interesting entertainment.

    Obama will never have Hillary as a running mate. She should already be president. I agree with a previous poster. She won’t take Barry’s “left-overs”.

    If Obama keeps poking Iran with a stick in a “wag-the-dog” fashion, he will loose the White House because oil will hit the $200 mark as Iran tries to block the straight. Romney will then win the White House and by 2013 mid-year we will be in WW-III

    These predictions are no more possible than yours.

    The reality is, things will whimper along as they have for the last three years. The only thing that will change that reality is if for whatever reason oil tops the predicted $155 point.

    The Pats win the Super Bowl because of a ruling on The field that gets overturned.

    The Celtics don’t make it to the play-offs

  33. The blog is really nice one and full of information we appreciate the kind of information you have provided in this post. The information are useful for all of us and we would like to thank you from the bottom of our heart for this wonderful information.

  34. What will most likely happen in Korea is a continuation of the past dictator’s policies which he had in place. His generals as you point out continue those plans, as his son is a figure head. However as the fan has been turned off, the blades continue but at some point, it will die off.

  35. Great blog – its nice to see someone actually make predictions and stick to them! Even if you’re wrong you had the courage of your convictions.

    Looking back on this now (May 2012) it just proves its pretty hard to predict the future (e.g Oscars, Kentucky Derby). Will you revisit these predictions in Dec 2012?