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Saturday, December 29, 2012

A Re-look at my “Calls” for 2012

 

A year ago I made a number of projections for 2012 (Link). The following are ones that I got more right than wrong:

 

2012

 

-Mitt Romney will be the Republican presidential candidate. The election will go to Obama. The battleground states will be Pennsylvania and Ohio. Billions will be spent on getting the votes in those states. Republicans will retain their majority in the House.

 

-There will be no new legislation of significance in 2012.

 

-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.

 

-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.

 

-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.

 

-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.

 

-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 Swiss National Bank will maintain the 1.20 peg to the Euro.

 

-The Euro will range from a high of 1.4 to a low of 1.15.

 

-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 US GDP will languish. Growth will range from 1.5 to 2%.

 

-Keynesian economic thinking will be further discredited in 2012.

 

-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%.

 

-The San Francisco Giants will win the World Series.

 

-The cost of solar panels will fall to a level where large scale, privately funded solar farms become viable.

 

-The Chevy volt will suffer from numerous battery problems.

 

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

 

-There will be more discussion on legalization of Marijuana. Phillip Morris’s stock will rise above $90 in anticipation.

 

-BRIC investments will continue to under perform.

 

-Global food inflation will continue to be a problem.

 

-The presidential election will spur debate on the future of America’s entitlement programs.

 

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

 

Important calls that I got wrong included:

 

-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.

 

A year ago I thought that it was not remotely possible for the ECB to come to the rescue of the EU with an unlimited offer to buy up the sovereign debts of Spain and Italy, much less an endless bailout of Greece. I was dead wrong with those expectations. That stance cost me.

 

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

 

This was a very big miss, and yes it also cost me. I kept waiting for the “Really big move” up (or down) for entry and exit points. That didn’t happen, and I ended up under-invested for the year.

 

-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.

 

I completely missed the big move in bank stocks in 2012. I am still surprised at the investor enthusiasm for these dogs. I don’t think banks area short in 2013, but I don’t see the upside that most do.

 

We’ll have to wait to see how I do in 2013.

 

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Comments

  1. I love your calls, but giving yourself points for “numerous battery problems” for the Chevy Volt is honest. It is simply untrue. Two Volts experienced fire two weeks after being demolished and left untended during vehicle testing by govt testers. If one were to crash a standard vehicle, leaving the gasoline in the gas tank which was cracked during the crash would anyone think it remarkable that it caught fire? During any given year, about 250,000 gas powered vehicles in the US catch fire in normal use or crashes. Over three years of production not one single volt has caught fire during operation, in an accident, or any other way – with the possible exception of catching fire when a house burned down for OTHER reasons not related to the Volt.

    I have a Volt, of 12 cars I’ve owned, it is by far my favorite. It works, it’s cheap to operate, it drives like a sports sedan. US manufacturers have made tons of poor decisions and poor products…the Volt is NOT one of them!

  2. I bet those misses u had were due to heavy duty manipulation rather than being dead wrong.

  3. How the hell did you know that the SF Giant would win the Series????

  4. No matter how discredited “Keynesian” thinking gets, there are stupid people who will insist on doing it anyway. Nobel Prize “winners”, politicians, people who never pay bills — more generally humans who are a waste of otherwise perfectly good carbon, oxygen and hydrogen atoms.

    PS – Keynes himself never advocated the policies that liars and deadbeats attribute to him

  5. as a die-hard sf giants fan, last year i wrote you off as a crank based on that call. not bad predicticating, not bad. i’ll pay closer attention this year.

  6. Bruce,

    Your blog is great; while there’s not much in the way of economic theory, there’s a lot of data-driven practical insights. In that vein, though, what makes you think that Keynesian economic thinking has been discredited? First, where has it even been tried (and no, Obama’s stimulus doesn’t count as a real try)? Second, what other economic theories can explain: (a) why austerity has failed to revive the U.S., U.K. or other economies, and (b) why interest rates and inflation remain so low, even years after the austerians have been predicting runaway inflation any day now?

    WZ

    • WZ, the truth is it has never been tried. The problem with keynesian economic models is that it is a theory that cannot, or is unable to work in real life because it does not account for human nature. As practiced, it is nothing more than cover for governments to spend more than they raise from taxpayers, in perpetuity.

      The temptation of governments to spend OPM is just too great. When was the last time a government that started running budget deficits in a downturn reversed into equal sized surpluses during an upturn? It will never happen. Deficits are like opiates, very addictive and almost impossible to stop once you start.

  7. Oh, and as for the ‘austerity’ being practiced by most governments, it is at most only a slowing of the growth of the deficits. In the context of those governments, it is overselling hat they are doing. Nothing more than an annoying slogan. These governments only option is to inflate their way out of trouble by printing money hand over fist until their debt is worthless, and even then that may not work as they clearly don’t have the stomach to live within their means. They’re buggered.

    The only use for all this ‘austerity’ posturing as far as I can tell is as a lesson for my country not to allow deficit spending to go on too long, and that we need to return to surplus as soon as possible, like we were running before the current clowns conned their way into government. And given the nature of politics making it impossible to run a substantial surplus, the five years of deficits will no doubt require 20 years of surpluses to pay back the debt.