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Mark's Market Blog

12-30-11: Mark's Bold Predictions for 2012

By Mark Lawrence

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Markets didn't move very much at all this week on very low volume, as everyone was home for vacation. Politicians caused no trouble as they were busy drinking at parties. Perhaps we should have more parties and holidays for politicians.

S&P 500 July 12 2011 to December 30,2011

House prices declined a bit this year, with Case-Schiller predicting we have a bit more to go to hit bottom. Others think the bottom was hit this year and prices will stabilize. Time will tell.

House Prices, 1890 to 2020

A couple months ago I told everyone to get a couple thousand out of the bank in $20s. That crisis has calmed - the European Central Bank pumped $650 billion into the European banks' reserve accounts in the last 10 days. This crisis will return, I'm hanging onto my cash, but it's not right in our face.

California adds lesbian, gay, bisexual, transgender and disabled people, to a list of cultural groups whose contributions to the development of the United States must be portrayed in social science course material in public schools. Disabled: FDR, JFK. Who else?

Several states have enacted requirements that some businesses use the federal E-Verify program to determine whether new workers are eligible under immigration laws. Alabama adds a requirement that employers who do business with the government use E-Verify for new workers. Other states adopting E- Verify requirements include Louisiana, Tennessee, South Carolina and Georgia. Countering the trend, California will prohibit local governments from requiring a private employer to use E-Verify.

An Obama administration Dec. 29 memo declares that illegal immigrants have to be held by the states until they're convicted in local courts before the federal government will begin deportation proceedings. The memo also announced a new 24-hour legal-aid hotline for illegal immigrants. Obama sees the Hispanic vote as crucial in several key states.

How did the big banks do this year? Not so good. Here's their stock price record on the year:

Some time ago I wrote that I had a Kindle and liked it. I now have about 155 books on my Kindle; it's about 5% full. Books average about 750k bytes. I now strongly prefer reading books on my Kindle instead of on paper. If you like reading, it's time to consider the change over. It you fly much I can't imagine how you live without this. My Kindle needs a recharge about once a month; I attach it to my laptop's USB port for about 6 hours and it's good for another month. The color models only go a couple days on a charge; I have the B&W and turn off wireless unless I'm downloading. Some books I get on, some from, some I find various strange places on the Internet. I use Calibre (free) to convert from pretty much any format to .Mobi, the Kindle format. A friend sent me a draft of his new book as a PDF; it's on my Kindle now as a .Mobi. Amazon books go straight to my Kindle on wireless, the rest go to my PC, get converted, then I drag them over to my Kindle while it's plugged into the USB port. It takes longer to move the book to the right folder than to download it. Warning: if you convert books yourself, get the metadata right before you load it onto your Kindle or it will never catalog correctly. You need Title, Title Sort, Author, and Author Sort set correctly.

First, a review of my predictions for 2011:

  1. This is the year states start having their credit ratings reduced, and interest rates go up. Nope, I was ahead of my time.
  2. States and cities will wrestle with retirement programs. This problem will not be resolved this year. yes
  3. House prices will decline another 5% to 10% as more and more foreclosures hit the market. yes
  4. Unemployment will continue to hover near 10%. No, unemployment actually declined to below 9%
  5. Oil prices will hover in the $90 to $110 range for the year. yes
  6. There will be several European default scares, but the European central bank will manage, barely, to continue to play "kick the can down the road." Yes, it was just like that.
  7. Fannie Mae and Freddie Mac will continue to run up huge losses on their mortgage backed bonds. yes
  8. This year water hits the radar. No. I was ahead of my time
  9. China continues to inflate their real estate bubble, scaring everyone. yes. It appears their bubble is just starting to burst
  10. Food prices continue to rise in 2011 Yes, but the price increases were not as dire as I had forecast. Ahead of my time again.
  11. Deflation in manufactured goods continues. Yes. This is what has been keeping inflation down in the US.
  12. China and India will be deep into stagflation. No, they continued to grow. Ahead of my time.

Mark's Bold Predictions for 2012:

Tiger will win a major.

There will be a third party candidate, perhaps Trump, perhaps Ron Paul. Obama will win the election with about 45% of the vote. We'll have split government that can't agree on anything except that it's the other side's fault. Meanwhile the deficit will continue to go up.

Unemployment will bottom out then start heading up a bit as recession spreads across the world. We won't see 7% unemployment this year. Absent the rest of the world, the US would continue to recover and the US stock market would continue to go up, but the rest of the world simply refuses to go away.

We'll have another debt crisis, with much kicking and screaming. It will be resolved at the last second.

Debate about entitlement programs will start. Social Security will be seen as under funded and threatened; as a result there will be serious talk about ending disability insurance. Ending SSA DI will be a minor side show, but will be a lot easier than true Medicare / Medicaid / Social Security reform.

Two years ago I said government retirement and healthcare benefits will hit the radar screens. This year the debate will start; not in earnest yet, but it will start. The idea that a bunch of taxpayers making an average of $33,000 per year have to pay retired 52 year old cops and firemen $150,000 per year + health care is going to be discussed. States will propose laws, put measures on ballots, and protests will be seen in many capitals. This problem will continue to grow for four to eight more years before something serious gets done. If you're living on a government pension taking in more than $8,000 per month, expect that sometime between about 2018 and 2022 that will change, and not in a way you'll like.

Europe will continue to teeter on the edge of collapse, but won't quite topple over. They will successfully kick the can down the road for one more year. Bond yields will fluctuate and rise, forcing the European Central Bank to take an ever more active role in funding states. Spain, Portugal and Italy will fall into severe recession. The rest of Europe and the UK will be in just a normal to deep recession. Greece will leave the Euro between March and July. The Greek economy will be all but completely destroyed. Several European banks will be nationalized as a result.

Iran will heat up, flexing their muscles in Iraq, in Afghanistan, in the Straits of Hormuz. Missiles will be tested, naval vessels moved. Inflation in Iran will start to look like hyperinflation. I don't think it's time for war this year, but it will look real close a couple of times.

India and China will fall into what they will consider a recession - growth below 4%. We would be thrilled with 4% growth in the US, but in India and China 4% growth brings the government's stability into question. Food inflation will continue, and these costs will fall disproportionately on India and Asia.

The Occupy / Arab Spring / Jasmine Revolution / Anti-European Austerity protests will continue to grow and spread. Anger and fear will continue to spread among the world's poor, and they will continue to protest against ineffective and incompetent governments world wide. More and more scenes of police trying to control thousands of protesters will fill your TV screens.

To the dismay of the Saudis, the Syrian government will fall. Unrest will continue to spread across the middle east. More governments will be seen as vulnerable.

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