2012 Predictions! (ZT)

At the beginning of each year I have been bold enough to make predictions, both economic and societal, as to what I think will or may transpire in the coming year. This year I have divided my 2012 predictions by what I see as particularly important countries or geographic areas. I then have followed those country/area forecasts with some general comments on the financial markets, gold, and silver


my 2012 predictions:

Europe and the Eurozone:

• I expect unemployment to increase in the United Kingdom, and I expect the UK economy to weaken over the course of the year based on both internal problems and external issues related in particular to the Eurozone;

• I expect Eurozone politicians to continue to procrastinate, and to defer for as long as they can the sovereign debt issues currently plaguing all Eurozone countries - but some countries more than others;

• I expect Eurozone sovereign debt issues to remain at the forefront of economic concern throughout 2012, and see those issues in 2012 potentially seriously exacerbating; and,

• I expect the credit ratings of European banks to drop further than they already have. It will not surprise me if one or more European banks fail. If that occurs I believe there will be a waterfall effect on some of the large U.S. banks.

The United States

Notwithstanding the United States is still by far the world's largest economy, I have discussed it second because of what I see as very severe Eurozone problems which, if unresolved, I believe could have a large impact on the United States economy in particular. My forecasts with respect to the United States are as follows:

• I expect Washington politicians to remain polarized throughout this Presidential election year. In the end, I believe President Obama will be re-elected for a second term;

• I believe quantitative easing in some form, and on fairly large scale, is virtually certain to occur in 2012. I think this in part because I believe U.S. politicians (particularly Democrats) will see it as being needed, quantitative easing decisions are ostensibly made by the U.S. Federal Reserve and not the U.S. Senate/Congress, and in part because 2012 is a Presidential election year. In the latter regard, I think both the Democrats and the Republicans in the end will think it will prove better to have Main Street America populated by friendly 'voters', instead of unfriendly 'revolters';

• I expect to see increased capital spending in the private sector on technological equipment that requires less labour input;

• I do not see U.S. unemployment rates improving through 2012. In fact, if anything, on the balance of probabilities I expect structural unemployment in the U.S. to increase, and U.S. unemployment rates to worsen as 2012 unfolds. With that, I expect to see more social demonstrations, and perhaps increasing levels of social disorder in the United States than was experienced in 2011;

• I do not expect U.S. house prices to improve significantly through 2012. In fact, I think U.S. house prices might continue to drop through 2012. I do expect to see an increase in the number of houses in foreclosure;

• I expect to see the U.S. revert to technical recession sometime during 2012, where technical recession is defined as two or more consecutive quarters of declining GDP;

• I expect the U.S. in 2012 to continue to run net monthly trade deficits, and incur significant budget deficits at all U.S. (federal, state, and municipal) levels. It follows that I expect the U.S. Cumulative National Debt to continue to increase during the year to the detriment of the prospect of the U.S. overall economic circumstance;

• it will not surprise me to see an exacerbation of U.S. state and municipal debt problems in 2012;

• I expect some of the large U.S. banks to suffer from their exposure to Eurozone sovereign debt, and possibly in 2012 from their derivatives exposure. I also think that 2012 might be the year the 2008-2009 change in accounting mark-to-market rules may catch up with what I think likely are in many cases inflated bank 'book shareholders' equity' balances; and,

• I see the U.S. dollar being priced against other Fiat currencies based on the markets perception of the relative strength of the U.S. dollar measured against the point in time relative strength of other currencies as the year progresses. I expect the U.S. dollar through 2012 to continue to be viewed as the world's safe haven fiat currency. I am not sure what impact the relative strength of the U.S. dollar and its perceived safe haven perception will mean to the price of physical gold through 2012, but if the U.S.$ is strong in 2012 I expect that to influence the price of physical gold downward from what it otherwise would be.

China

With respect to China, where I claim no detailed knowledge but rely on what I filter and read:

• I intuitively think that enough commentators with varying degrees of expertise are commenting on the prospect of reduced GDP growth in China in 2012 that this indeed may happen. Because a drop in GDP would occur "at the margin", it seems to me any reduction in China's GDP growth might have a multiplier effect in the developed countries that supply China with resources and other non-agricultural products;

• that said, I expect China's 2012 GDP growth to be sufficient to continue to advance China's economic growth and to continue to advance China's role in world economic matters;

• I expect China to continue to look to make, and succeed in making, strategic resource investments around the world - 'cherry-picking' the best of those where it can;

• I expect China to maintain or increase its current level of physical gold purchases, and throughout 2012 to generally to work to reduce its U.S. dollar exposure;

• I continue not to see China taking steps to alter its currency exchange rates unless to do that is perceived by China to be in China's favour; and,

• I think the change in China's Central Government players expected in 2012 is something to follow and observe closely.

Middle East

With respect to the Middle East (and parts of Africa):

• from what I have read, I don't expect Middle East oil production to increase significantly, if at all, in 2012. As a result I expect world oil prices to remain at or above current levels unless there is a worldwide recession or depression;

• I expect we may see more societal disruption in the Middle East (and in North African and other African countries) in 2012; and,

• based on what is ongoing in the Straits of Hormuz and with Iran's alleged nuclear program as I write this, I think it highly likely that Iran will continue its aggressive posturing, and that the United States will continue to respond in kind. Whether it happens in 2012 or beyond, I think there is a real possibility of this ultimately leading to major military confrontation. If that occurs, I think all 'forecasting whiteboards' will be immediately erased, and all general and country specific predictions and forecasts made by me or anyone else will need to be rethought.