6 top economic stories to track in 2012
Every January I make a list of the economic and investing events the financial media expect to occur over the course of the year. (Last week, I reviewed 2011's big economic and investing predictions, which .) Today, we'll look at the top six stories the major media say will unfold in 2012.
European recession
The first forecast is that Europe is headed for recession due to the debt crisis and the budget-cutting policies governments adopted to address their problems. The media's conclusion is that investors should avoid European stocks. This prediction is particularly interesting because it's virtually the opposite of what we were hearing in 2008, which was to invest in Europe and avoid U.S. stocks because of financial problems here at home.
Slow U.S. growth
The second supposedly foregone conclusion is that the U.S. economy will experience sub-par growth in the range of 2 to 2.5 percent (at best), with unemployment remaining virtually unchanged. Headwinds include the problems in Europe, slower expected growth in China and India, budget cuts at the state and city level, and the persistent pressure of paying off existing debt on the part of consumers.
Big U.S. inflation
The third consensus expectation is a repeat of last year's call on prices: U.S. inflation will spike because of the gargantuan amount of monetary stimulus the Federal Reserve poured into the financial system. Prices will expand rapidly, led by commodities and, especially, gold.
Interest rates will jump
The fourth "sure thing" for 2012 is the belief that investors should shun everything except short-term bonds because interest rates are set to rise significantly. (See inflation, above.)
Invest in fast-growing countries
The fifth big call of 2012 is that the best place to invest will still be in fast-growing economies like China, as well as other emerging markets.
The stock market will go up
Finally, the average expected gain for the S&P 500 is 6 percent for 2012. The Wall Street Journal surveyed investment strategists from 13 Wall Street firms, who collectively pegged the S&P 500 to close 2012 at 1,334, up from its 2011 year-end mark of 1,257.
The forecasts ranged from as low as 1167 (Morgan Stanley (MS)), to as high as 1500 (Deutsche Bank (DB)). Seven of the outlooks were clustered between 1325 and 1375. If you exclude Goldman Sachs' (GS) forecast of 1250 (which is essentially an estimate of flat performance), only two firms expect stocks to decline this year -- Morgan Stanley at 1167, and HSBC (HBC) at 1190.
So that's our list. We'll report back at the end of the first quarter to see how these prognostications are panning out. What are some of the bold predictions you've seen for 2012?