2012 Forecast Review

At this time of year, it is beneficial for any forecaster to review the results.

The original report is in italics, and current comments are in normal font.

1) Continuation of global stock market collapse. As readers may recall from my http://whatisthatwhistlingsound.blogspot.com/2010/12/2011-forecast.html, global markets had a valuation of about $51 trillion. Currently the valuation is under $46 trillion. It is my assertion that we will see the markets drop below $40 trillion by the end of 2012.

Did not happen.  Current valuation is about $52 trillion but had dipped to $45 trillion in June 2012.

 2) A spike in gold bullion prices is possible, but only after the air has been taken out of the derivatives markets. Due to the problems of central bank and bullion bank shenanigans we may even see sideways to lower bullion prices in much of 2012 as the authorities strive to maintain the status quo fractional reserve fiat currency system. My year end gold target is $1950.

Did not happen.  Gold continues to consolidate and sits at $1665.

3) Bond market yields among peripheral countries in Europe continue to rise. Spain, Italy and Portugal look particularly vulnerable. Greece is a lost cause. French yield will rise substantially.

Dramatic yield increases in 2012 happened as predicted.  Currently yields have declined through extreme intervention by the ECB.

4) At least one country leaves the Euro in 2012. Greece is the prime candidate. Several other countries are also candidates including Belgium, Ireland, Spain, Slovenia, Portugal and Italy. A full Eurozone breakup is likely by 2013.

Did not happen yet.

5) Cash flows to US bonds becomes significant, driving low yields down even further as the risk off trade moves into full swing due to Europe’s sovereign debt crisis.

Huge inflows to US bonds this year.

6) US 10 year Treasury Note yields fall to 1.75% from the current 2% level as the risk off move deepens.

10 year rate hit 1.39% - even lower than my bearish view, and presently sits at 1.71%.

7) The S&P 500 falls as low as 1050 by year end despite a QE3 type attempt by Ben Bernanke to restart a stagnant American economy.

Not even close.

8) As the European bond market stumbles, money flows out of commodities with crude oil (Brent) dropping below $80 and copper also falling to $2.75. Forecasting crude prices in notoriously difficult as political tensions in the Middle East can quickly increase prices to nosebleed levels. This forecast assumes Iran and the United States avoid a shooting match.

Oil (WTIC) fell to $77 in August and since recovered to the $90 range.  Copper fell to $3.25 and recovered to $3.60.

9) The US dollar index rises significantly reaching our target of 88.

Peaked at 84 in July, and since dropped to 80.

10) The Canadian dollar drops against its US counterpart and heads toward 91 cents.

Fell to 95.5 cents and since recovered to 100 cents.

11) The bull-run in the Canadian housing market ends and the real estate bubble finally pops, thanks in part due to a slower economy and higher down-payment requirements.

Real estate bubble finally shows some weakness but no "pop" yet.

12) More American municipalities file for bankruptcy. While a state bankruptcy is possible in 2012, we will likely see the first state bankruptcies in 2013.

While the final tally is not yet complete for 2012, it appears at least a dozen municipalities have filed for bankruptcy, including Stockton, California, population 291,000, the largest municipality to declare bankruptcy in US history.

13) American banks take serious capital hits from the European crisis and the continuing problems in the domestic residential and commercial loan markets.

Not yet.

14) The high US dollar negatively impacts exports as they become too expensive for Europe and emerging markets.

Some decline in imports is now showing up.

15) Deflation grips the US as GDP grows slows to a crawl, prompting consumers to save even more.

GDP is slowing if one uses an honest deflator in the equation.

16) Inflation in China slows causing a pause in further interest rate increases and then a decrease in interest rates in a vain attempt to prevent a hard landing in China. China’s real estate bubble also deflates substantially.


17) Globalization begins to unravel as trade drops off significantly.

The Baltic Dry Index remains below 1000!

18) Hot money flows out of the stock markets and bond markets to US bonds as a “safe haven” move. The giant move into gold as Exter's inverse liquidity pyramid suggests probably does not happen until 2013 or even later.

The very early stages of this forecast are underway.

19) Democracy comes under siege on a large scale for the first time since the collapse of communism. Civil liberties in many countries are reduced. Russia and southern European states appear particularly vulnerable. 

Definite signs of civil liberty curtailment including in the US.

20) The Japanese bond market experiences its first wave of difficulty in selling bonds.  Yields slowly rise for the first time in many years.

Yields rose from 0.7% to 0.8% over 2012.  While still abysmally low, an upward trend is now in place.