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Six predictions for 2012?
Old 01-16-2012, 10:05 AM   #1
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Six predictions for 2012?

Here are six predictions for 2012 we are advised to watch to see if they come true.

6 top economic stories to track in 2012 - CBS News

Sounds like a good time to get the AA back in balance, make sure one is diversified and relax.
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Old 01-16-2012, 10:31 AM   #2
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Here are the six for easy reference:

1. 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.

2. ...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.

3. 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.

4. ... investors should shun everything except short-term bonds because interest rates are set to rise significantly. (See inflation, above.)

5. ...the best place to invest will still be in fast-growing economies like China, as well as other emerging markets.

6. Finally, the average expected gain for the S&P 500 is 6 percent for 2012.
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Old 01-16-2012, 10:36 AM   #3
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Eventually, inflation will rise. Will it occur in 2012? Hard to know -- especially if Europe is in a recession. And if commodity inflation occurs, wouldn't the best place to invest be in commodities and commodity related stocks, not short term bonds? Although I do agree that I would avoid buying long bonds right now, since they have limited upside and substantial downside.
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Old 01-16-2012, 10:37 AM   #4
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You might want to read this (also CBS News) before you make any important moves...2011 Best & Worst Financial Predictions
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Old 01-16-2012, 10:43 AM   #5
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7. The sky is falling as it has been for the last five years.

Just the same, I do hope we see a little more honesty and reality about the real cost of living for most folks and how it's rising considerably faster than the CPI.
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Old 01-16-2012, 10:52 AM   #6
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Originally Posted by REWahoo View Post
Here are the six for easy reference:

1-2 Removed

3. 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.

4-6 removed
So me and my finance buddy have been saying this for last 4 years, inflation is going to come back. Hrmmm where the heck is it?

So because this is interesting to me, I have been thinking about inflation and listening to what economists and analysts have to say. Are we wrong that inflation is ready to burst out? One possible outcome I have come up with:

Prices go up because of weakening dollar, due to pumping stimulus noted in #3. Also due to demand for commodities from developing countries. However, what is damaging with inflation is the cycle of higher prices and then wages go up in response, then prices go up in response then wages go up... you get the point. The damaging thing is the sprial of prices and wages fighting each other.

What if prices go up but wages can't because of 6Million folks looking for jobs? Then we could see 3-4% price inflation for a number of years, not fun for folks that don't keep up with wage increases or fixed income that don't have an escalation clause (pensions without cola or self funded retired that don't have investments that respond to inflation), but it doesn't put us in the inflation sprial we saw in 80's.

So I know that if we see traditional inflation, buy assets that will keep up with inflation (gold, realestate, diamonds, food under the bed) as bonds and equities don't do well in relation to inflation.

However, what if we have moderate inflation that the Fed can't or won't stop, because we as a country have to inflate our way out of the debt, we can never repay it with some moderate inflation. What can you do with your hord of cash to protect from that? The only thing I can think of now is we have borrowed $$ to buy rental realestate at today's low rates being convinced the 4% fixed rate money we owe today will look like gold when inflation kicks in.

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Old 01-16-2012, 11:32 AM   #7
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It seems that inflation is here, at least for me. I went grocery shopping yesterday. A loaf of cinnamon/raisin bread was on sale for $5.99. It wasn't even "organic."

I didn't purchase it; I think I'll bake it myself.
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Old 01-16-2012, 12:34 PM   #8
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6. Finally, the average expected gain for the S&P 500 is 6 percent for 2012.
This must be incorrect. It is too close to my 5% prediction for 2012. I have never been close to correct in making this annual guess.
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Old 01-16-2012, 12:43 PM   #9
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It seems that inflation is here, at least for me. .

It does seem that our spending has been impacted by price increases over the almost six years since FIREing. This despite all the hand waving and shouting about deflationary fears that took place recently. Utility bills are up. Groceries are up. Insurance, including med insurance, is up. Property taxes are up. We're doing OK, but some of the slack in our budget has definitely been absorbed by higher prices for many of our basic expenditures.
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Old 01-16-2012, 12:43 PM   #10
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Originally Posted by Gumby View Post
Eventually, inflation will rise. Will it occur in 2012? Hard to know -- especially if Europe is in a recession. And if commodity inflation occurs, wouldn't the best place to invest be in commodities and commodity related stocks, not short term bonds? Although I do agree that I would avoid buying long bonds right now, since they have limited upside and substantial downside.
I'm not expecting a big rise in inflation (other than what we are already seeing at the pump and in the supermarket) this year given the unemployment, housing market, european economy tetering on a recession and a still fragile U.S. economy. Agree about keeping bond durations short, and right now I'm a bit light in commodities and may start averaging back into that slice. I'm also light on international/EM, and that too could be a buying opportunity at some point.

That said, who knows what will happen, until crystal balls are invented that actually work
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Old 01-16-2012, 01:02 PM   #11
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Items 2 and 3 are completely contradictory, so I don't think you have to worry about item 4 in 2012.

I prefer intermediate duration bonds. I think short-term bonds are overvalued because so many folks are hiding out there expecting interest rates to rise soon.
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Old 01-16-2012, 01:06 PM   #12
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Thoughts
We don't have wage pressures contributing to inflation. We have the opposite situation.
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Old 01-16-2012, 01:09 PM   #13
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Folks who follow macro economic trends (posters on Morningstar) are pretty convinced that the US dollar will strengthen in 2012. This is related to item #1. This will also help reduce inflationary pressures.
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Old 01-16-2012, 01:28 PM   #14
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1. The federal government will make emigration illegal.
2. The oceans will die.
3. There will be war with Iran. We will lose.
4. Hyperinflation in the US will destroy retirement.
5. Medicare payments will consume 120% of SS.
6. Taking vacation will become a federal crime.

I had some really negative things to say, but I forebore. I was going to say something about the Euro disappearing, but I think that our government will step in. See? It ain't all bad.
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Old 01-16-2012, 01:45 PM   #15
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7. The sky is falling as it has been for the last five years.
I think that is an accurate statement, even if you meant it tongue-in-cheek. The sky has been falling for 5 years, it just hasn't 'landed yet, imo.
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Old 01-16-2012, 01:53 PM   #16
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Originally Posted by Chuckanut View Post
Here are six predictions for 2012 we are advised to watch to see if they come true.

6 top economic stories to track in 2012 - CBS News

Sounds like a good time to get the AA back in balance, make sure one is diversified and relax.
Well, you are right. Rebalance, diversify, relax, and turn off the noise. After all there are people that don't know and people that don't know they don't know.
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Old 01-16-2012, 01:55 PM   #17
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I think that is an accurate statement, even if you meant it tongue-in-cheek. The sky has been falling for 5 years, it just hasn't 'landed yet, imo.
I think they said the sky will fall on 12/21/2012.
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Old 01-16-2012, 02:54 PM   #18
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Well, you are right. Rebalance, diversify, relax, and turn off the noise. After all there are people that don't know and people that don't know they don't know.
My point, exactly, Ripper. They don't know any better than the people who made predictions for 2011, 2010, etc. If one has a good plan, stick with it. Just watch to make sure the assumptions behind your plan don't need to change. Sometimes they do, but not too often.
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Old 01-16-2012, 04:19 PM   #19
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We don't have wage pressures contributing to inflation. We have the opposite situation.
Then why are prices rising so much, at least for "essential" categories like food, energy, health care, insurance and education (among others)? I agree that wage pressures are nonexistent -- but that hasn't stopped prices for most essential items a working class family has to purchase.

The textbooks would look at our situation and suggest there should be little or no inflation. And that is true for housing, for wages and for some big ticket "discretionary" items.... but is definitely *not* true for the essential things that dominate a modest budget.
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Old 01-16-2012, 08:23 PM   #20
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I think they said the sky will fall on 12/21/2012.
Why can't THEY wait 'till after Christmas?
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