10 x 12 – Our Global Macro Thoughts for 2012
Strategic Financial Group’s
10 x 12*
A set of macro thoughts for the Year 2012
A single theme guides our thoughts in 2012:
There are no more surprises in this Topsy-Turvey world.
In fact, it would be a surprise to us if there were no surprises in 2012.
1) Market v. The Fed – Long duration US $ Bond Prices Dramatically Fall
The long held maxim of “don’t fight the Fed” gets its first in what will be a string of tests from “the market.” This results in long dated US Treasury Bonds moving north of 5% and 10 Years break 3.5%.
2) Emerging Markets a little less Emerging –EM Equity and Bonds Perform Well
In line with our long held ideas around global re-balancing, we see emerging economies – particularly, but not exclusively those in the BRIC countries (ex Russia) – performing well in 2012. More intramural trade as well as moderate growth in domestic demand will combine in a powerful economic 1-2 punch of growth. The world will also begin to seek out those less-indebted economies as a new “search for yield” grips confounded investors. +9% in Equity and +4% in Bonds.
3) The October Surprise
The US launches attack on Iran during 2012. In addition to concerns about Iran’s nuclear ambitions, continued threats of closing the Straits of Hormuz combined with saber rattling in the form of missile tests provokes an armed confrontation between the US and yet another Middle Eastern power. Oil briefly visits $130
4) Natural Gas Triples
Further illumination of the relationship between hydraulic fracturing – or “fracking”- and earthquakes forces State and the Federal officials to put a halt to the majority of fracking operations in the US causing Natural Gas prices to triple.
*Thanks to Mike Bennan at for helping clarify our Natural Gas thoughts.
Much like our muddle through call for the US last year we see Europe following in the US’s footsteps and muddling through. While the current EZ and EMU pacts are to be sure flawed, they are not, conceptually, a bad idea. Europe and the Europeans themselves have much to gain from a single monetary union and more importantly a single enforceable set of fiscal policies. That said, if the ECB prints Euros, European equities will print double digit returns.
6) Obama wins 2012 General Election in landslide larger than 2008
The administration comes up with 3 very simple charts to illustrate to the American people that they are better off than they were in 2008/09 period. They are:
- S&P 500 – Sitting at 1300 in Oct
- Unemployment – hovering at 8.2% in Oct
- Number of US jobs “re-shored” from 2009-2012
7) Euro Survives and after making a short appearance at 1.10 makes a run at 1.50 v. $
Despite calls for Euro Parity we think not only does the Euro survive but in a competitive race to devalue currencies Ben Bernanke wins every time. Peripheral countries begin to show signs of stabilization and the initial Euro weakness catches a bid as investors realize unfunded liabilities higher taxes and State & Local US finances are a much bigger mess than currently understood.
8. American crop yields surpass all-time highs and set new price floors
Julian Lincoln Simon emerges from the grave to witness The Ultimate Resource in grain yields of 164.7 in Corn and 44 in Soybeans. The price floor comes out of renewed demand from the emerging economies but not until the second half of 2012.
9) China’s Next Fixed Investment – Agriculture
As the property bubble burst, the Central Planning organization in China will focus on ways to improve farmland productivity. This will cause another counter cyclical rally in terms of US and European durable goods shipments to the “lone star” country. It will also contribute to the aforementioned drop in Ag prices.
10) Global GDP
Unfortunately like last year we will see rather sluggish GDP growth in 2012. We think 2.3-2.7% for the US, a mild recession for the Euro Zone and 3.5% for the globe.
*This year’s title comes from the actual size of my apartment in New York while I attended graduate school in the early 1990s. We are happy to report that I now live in slightly larger accommodations.
- Strategic Financial Group
Investment Advice offered through Strategic Financial Group LLC, A Registered Investment Advisor.
Comments are closed.