Today is the last trading day of the year, and well, this has been one of those years where you just have to sit back, take a deep breath and be glad that it’s over. If I had told you that we’d go through what we’ve gone through—the tsunami/nuclear disaster in Japan, the Arab Spring, the European debt crisis, the debt-ceiling fiasco here in the States—and we’d still be at the levels we’re at, you’d probably tell me I’m crazy. But here we are. The question is, What’s next?
On the show this morning, I went through what I believe are the three keys that investors should pay attention to in 2012. Below is the Reader’s Digest version.
China: The Chinese are scheduled to cut their reserve ratio by January 3. They’ve already done it once. The strong central government there is easing, quite frankly, because they see that a slowdown is starting to bite. Chinese officials know they have to do everything they can to jump start their economy because it's contracting for the first time and they don’t like it. Meanwhile, China's inflation rate is back under control, down to around 4% from that 9% level. Easing + controlled inflation = a China that’s back online, and a money spigot that is about to open. That’s a good sign for everyone who does business in Asia, everyone who does business with everyone who does business in Asia, and right on down the line. There’s also a misunderstood bubble in Chinese real estate that is causing people to believe that Chinese banks are weaker than they really are.
The Election: There are no two ways about it: This is the most important election of our lifetime. It’s a philosophical battle between people who believe that government creates wealth and people who believe in free markets. It’s Taxulationism vs. Capitalism. And there will be palpable consequences based on the outcome. If Obama is reelected, I don’t think we’ll see an S&P finish 2012 above 1350. If a Republican wins, we could see 1450-1500. It’s that simple.
Europe: How many times did you hear the phrase “kick the can down the road” in reference to Europe this year? When I would be doing CNBC spots and got on the subject of Europe, the producers would be in my ear, asking me specifically not to use that phrase because it had become so tired. But as we’ve talked about, that kicking of the can down the road—that denial—has finally turned into acceptance. The Europeans have opted for a political solution, and they’re going to print up more euros and inflate their way out. Now it’s just a matter of how long it takes to get it done, and whether they do it themselves or come knocking at the Fed window again.
Happy New Year, everyone!