Prediction Addiction: 2012 Edition

A new year has arrived and that can only mean one thing: forecasts. Lots of ’em. There’s something about a fresh calendar that promotes prognostication in ample quantities. Predicting is still hard, even if supply exceeds demand. But like a highway accident, we can’t avert our eyes. Adjust your expectations accordingly. “In the end the only certainty is that the forecast will either be wrong or lucky,” advises the Colorado-based Business and Economic Research’s warning in its economic outlook for the year ahead. “Either way, the value of the forecast is not in the numbers, but in the forecast story.” It’s a long and winding story, of course, and one that has no end. Where to start? How about right here, with an assorted list of predictions that caught my eye for one reason or another. Who knows? Some of them may actually be accurate.

Let’s consider the big picture for some context. The bidding starts with the Conference Board’s recent forecast of 3.2% growth this year for global GDP. That’s a respectable rise, although there are lots of reasons for wondering if such optimism can survive the year ahead. As Morgan Stanley warned a few weeks back:

We expect upcoming policy decisions in the US and Europe to hold the key to the global growth outlook. With a recession in Europe, anaemic growth in the US and a further dimming of emerging market economies’ growth prospects as our base case, we see global growth falling below its long-term average.

Our bear case is a full-blown recession, and it won’t take much to tip the balance. Our base case assumes that European governments make a big step towards fiscal integration soon that stabilises confidence, and that US Congress extends most of this year’s stimulus. Against the backdrop of recent policy mistakes, these assumptions may seem heroic. Failure on these fronts would risk a full-blown recession in the US and Europe, with global GDP growth falling below the 2.5% recession threshold.

Meantime, it’s a new year and anything seems possible. For example…
US Economy
AP survey: Growth will pick up in 2012, but US economy is vulnerable to turmoil in Europe
The U.S. economy will grow faster in 2012 — if it isn’t knocked off track by upheavals in Europe, according to an Associated Press survey of leading economists. Unemployment will barely fall from the current 8.6 percent rate, though, by the time President Barack Obama runs for re-election in November, the economists say. The three dozen private, corporate and academic economists expect the economy to grow 2.4 percent next year. In 2011, it likely grew less than 2 percent.
Associated Press
US Stocks
3 Experts Weigh In On 2012
Last month the well-known mutual fund manager Bill Miller announced his retirement as portfolio manager for the Legg Mason Value Trust, a mutual fund that made history by beating the S.& P. 500 for a record 15 consecutive years. He was named fund manager of the decade by Morningstar in 1999. But no one is infallible, and Mr. Miller stumbled in 2008 by betting on a recovery in United States financial stocks that never happened. His fund has now trailed the S.& P. 500 for five of the last six years…. Like many contrarians right now, Mr. Miller is bullish on stocks. “A great deal of pessimism is already built into the U.S. equity market,” Mr. Miller said when I caught up with him. “The market is trading at 12.5 times earnings. Basically, the market is expecting no growth in corporate profits from here indefinitely. The S.& P. 500 dividend yield is higher than the 10-year Treasury yield. This only happened at the bottom of the financial crisis, and before that you have to go back 50 years. “After two years of headlines on Europe, beginning with Greece, my view is, everything about Europe is discounted except the complete collapse and disintegration of the European Union,” Mr. Miller continued. “Everything but the worst-case scenario is baked in. Recession? Yes. Political dysfunction? Yes. Bad austerity policies when they need to promote growth? Yes. Those are in the headlines every day and it’s priced into U.S. stocks. I’m not so sure about European stocks.”
NY Times
US Bonds
Bond mutual funds could defy gravity again in 2012
Clearly, investors and fund managers are jittery and their wait-and-see stance looks to be mildly supportive for stretching the 2011 government bond rally into at least the early part of 2012. “The economic toll for this uncertainty in Europe and the rest of the globe will become clearer over the next few quarters,” said Don Quigley, manager of Artio Total Return Bond Fund, which added 7.8% in 2011. “We see Europe moving into recession. U.S. Treasury rates should remain well behaved due to slow growth prospects.”
N. American oil output could top 40-year-old peak
North America appears headed for an oil renaissance, with crude production expected to hit an all-time high by 2016, given the current pace of drilling in the U.S. and Canada, according to a study released by an energy research firm this week. U.S. oil production in areas including West Texas’ Permian Basin, South Texas’ Eagle Ford shale, and North Dakota’s Bakken shale will record a rise of a little over 2 million barrels per day from 2010 to 2016, according to data compiled by Bentek Energy, a Colorado firm that tracks energy infrastructure and production projects.
Houston Chronicle | Dec 30
China’s Economy
A China Daily survey finds growth is likely to slow down
China Daily surveyed numerous economists – all opinion leaders in Chinese economic studies – and while they differ on many topics, they seem to agree on one thing: The Chinese economy is set to slow down. No one is sure how serious that slowdown might be, just as few anticipated that GDP growth in China, in the first quarter of 2009, would drop to slightly more than 6 percent (from its usual 10-plus percent) in the wake of the global financial crisis. As one economist says, China risks a hard landing if the economies of the European Union and the United States are worse than expected and the country’s property market slumps too fast.
China Daily | Dec 30
BlackRock’s Bob Doll sees hopeful signs in 2012
Q: And what about the big drag on the economy: housing. Is there a turnaround on the horizon?
A: My view is that we are probably in a long-term bottoming process in real estate. According to the Case-Shiller index, the cataclysmic decline in home prices has long ended and prices bottomed out in May 2009. But we’ve continued to bounce along. Banks are unwilling to make mortgage loans and many loans are higher in value than the homes. All that’s kept the real estate recovery very slow. New construction is taking place at just half the pace of population growth. At some point those things will have to balance out.
Associated Press
Mortgage Rates
Refinancing Gets Even More Attractive
The average interest rate on a 30-year mortgage fell to 4.05% for the week ended Dec. 23, the lowest in 60 years, according to HSH Associates, a mortgage-data firm. And rates on jumbo mortgages—private loans that in most parts of the country are larger than $417,000—also have hit new lows, averaging 4.61%. “It’s hard to argue rates will get much lower than they are today,” says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.
The Wall Street Journal
Commercial Real Estate
2011 Review & 2012 Outlook
Real estate investments should become increasingly attractive in 2012, in our opinion. Gradually improving supply conditions, coupled with moderate growth in demand from the U.S. economy, may produce attractive returns for many areas of commercial real estate. In addition, with the potential for higher inflation on the horizon, real estate investments should be emphasized as appropriate because, as an asset class, real estate has historically generated positive performance during periods when costs rise more dramatically.
US Bank
Gold Set For 11th Straight Annual Gain; Prospects Seen Rising In 2012
Morgan Stanley has cited gold as its top commodity play for 2012. And VTB Capital analyst Andrey Kryuchenkov Friday advised investors to remain long on gold entering a new year. ”Longer-term players and physical buyers are likely to return to the market in the first half, while the latest price retreat could serve as a good encouragement for hesitant market participants,” he said. Kryuchenkov suggested that investors be realistic in 2012. ”There is little alternative to gold in times of economic uncertainty, despite the recent rush for the dollar,” he said.”Gold stands on its own in terms of safe haven buying and bullion allocations are only likely to gain with currency protectionism still at large.” Economist Dennis Gartman, who has been neutral on the market since mid-November, said he is “about to become bullish once again” on the yellow metal. ”Commodities prices generally are weaker, but as the year ends the precious metals are rather sharply firmer and we are impressed with that strength,” he told clients today.
Outlook for Currency Markets in 2012
Given the current level of volatility and uncertainty it is extremely difficult to call the direction of forex markets as we head into 2012. The trend will be very much determined by how markets react to ongoing events in Europe, as well as the tone of Q4-2011 and Q1-2012 economic data. At the same time though, while there are some underlying concerns about the US (sub trend growth as well as a high fiscal and current account deficits), sentiment appears to be generally favouring the dollar right now. The eurozone debt crisis remains the central focus for markets, suggesting downside risks for the euro. The outcome of the EU Summit in early December outlining plans to work towards greater fiscal integration in the eurozone failed to provide any real comfort to the market, with the $1.30 level coming under threat as rating agencies talk of sovereign downgrades. Despite numerous summits and eurozone finance minister meetings aimed at resolving the issue, if anything the stakes in Europe are now even higher and this will be a key theme for markets in 2012.
Allied Irish Banks Global Treasury Service