Ten Themes for 2012
Vibes with a forward looking lens.
Editor's Note: Todd Harrison will be out today due to a personal family matter. He will return tomorrow to Minyanville and the Buzz & Banter.
"A year has passed since I wrote my note. I should have learned this right from the start." -The Police
Last year was chock-full of meaningful moments. We witnessed an Arab Spring, a Japanese earthquake, a summer crash, and a royal wedding. Wall Street was occupied and the US credit rating downgraded. We paid respects to icons such as Steve Jobs, Joe Frazier, Elizabeth Taylor, Clarence Clemons, and Al Davis.
The financial markets, however, never look back - they discount the probabilities of what will happen in the future. As such, in no particular order, here are ten themes that could evolve as the year unfolds:
1. Interest Rates
Policymakers have done everything humanly possible to maintain a zero-interest rate policy with hopes of spurring lending and encouraging spending. As 2012 progresses, market forces will begin to spur the migration toward higher rates, which will negatively impact bond markets.
There is a light at the end of the Autobahn but with $200 billion in debt maturing in the 17-member Eurozone in the first quarter alone, the overseas dynamic should get worse before it gets better.
Keep an eye on the Germans. If they allow the issuance of "euro bonds," stock markets around the world will react favorably as obligations are (again) pushed into the future. Absent that, expect to see plans mapped for a slimmer European Union.
3. Real Estate
It's impossible to catch the bottom of a housing cycle but investors with a ten-year time horizon will hunt for bargains-and find them!
With mortgage rates at all-time lows, seeds of the eventual recovery will begin to sow. This will be a prolonged process, but every journey begins with a single step.
If you thought the partisan bickering was tough to swallow last year, brace yourself as the presidential election edges closer. I offered in 2008 that the enormity of the economic condition was bigger than any one man or political party - and that remains in play.
While I am a registered independent, my sense is that President Barack Obama will secure a seat in the Oval Office for four more years, and rumblings from the Republican contingency will reverberate in kind.
5. American Icons
I'm dusting off this theme as it was predictive in 2007 (Paris Hilton, Lindsay Lohan, Britney Spears) and the tides have turned anew. (See: The Short Sale of American Icons.)
Jon Corzine, the Kardashian sisters, Penn State, Rudy, Willie Gault and the NBA brought this dynamic back in 2011 and it will pick up steam in 2012. This, of course, will pave the way for the emergence of a new wave of heroes which will represent and reflect the next generations of leaders.
6. Geopolitical Strife
Extending a theme that was first introduced in 2007, the tricky tri-fecta of societal acrimony, social unrest, and geopolitical conflict is seemingly entering its final phase. (See: Ten Themes for 2010.)
Whether it's the Middle East (Iran), Asia (North Korea), or cyber-terrorism, the collective strife could come to a head this year. While the specter of this is indeed daunting, it will move us one step closer to our social recovery.
Financial asset performance will be dependent on policymakers. "Free" markets-those without government stimuli-will aggressively deflate. "Modified" markets-those with bearded socialism and/or nationalized assets-will act better, but arrive with profound costs and unintended consequences.
Through a pure technical lens, the "reverse head & shoulders" pattern in the S&P that we've monitored in Minyanville for the past month has triggered, which "works" to S&P 1360. From there-if and when-the European debt auctions will set the tone for global assets in the context of a secular bear market that has a few years to go before generational opportunities emerge in the back half of this decade.
8. Rating Agencies
Moody's (MCO), Fitch, and S&P (MHP) were big news in 2011, particularly after S&P downgraded the United States credit rating.
You can agree or disagree with their process-or opine they over-compensated after fumbling the first phase of the financial crisis-but my sense is that their status and usage will diminish considerably as new standards emerge for rating the worthiness of financial assets.
9. The Millennial Revolution
I've long believed that Generation Y-also known as "Eighties babies"-would be the salvation of the American, and perhaps even the global, ideal. They are technological Zeitgeists who are generally unencumbered by the social and political baggage of our time.
While Mark Zuckerberg is the poster child for this dynamic, expect to see a new wave of entrepreneurs and activists emerge to capture our imagination and change the way we communicate, interact, and yes, believe. I also foresee "socially responsible" opportunities as investors attempt to facilitate change by voting with their wallets.
As financial stress and global pressures permeate, folks and families will again seek simpler pleasures that aren't measured by money or predicated by status.
This will be the silver lining on the 2012 horizon-at the end of the day, regardless of our financial performance, we'll come to realize that we have our friends, our families, and yes, ourselves, as we find our way to better days.
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