Twenty bold economic and political predictions for 2012 from prognosticator, politician, patriot, and personal friend, Bob Krumm.
1. It’s the end of the Euro as we know it. Someone is going to leave the currency union. If Germany was wise, it would be them. (Sure, a strong Deutschmark would put pressure on their exports, but it would give huge buying power to its people–not to mention, having Euro-denominated debts would greatly reduce its debt load.) But inertia and obstinacy, especially among political classes, is a powerful thing. More likely is that Portugal, Ireland, Greece, or Spain will be kicked out of a “full” currency union. Chaos will ensue.
2. Before the Euro breaks apart, first will come a failed Italian debt auction in February. The ECB will finally flood the system with cash. After a few days of rejoicing, reality will set in. Gold will soar eventually above $2,000. The Euro will fall below $1.10. Germany will get nervous. In short, nothing will have changed, except that more bankers will have been made whole on their bad debts at the expense of taxpayers.
3. While long-term investors should look at what is happening in Europe as reason to disassociate themselves from unsustainable sovereign debt, in a world awash in “free” money, there remain few real long-term investors. Instead, the “flight to safety will push up the prices on treasuries. The U.S. ten-year note will spend almost the entire year at or under two percent, and will even flirt briefly with one.
4. Even with interest rates ridiculously low for another year, the housing market will not recover. The problem is and will continue to be the banks’ holding back of a shadow inventory of 6 million homes either in foreclosure, or badly behind on their payments. Until that clears the market, real estate will not find its bottom.
5. Another drag on the economy will be 2012’s Kredit Anstalt moment. Not sure if it will be BNP, or DeutscheBank, or someone else (there are so many bad banks from which to choose), but a major European bank will fail, and fail spectacularly. There won’t be enough money to bail them out and the ripple effects will shock the world. World stock markets will collapse. Countries will try currency controls to contain the crisis, but will succeed in only making it worse. By the last quarter of the year, the phrase “global depression” will be freely used.
6. The Fed will end the year still fighting a mythical deflation monster with an arsenal of ridiculously low rates and gimmicky asset purchases. As a result, inflation will be coming to America. Brutally so. But not in 2012.
7. There will be less employed people in America at the end of 2012 than at the beginning.
Still, because of the vast swaths of the disenchanted who simply leave the job market, the unemployment rate might appear to be little changed, or perhaps might even improve.
8. Europe’s PIIGS will have two new members: Belgium and France. Each will end the year paying more than 6% on its 10-year debts.
9. Iran and Israel will not come to blows. There will be no bombing of Iranian reactors. But the heated rhetoric will not dissipate either.
10. Iran will come to blows with the United States. Not sure how or where it will come, but they will launch a successful symbolic strike at what they perceive as impotence. However, war will not be the result. What will result is $120 oil, adding to the economic catastrophe.
11. Russian revolts will continue until they are violently put down. Think Tiananmen on steroids. Putin will hold power. At any cost. Europe, enslaved by its dependence on Russian natural gas, will timidly express “grave concern.” There will be calls for America to withdraw from the 2014 Winter Olympics to be hosted in the Russian ski resort of Sochi. Not wishing to repeat Carter’s 1980 Moscow performance, President Obama will ignore the advice, but to no avail: he will be pilloried for being even weaker than Carter.
12. 2011’s Arab Spring will result in 2012’s Arab Winter of Discontent. Egypt will continue to be a mess. Turkey will be teetering on the brink.
13. NATO will announce that it will end its involvement in Afghanistan in 2014.
14. Speaking of NATO . . . The annual NATO conference in Chicago in May will be a disaster as the splintering economies of several NATO members prompt calls for the alliance to dissolve. Even worse, is the fact that it is simultaneously scheduled to coincide with the G8 Conference, also in Chicago. Like rotting fruit to maggots, the spring meetings will draw tens of thousands of anarchists, militants, communists, and Methodists. It will be 1968 all over again as the city is consumed by riots and a heavy-handed police response. Pundits from left and right will savage President Obama for the sheer stupidity of allowing these two events to occur in his hometown just six months before the election. Occupy Wall Street will completely beclown itself, taking down its President with it. He will never again poll above 43% approval among likely voters after May.
15. The first economic surprise of the year will be that Europe’s failings will show that CDSs are not in as bad a shape as everyone had feared.
16. The second economic surprise of 2012 will be ETFs. The complicated investment strategies will be exposed as Enron-like impenetrable schemes. At least one big respected investment house will collapse as a result.
17. Now to the elections . . . Republicans will pick up between 8 and 12 seats in the Senate, taking control of the upper chamber, but not achieving a filibuster-proof majority. Among the gains will be Michigan, Missouri, Montana, Nebraska, North Dakota, Ohio, Virginia, and Wisconsin. The surprise of the night will be Florida. Bill Nelson will lose. Linda Lingle and Scott Brown will finish excruciatingly close races–close because in both liberal states, President Obama will vastly underperform expectations due to low turnout. In fact, 2012 will be the lowest turnout election since 2000 as blacks, youth, non-government unions, and social conservatives see their numbers fall off from 2008 and 2004. Harry Reid will depart the Senate.
18. Republicans will gain 10 to 20 more seats in the House. Along with the ouster of five or more moderates in the primaries, the Tea Party wing of the GOP will wield enormous power in the lower chamber. Nancy Pelosi will announce her retirement.
19. President Obama won’t win more than ten states. California, New Jersey, and New York will all give him less than 53% of their vote. The only states he wins west of Maryland will be Illinois and some of the ones that border the coast. Only DC gives him greater than 55%. The down-ticket effect on state races will be even worse for Democrats than they were in 2010.
20. President-Elect Romney will immediately let down his base by the nomination of a major financial industry insider as Treasury Secretary. This will be the first of many disappointments that will follow in 2013.
Bob is a friend and I enjoy following his blog, BobKrumm.com. I do not agree with all of his predictions for 2012, but I really like his style. He has his finger on important issues. He takes a stand. Unlike Nostradamus, whose predictions are sufficiently vague as to be inevitably true at some unspecified future time, Bob's predictions are clear, time constrained, and easily falsifiable. Any number of independent evaluators will likely score Bob's 20 predictions the same way this time next year.
Bob scored his own predictions for 2011 and earned a 5-4-3 record. I admire his willingness to publish his own self-evaluated results. I think his assessment was clear and objective.
I have started making my own predictions for 2012. I'll publish them separately.
I have started making my own predictions for 2012. I'll publish them separately.
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