Nothing endures but change.
-Heraclitus, Lives of the Philosophers by Diogenes Laertius
As the year slowly draws to a close, you may notice some change in the air. Not the annual, nostalgic-laced look-backs that are so ubiquitous around this time of year, but rather, actual shifts in the underlying firmament of our world.
Consider each of the following as an early warning that your expectations may not be met — unless you are expecting surprises:
• Santa Clause Rally: Saint Nick has yet to appear on Wall and Broad this year. If Santa “passes over” the houses of traders this year, I fear we could see 10 plagues in 2012.
• Earnings: Always look great at record, cyclical peaks. But what will they do if the major economies of the world fall into recessions? A 20-30% drop is certainly possible.
• Economy: Continues to show signs of softening. Job creation almost is keeping up with population growth, unemployment is ticking down because workers are leaving the labor pool. Retail sales, despite the NRF spin, are poised to disappoint.
• Gold: This could be the biggest disappointment of the year. The Gold pullback has some traders declaring this to be the end of the bull run. Who knew the shiny yellow metal could turn into a lump of coal?
• International Affairs: From the Arab Spring to the mess in the Euro-zone to Iran’s nuclear ambitions, the world is getting ever more complex, challenging and difficult. 2011 could be the most confusing and complicated set of events in many decades. Macro investors are having enormous challenges navigating. It is unlikely to get any easier in 2012.
• Oil: Seems to sliding with all of the other commodities. OPEC seems to be ready to pump more to offset falling prices (Someone should give them an Econ primer). The usual suspects will declare how good this effect is for the consumer, while ignoring the cause: Recession in Europe, a potential recession in the US, and a huge slowdown in production in Asia.
• Psychology: Most investors continue to operating out of the rear view mirrors. They have been damaged by the 3 boom & busts — Tech, Housing, Stocks — of the past decade. If commodities succumb as well, it will have a pernicious effect on their outlook.
• Politics: The corruption of Congress is now taken for granted, as their single digit approval numbers reach record lows. Perhaps more surprising is the lack of leadership on both sides of the aisle. President Obama arrived with great fanfare but disappointed anyone who hoped for change from the Bush bailouts (I blame Rubin’s proteges, Summers & Geithner for that). Despite the incumbent being vulnerable, the other side seems unable to nominates anyone “Presidential” — or at least capable of garnering a majority of GOP supporters.
The bottom line remains simply this: If you ever made the mistake of believing you could rely on forecasts as to what is coming next, that error in thinking should be all but eradicated as of now. And for those of you smart enough not to have relied on Wall Street’s forecasts, for God’s sake, don’t start now . . .