How will financial events unfold in 2012?
US had to increase its debt ceiling yet again this year, Britain’s debt cut measures measurably failed as government had to give up on falling economic growth, Chinese economy continued its growth performance with some serious concerns about its property market and government debts, Canada somewhat proved that its financial system is still safer than others, credit rating agencies kept on playing with government bond yields with S&P downgrading US (true) and France (mistake) but star of 2011 financial mockery show was none other than most (blunder)ful thing ever created by humans, no price for guessing that one- EURO.
EURO was such a pain in a** for entire financial system but the king (Sarkozy) and Queen(Merkel) of Euro zone never wanted to remove that pain from their a**. I have never seen such a strong POLITICAL WILL to debacle the entire financial system in order to save a currency.
So, what do we have in for 2012 then? Next year will be a year when markets will prove that political will can not win over the markets. Be ready for the time where bailouts wouldn’t work any more as markets will restructure themselves through much awaited defaults. Following major events would mark 2012:
1. Defaults by all the peripheral economies of Euro Zone one by one. Greece, Portugal, Ireland, Italy, Spain and more.
2. Defaulting countries finally, and for their good, leaving Euro Zone and reintroducing their currencies at devalued levels.
3. Euro default causing a bit of systematic defaults, bank runs and financial mess all over the world.
4. Stock markets tumbling down to 2007 levels.
5. US treasury bond yields hitting further lows.
6. US Dollar, Yen rising higher on a run for safer heavens.
7. Crude Oil again coming down to 50-60 levels as global slowdown hits in.
8. World enters into recession.
9. Gold would gain on its prices as a safe heaven to invest.
10. Emerging economies would slowdown. China would still grow the satisfactory rates and controlled inflation because we will never know if the data is manipulated by the Chinese government.
Well, if that is the seen then what investment strategy should an investor go for?
Answer is simple and can be comprehended from above 10 points:
- Go short on stocks/shares/Indices.
- Long on GOLD
- Short on Crude Oil
- long on US Dollars
- long on US Treasury Bonds
- Short Short Short EURO
Yes, 2012 may be a tough year. Recession is very likely scenario now. Banks may loose lot of money. Governments will fail on payments. Bankruptcies might be filed next year. But, all these will turn out to be the best measure possible for global economies. Markets will eventually correct themselves.