On December 7, I wrote about the great decoupling. I am glad the Wall Street Journal finally came over to my view of the market. 2012 will see the great decoupling of the stock market.
Europe is being European. The problem in the European market doesn’t get sorted out real soon. French intellectuals are still in cafes on the Left bank arguing Nietzsche vs Mann. That’s not getting resolved this century either and it’s why intellectuals prefer do nothing forums like the United Nations.
China seems to be on the brink. Over the past month, it has been reported that different creditors would have to wait on bond payments from Chinese companies i.e. the government.
2012 is going to start off pretty rocky. I have a lot of friends that are bearish the stock market. When you read the Stocktwits stream on slow days, there is plenty of room for snark. Bearish comments are much easier to be snarkier about than bullish ones.
However, sometime in the first quarter of next year, I believe the US market wakes up. Multi-national companies are in good shape and we will see the results of that. It will be one reason to buy. Ironically, if there is a flight to the dollar, I think that bodes well for the US consumer and the US stock market. You don’t produce long lasting stock market rallies by artificially pressing the dollar down in value as we have consistently done since as far back as 1995.
When Asia slows, things will be slightly different. Last years tsunami also changed the thought process of many American executives. They were hurt by the disruption in the supply chain. They placed too much risk in getting things made cheaply in Asia and shipped across the sea just in time for Mom and Pop to buy them at the store. Inventory costs big money to hold and has risks of its own. So, it’s cheaper for them to begin to set up smaller manufacturing operations on this side of the world and have a safety valve to supplement operations when things happen in far away lands. China not only is on the brink of some sort of economic calamity, but there are signs of disillusionment in its people as well. With the continuing changes in Korea, the anemic Japan, 2012 will be another year to watch the Chinese Tiger to see what happens. When you have trouble finding food to eat, it tends to change your behavior.
I don’t think 2012 will be a chart buster year. It’s an election year in the US and currently we have some really bad choices for President. Re-electing Obama is financial suicide. He has been the worst President in a generation and should be sent to his library. However, the Republicans have given us some pretty uninspiring choices, and the volatility of polling shows it. The races to pay attention to in 2012 are the Senate races. Any old Republican president will do as long as fiscally conservative Republicans (as opposed to ones that purely legislate on social issues) control the Senate. By the way, I am hearing grumblings for Huntsman among some fiscal conservatives.
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In 2008, the stock market fell out of bed the day Obama went ahead in the polls. In 2012, if it looks like we lose President Obama to the rubber chicken speaking circuit, and the fiscally conservative Republicans grab control of the Senate, I’d look for a pretty decent rally in the stock market from November to the end of the year.
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