Sunday, January 1, 2012

If you thought 2011 was tough, 2012 will be tougher


You thought 2011 was tough? 2012 will be tougher. It will be a continuation from 2011 with a shaky Europe, political gridlock, and a volatile market. Nothing has changed. Yes, we can celebrate the coming of the new year, but what are we celebrating? It is the same crap, but a different year. Well, at least, we got our health and our family.

(Reuters) Familiar themes for those who lived through 2011, and investors should be ready to revisit them next year.

With a spiraling debt crisis in Europe, political upheaval around the world, and crumbling creditworthiness in major industrial nations, 2011 was a tough year to know where to invest. 2012 is unlikely to offer much respite.

The S&P 500, a measure of the biggest U.S. companies' market value, spent much of the year getting pushed up and down, flummoxing shorts and longs - and scaring Moms and Pops away from stocks. It ended the year at 1,257.60, down a mere 0.04 of a point.

For every rally built on improving economic figures this year, selloffs were never far away on worries the European debt crisis would eventually drag the continent into a recession and perhaps the United States as well. That could continue in 2012.

Volatility is likely to persist through early 2012 because of the uncertainty in Europe and rising concern about slowed earnings growth due to recent revisions.

Many economists believe the euro zone is already in recession. They forecast that the economies of the 17-nation bloc will stagnate in 2012 after contracting in this year's fourth quarter and the first quarter of the next.

Investors are worried that Italy and Spain will have to keep refinancing borrowings at unsustainable levels early next year, which could escalate the crisis.

The key may be China rather than Europe.

Chinese business confidence is weakening. A survey showed export orders fell for the first time in nearly three years.

One of the pivotal events of 2011 was the downgrade of the United States' perfect triple-A credit rating. Standard & Poor's cited congressional bickering as the reason for the downgrade.

August's stalemate in Washington over raising the debt ceiling sparked a selloff that accelerated after the downgrade.

Investors expect the gridlock in Congress to get worse as the U.S. presidential election approaches in November. The election is likely to be close, which will not make legislative efforts to tackle high debt levels and weak demand any easier.