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2012 Outlook
By John | January 2, 2012
First, I would like to evaluate my 2011 outlook, which I posted on January 1, 2011.
I think my “Most Likely Scenario” was very close to what actually occurred during 2011 in the U.S. economy. My forecast for GDP growth, inflation, unemployment and interest rates were close. However, my expectation that interest rates would be trending up by year end were not met.
My expectations that the dollar would remain fairly constant relative to other currencies, with the exception of those currencies that were experiencing their own problems, was close, although the dollar did fluctuate more than I had anticipated.
My forecast for precious metal pricing was close with regard to gold, but too high with regard to silver, at least with respect to valuation at year end. I did not anticipate the volatility of both gold and silver during the year.
My expectation with respect to both Federal Reserve actions and Federal Government fiscal policies were accurate.
My “Less Likely Scenario” did not materialize – fortunately.
Now, how about 2012?
Nothing that occurred during 2011 solved any of the underlying problems of the U.S. or world economy. That just means we moved a little closer to the cliff during 2011, leaving us a little more vulnerable to catastrophe.
However, I continue to believe that catastrophe will be averted in the U.S. in 2012, though the risk is probably a little higher than it was during 2011.
My specific forecast:
GDP: 3% to 3 1/2% growth rate for the year, as reported by the government. Starting the year lower, but accelerating toward the third and fourth quarters.
Inflation: declining during the first half of the year, but then picking up during the second half, as the Federal Reserve becomes more accommodating about mid-year. Reported CPI for the year a little above 3%, but the public will experience much more, and Shadow Stats will report 7% plus for the year.
Unemployment. Slowly trending downward during the year, ending the year at 7.6%, per government statistics.
Interest rates: Kept artificially low by the Federal Reserve throughout the year, with the Federal Funds target rate kept unchanged at 0% to 1/4%.
The dollar: More volatility relative to other currencies. As problems in Europe and Asia surface, flight to the dollar will continue, making the dollar surprisingly strong at times.
Precious metals: Both gold and silver to exhibit less volatility during 2012 than during 2011. The attractiveness of both as hedges against inflation will decline during the year. Gold will end the year at about $1,600 per ounce. Silver will end the year at about $19 per ounce.
Federal Reserve: Quietly printing, especially during the second half of the year. No announcement of QE, but helping to paper over debt problems throughout the globe, as discretely as possible.
Federal Government. There will be no change in the intended role of the U.S. Government in economic affairs as long as this administration remains in power. Both out-of-control spending and extensive intervention in the private sector will persist. This will continue to stifle economic growth and crowd out private lending.
The election: The 2012 election will result in Republican control of both the house and senate. The presidency remains in Democratic control.
How confident am I of the above? Not very. We are in very uncertain times. An unforeseen event could cause civilization to unravel. However, I do believe those in political power throughout the world are very creative and capable of protecting their own interests and remaining in power. That is why I expect catastrophe can be averted for another year.
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