5 RISKS HEADING INTO 2012
Despite the persistent Euro debt crisis coverage, there are other risks that we must bear in mind heading into 2012. In his latest client note David Rosenberg elaborated on 5 of the biggest risks heading into the new year. Aside from the EMU debacle, he cites oil prices and an ignorant American political charade as the greatest risks. I’d only add that a Chinese slow-down is still very much a risk to the global economy. Via Gluskin Sheff:
1. Despite the high hopes, there is no sign that the new technocratic political regimes in Greece and Italy (led by economists!) will prove to be any more effective in pushing through reforms than their predecessors, especially given the rapid weakening pace in economic activity.
2. Oil prices have soared 15% since the beginning of October (Brent is trading just below $115 a barrel), throwing a wrench into the one source of support for the “real” economy for the couple of months, which was the depressed deflator. Gasoline prices, which had gone down last month are not about to head up again. The problem is that Thanksgiving for retailers is just a tad more important than Halloween.
3. We may see confidence sapped yet again if the budget Super Committee fails to come up with any compromises ahead of the November 23rd deadline.
4. None, if any of the Obama jobs bill lives to see the light of day. If extended jobless benefits, payroll ta relief and bonus depreciation allowances are not permitted to expire, then we can expect to see anywhere from a two to three percentage point fiscal stimulus withdrawal out of GDP to kick off 2012. Right now, this is not on the investor radar screen.
5. While we are seeing governments topple in Greece and Italy and words turn into action at the parliamentary level in any event, the situation in Europe remains one of a show-me nature.
Source: Gluskin Sheff
- eurozone
- global austerity
- iran/israel/oil
- slow down will impact China, local workers will be unhappy, if not crushed they’ll export inflation in austere countries full of unemployed people
Hey, the Christmas shopping season is just beginning. Can’t you give us a list of potential upside surprises that might drive the market higher?? Might we find any goodies in our stockings hung by the chimney?
http://www.thetrader.se/2011/11/15/live-debate-by-rosenbergkrugman-vs-summersbremmer/
I believe No. 4 needs modest correction: “If extended jobless benefits, payroll tax relief and bonus depreciation allowances are permitted to expire (delete the “not”)…” If we go ‘whole hog’ and eliminate marginal stimulus, we will see a contraction. Perhaps not as large as proffered, but it will happen. Ad in problems with China and Europe, and we could have a real fall-off.
There also seem to be a typo in No. 2. Gasoline prices are NOW about to go higher (currently reads NOT)…
Why isn’t gold pushing much higher? The Euro’s mid-term future is surely doomed at anywhere near current dollar/GBP/yen ratings; won’t Germany and France have to accept a 20-25% devaluation in order to secure the currency? Or will they be prepared to ditch Greece and Ireland and persuade the ECB to print another 3 trillion to prop up Italy and Spain?
Is a $2500 per oz price for gold a reality within 6 months?
Why aren’t cowry shells headed up? Cowry shells are currency and we’ll returning to the cowry standard any day now…
all currencies move relative to each other (unless pegged). Dollar moves higher means gold moves lower in dollar terms. Dollar lower means gold higher (in dollar terms). Fear of euro collapse is putting some floor under dollar valuation relative to other currencies as a safe haven. Gold price increase HAS been b/o safe haven relative to fiat currencies, but big price swings in either direction may scare off the safe haven aspect.
Fear in the gold trade is that the world’s fiat currencies get sorted out and gold collapses back toward previous valuations. So…….fear is driving price upward in gold, fear is holding it back as well, depending on which “fear” you are holding sacred!
I thought Thomas Edison said all needed to be said about gold in New York Times interview (link at website below) in 1921:
“Gold is a relic of Julius Caesar and interest is an invention of Satan. Gold is intrinsically of less utility than most metals. The probable reason why it is retained as the basis of money is that it is easy to control. And it is the control of money that constitutes the money question. It is the control of money that is the root of all evil.”
For more see http://prosperityuk.com/2000/09/thomas-edison-on-government-created-debt-free-money/
Unemployment benefits not only benefit the receipients, but return double (actually 1.90 times) in the economy. I’ll take that kind of return all day long.
The problem with the unemployment wealth multiplier effect is that the money must be taken from somewhere (in our case borrowed with interest) else in the productive economy thus reducing the wealth leverage effect. Given the reality of economics the multiplier must be less than 1. Nancy Pelosi was, as usual, dead wrong in her economic’s understanding. Should we continue to provided extended unemployment benefits? Maybe yes, but not because it produces wealth!
Where does it need to be borrowed from? Legally, I suppose it does, but operationally there is nothing preventing the government from supplying unemployment benefits ad infinitum.
While supporting permanent unemployment is not a productive use of USD, the unemployment safety net is necessary to prevent even more drastic drop offs in demand during cyclical, and structural, downturns.
Do you even know what “currency devaluation” is?
http://usagold.com/germannightmare.html
Let the US keep printing money and further increase the debt and see how far we can go…
We’ve been doing exactly that since 1790 or so. And while people love to cite the “fact” that the USD has fallen 90% since 1913, they can’t seem to rectify the reality that American living standards have gone through the roof since then…..Did you ever consider the possibility that there is a flaw in that thinking?
Agree with others here that the economies of the world are falling off fast. Also agree with oil, heating oil, and gasoline will go much higher, knowing the Fed Chiefs response (QE3). Europe is also in the printing mode evidence EURO at 1.35. Wonder how long Germany will hang in there? Do you think they will pull the plug when their bonds go over 5%? The sad thing is if we had no bail outs three years ago and let all go bankrupt that needed to go bankrupt the world would be in a 6% growth now and no debt. Good Article.
Point #2:
4th quarter is a low point for US retail gas prices. Normal expectation would be for prices to increase into the Spring. If US families overextend themselves with credit assuming a leveling or slight economic upswing they will be hard pressed by the fuel bills come March. Note that while price of gasoline has remained muted, price of Brent has pushed up other petroleum products. See heating oil or diesel for instance. One might guess gasoline has a ways to catch up. While the other 99% probably don’t have much in the way of stock portfolios, they all need to buy gas.