Here is a post titled investing in 2012 for survival that I drew up. I will copy and past it below, and then add additional predictions.
If you want to know what the first 2Qs or perhaps even 3Qs of 2012 will be like, play Monopoly with no cash for passing go and half the starting money as usual. Properties may go fast initially, but then money becomes scarce, mortgages will be common, and soon properties will be auctioned, The person who conserves his cash will then have the ability to survive and get properties for less than the mortgage value available on the home as the “auction” will force prices lower. Those stuck playing the “old rules” of asset accumulation, and borrowing heavily to accumulate properties early and often will be in serious trouble later on when money becomes even more scarce.
Even those who have monopolies on boardwalk and park place will end up not having the funds to build houses, so those that live within their means and keep things tight to the belt will survive and position themselves to thrive when the opportunities hits. Calculated patience and caution is what is advised, and then there becomes a point where you must shift aggressively into accumulation where the rules will change and suddenly the deflation will have run it’s course even though everyone repeats the story as if it will get bad forever indefinitely. Making trades below intrinsic value for cash actually can make sense in this game, because you in monopoly can calculate that there will be more deals and everyone else will be even more short of cash than they are now. So even at the expense of giving someone else a monopoly, provided you take their funds to build houses will make sense since there will be opportunities on the auction block later where you can accumulate properties to generate more cash (by buying below the mortgage value), have cash to force trades into people who are near bankruptcy, and collect monopolies yourself in areas in which you can afford to build. In the stock market in real life, when liquidity dries up, selling assets below intrinsic value can make sense if other people will be forced into liquidation, thereby having less cash to be able to keep all the assets at their current PEs, and even better deals will become available. However, there is a very fine line between doing this and overdoing this. Eventually the people that are on margin and leverage collapse, the excess credit collapses, and those waiting for an opportunity strike and start to go on margin making up for that which was lost, and the markets refuel.
Knowing this well in advance, you should keep your options open by having lots of cash at all times and employing a strict minimum such as 40% that you must not go below.
Here are my predictions for 2012.
The increased leveraged in the euro to try to save it without an ability to print like the fed, and the fed having a different policy, globally will be like an atom in nuclear fission with 1 too many protons… It becomes unstable until it causes a chain reaction. We’ve seen it happen time and time again after efforts to keep Greece alive continued. Now yields are blowing up everywhere and they may come up with one final “solution” but it won’t be until a culmination of everything unwinding until they will be able to stop it.
The sovereign defaults will finally hit in 2012. Rates have risen dramatically and if €600 billion euro will be rolled in Spain and Italy in 2012, the national debts will begin to explode strangling the economy producing stagflation as was seen in the US during the late 1970s.
Capital fleas Europe initially for thee dollar. Shortly after the default event, everyone who will ever get into bonds will have already done so at maximum velocity. That means there will finally be a bottom in yields and a top in treasury demand in the US, the lack of new buying pressure will finally form a bottom around the middle of 2012. June will be the “panic” month.
In spite of trillions more of stimulus, deflation will hit as new debt comes due, but food prices and fuel prices will go up. Stagflation will occur due to slow global growth and domestic inflationary policies. Gold bugs will proceed to move into their bunkers in spite of falling gold prices.
“protect capital” is the #1 theme of 2012. This means more cash. Also, more frequent “rebalancing” and allocations a bit closer to the vest when bullish, (close to equal amounts risk on and risk off) and being more cautious about using leverage in arbitrage deals, and elsewhere.
Real estate will bottom along with interest rates shortly after the panic. The real estate “bottom” this year will be part of the first “double dip” assuming you don’t call the volatility a double or triple dip already. The real estate rally that unfolds will take a handful of years but not be great and it will never quite recover to the 2005 highs before it makes another multiyear decline.
The CDS market lack of “default” is triggering a sell off in bonds and spiking yields in Europe, while treasury demand in the US spikes. The “legal” insider trading of government official (while having a conflict of interest and working on the bill that effects companies they invest in) also feeds into the dissent along with MF global and potentially other scandals, and people will lack the trust needed to continue to buy goods and services, fuel the economy, push prices higher, and so on.
So in 2012 be sure to protect yourself
Just when you think things possibly couldn’t get worse they will, and soon people will forget that things eventually will also get better, but they will. As usual the cycle will return as the deals available are much more affordable even though earnings seem to be non existent. Loans will be non existent except for a few very intelligent ones. The most credit worthy will get loans and this will ensure that those that do get loans make good ones, businesses will be bought for cents on the dollar at some point. Eventually as things stabilize more people will be willing to take the risk, and that will result in a complete 180 as people go back in, and plus selling pressures can’t persist forever. When no one seems to be buying and a collapse seems possible, is when there will hardly be any buyers, but those that do will be able to get the best price. As soon as they start to go, rally will squeeze shorts. Short bursts of contra trend rallies will occur first, but eventually, the rally will be real and truly be the opportunity of a lifetime. Additionally there will be aggressive policies perhaps even extreme ones as allowing the fed to buy property or employing some agency that will buy property. Over time, unemployment will get worse, and this will be very bearish for real estate, however that does not mean there won’t be times of panic when people do anything for cash.
Expect cash to be king. Expect turmoil. Expect an increase in antiestablishment mentalities against big government (tea party) and big business (OWS) which will result in a 3rd party in 2016. There is a movement that is close to the 2.9million signatures needed at americans elect (americanelect.org) that could potentially shake things up in 2012.
If you enjoy the content at iBankCoin, please follow us on Twitter
