How will the stocks do in 2012?

A new year has started, and there are new high hopes for the stock market, as you can see in this December 21, 2011 headline from USA Today:

Strategists predict a glowing 2012

The article notes that a "quick survey of New Year's prognostications from investment strategists suggests stocks might deliver the double-digit gains that they have put up, on average, over the long term. A snapshot of 2012 year-end-price targets from five firms shows an average gain of 10.5% for stocks."

But, haven't we heard this before?

The 10.5% gains forecasted for the coming year is intriguing considering it is almost exactly the average gains that were forecasted for stocks in 2011. Take this Barron's cover story from December 2010 as a prime example:

OUTLOOK 2011: Our panel of savvy Wall Street strategists expects stocks to rise 10% next year, as an economic expansion takes hold.

But as you know, in 2011 we essentially had a flat market. The DJIA ended up 5.53% for the year, the S&P was flat...while the NASDAQ was down 1.80%. The broadest aggregate measure of stock market performance, the DJ Wilshire 5000, which includes nearly all stocks that trade, ended 2011 down 1%.

And the Dow's action masks a strongly negative stock market performance in the overseas markets.

So, how should you plan for 2012? What's really ahead for the markets, and what does it mean for your portfolio? Will the European credit crisis and U.S. debt debacle continue to loom over the markets or will the economic expansion actually take hold?

Elliott Wave International has just released a free report that will help you navigate the year ahead. You'll get all of the indicators that they have been analyzing over the past year, with 25 eye-opening charts and 14 pages of straightforward commentary to help you see where we've been and what's ahead.

Download your free report now: What will the stock market do in 2012?

Weakest Borrowers Will Go Bankrupt

Greece is having trouble again and it seems Italy is about to join the party. Greece economy is small enough that it can be saved. But can the same be said for Italy? Why are these countries having trouble? Why are home owners having trouble paying their mortage? Let me explain.

In an interest based economy with fractional reserve banking, weakest borrowers will go bankrupt when deflation hits! Why?

Banks create money when we borrow. Google for "How do banks create money" to understand how it happens if you don't know. Entire money supply is debt. It is the principal we borrowed. But banks demand that it is paid with interest. It is not possible for every borrower to be employed at levels that enables them to earn principal + interest. Because the interest portion is not created yet. It is only created with more borrowing. The inflation created by money creation of banks punishes savers and forces more people to borrow. New money is used to pay old debt. When we run out of borrowers, it crashes. Here is how deflationary crash happens:

http://www.kondratieffwavecycle.com/economy/deflationary-crash/

New money that is created in a society should belong to the society. It should not belong to private bankers. Thus, if any interest is to be paid, it should be paid to the people, not to the private bankers. A solution is to require 100% fractional reserve. Let treasury print principal + interest when a loan is made. Principal is loaned out to the borrower. Interest portion is spent in place of taxes. principal + interest is available to earn. When interest is paid back, destroy it. Web of Debt by Ellen Brown explains it well.

http://www.kondratieffwavecycle.com/web-of-debt/

Current system requires perpetual debt since existing debt cannot be paid without further borrowing. Banks can at will withold loans and create a depression. Then they will make loans to their friends and withold loans from competitors. When competitors who cannot access loans go bankrupt, they are bought by the friends pennies on the dollar. This way the banking cartel gains control of the media and other industries. This is a ponzi scheme but when it goes bust, they get bailed out.

Last but not least, if banks did not create money out of nothing when they made loans, then home prices would be lower and savers would afford them cash down. This is because when 30% of the population works in financial services, the other 70% has to work harder to feed the 30%. If financial services is reduced to 1% just like farming, then they will be employed at more productive tasks (building homes?) and the burden on the 70% will be reduced.

Roubini Warns About Global Recession

Economist Nouriel Roubini says the risk of a global recession is greater than 50 percent, and the next two to three months will reveal the economy's direction. In an interview with WSJ's Simon Constable, Roubini also says he's putting his money in cash. "This is not the time to be in risky assets," he says.

How to Short the Stocks

Stocks have been falling sharp and the talk of recession has started again. Normally, the stock market goes down first and recession is declared later. Similarly, on the way up, stocks move up first and recession ends later. So what does this mean? It means if you are going to buy stocks, you need to buy when the hour is darkest. Similarly, you need to short the stocks when it's all sunny and seemingly good.

If you are watching the market timing services, some of them already went short more than a month ago. Rode the 1st Elliott Wave down and now closing shorts.

I think this is a good level to cover. Yesterday we have touched 38.2% fibonacci retracement level which is the first technical support. As the media beats the drums about upcoming recession, market should rally punishing late short entries now. A 3 waves up will bring back the optimism and should suck in wanna be longs just before the major leg down.

I think stocks are a bubble and nothing has been fixed. Last 3 years we have enjoyed spending the borrowed money at Uncle Sam's expense. But it won't last forever. I suspect this leg down will be worse than the 2008 market crash. So I will either try to short it or stay in cash. I suspect Gold bugs will get caught in a deflationary crash as well.

Debt is the problem and it is denominated in US dollars. Not Gold. People borrowed and they promised to pay back US dollars. When the s$%#!t hits the fan, it will be a race for US dollars. Borrowers will have to sell everything including Gold. If they don't, their creditors will!

Why Stocks Are Overvalued

A must see: An eye-opening chart that tells the story of yet another stock market bubble compared to the past century in terms of divident ratio compared to price/book ratio.

"This insightful and well-crafted chart is a case in point of how one picture shows more than many words can tell"

Debt Debate: Spend or Save?

Debt debate rages on: Republicans are insisting on spending cuts yet Obama does not want to see a downturn on his watch so he wants to keep spending. GOP wants to cut spending now so that when deflation hits, they can point to Obama as the scapegoat.

Meanwhile the stock market has been slowly falling and I think it is at the start of wave 3 of a 5 wave decline according to elliott wave technical analysis.

This means the main portion of the decline lies ahead of us. Will a deal on debt that avoids a US default help the stock market? I think while a default can cause havoc in financial markets, avoiding a default will not be an event to celebrate either.

Stocks are a major bubble. According to hundreds of years of market history, we are at bubble valuations when we consider that dividends are all time low. These low dividend ratios appear at market tops. Not at market bottoms. We have not seen a long term stock market bottom back in March 2009.

Why are people buying stocks? The population has a herding mentality. A herd does not act rationally. People look at each other and feel content to be doing what others are doing. This is similar to those sheep who follow others off the cliff to their death.


In debt based monetary system, debt must expand exponentially to create new money in order to pay old debt. When borrowing stops, deflation will take hold. Why would borrowing stop? Because we are going to run out of borrowers. Even if the congress increases debt limit, there is a natural limit that we are going to face and it will come suddenly. It is an exponential function where moments before the end, it would seem like all is fine.

Housing Double Dip Has Arrived

Case Shiller index shows home prices have fallen to duble dip levels. Despite two rounds of Quantitative Easing, FED is unable to get the home prices go up again. Unemploymenr remains high. Someone should tell Bernanke that lenders will not lend at low rates if they see him printing money. The day Bernanke announced QE2 marked tha day of the US dollar for the time. Since then the dollar rallied, then went down, and then is going up again, while credit dependent sectors like housing continue their relentless march down.

“Data through March 2011, released today Case-Shiller Home Price Indices show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.”

This is bad news for the FED and for the banking industry in general. Debt based monetary system and fractional reserve banking creates money as debt. All of our money is interest bearing debt and in order to afford interest payments, we must create new debt faster and faster at an exponentially increasing rate. Banks and the government used housing as an engine of debt growth by encouring people (even sub-prime borrowers) to buy bigger and more expensive homes in order to inflate the money supply to avoid a deflationary crash. It has not worked. The music has stopped.

The great depression is coming. An entire nation cannot borrow for decades, inflate the money supply, prices and salaries with borrowed money and then hope that all will be fine when the pay back time arrives.

Double Dip Recession explained here.