When Nothing Seems to Work 2012 Economic Outlook

(such as it is)
Jim O’Donnell Huntington University

So how are we REALLY doin’?
Thomas Paine put it well:

“These are the times that try men’s souls…”

Sovereign debt contagion in the Eurozone. . Epic flooding in Thailand. The Japanese earthquake and tsunami. Osama bin Laden's death. A Standard & Poor's downgrade of the AAA debt rating for the U.What a Year!           The Arab Spring. The debt ceiling negotiation debacle.S.. A spike and then a large drop in both gasoline and gold prices. Occupy Wall Street. The start of the 2012 presidential campaign.

11-19-11 ." Barton Biggs. with maybe a slight bias to the upside.So how are we REALLY doin’? "The agony continues….

Brazil -24%  Russia -28%  India -40% America had – kind-a – the” best house” in an otherwise very sorry neighborhood. Germany -18%  Italy. by ETFs. 2011  USA +2%  UK -4%  Canada -12%  Japan -15%  China.So. how did we Really do? Country Returns. .

But then…what do you do? Where do you go to invest? . If you think you’ve had enough. --. gut-wrenching changes that go no where.So how are we REALLY doin’? Not so hot • S&P 500 is unchanged in 12 years. • Furious. I understand.

So how are we REALLY doin’? Two powerful. catastrophic market corrections in the last 12 years   2000-02: -50 to -75% 2008-09: -57% And then. .: Summer 2011: another -20% PLUS: mind-blowing volatility.

 Number of days Dow closed over 12.000: 136  Number of Days Dow closed below 12. hi/lo: 269 pts.200 pts.: 37  Five days in 2011 when Dow rose/fell > 4%  Four consecutive Aug.000: 113  Days in 2011 when Dow moved +/.“Mind-blowing” volatility?  Average daily difference. days Dow up/down 400 pts Yikes!!! (Is this a casino??!) . 8/11 on.


 Average correlation of all of the stocks in the S&P to the index itself has never been higher  not during the Great Depression -.In these long…long…long…long Bear Markets…  Diversification is a largely unattainable  63 days when 90% of stocks moved same way  “Macro” themes accounted for about 80% of individual stock movements. .not even during the 2008 financial panic. --.not during the 1987 stock market crash.

Debt and Deficit problems Entitlements and entitlement reform Stimulating growth amid austerity BIG!! themes .S.Either “Risk on” or Risk off” Today “macro’ themes dominate: Themes like –     The European Sovereign Debt Monster The U.

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and will .“Macro” Themes They can .kill us if not addressed: They will be with us a loooooong time They produce enormous fear Yet are unquantifiable!!! -----------------They will be addressed Though their resolution may be far off. .

 But this is not a strategy  First: “Do no harm”  Tell the truth – don’t scare us Huh? .In the meantime….  How do we hang on?  Faith? Yes.

.Lie # 1 “We’re in a bear market and heading for another recession” _______________ Feelings are not reality: S&P is UP about 38% since 2009 (This is not a bear market!) GDP up last nine quarters. Corporate profits up. Dividends rising. This lie undermines confidence. Economy growing.

. jobs are important.Lie #2 “It All Comes Down to Jobs!” ___________________ Yes. jobs can cost more than they produce – MUCH MORE! This lie makes our fiscal problems worse. But all jobs are NOT equal REAL jobs produce more than they cost Gov’t.

    Progress in Europe? Stocks up today? Corporate profits up? Housing ever recovering? Not really Yeah.Lie #3 “Hope is absurd. .The next Great Depression is just around the corner. for a day. You’re kidding! . Gloom is appropriate. For now.” ____________ All news is hopeless. even good news.

3. Taxes? Education? Regulation? . 2. The rich? Business? Obama? The Fed? The Occupy people? Take your choice or add your own. 5.Lie #4 “It all _________’s fault!” _________________ You fill it in: 1. 4.

_________________ Consensus. as with certainty – and divorce .Lie #5 “Stocks aren’t cheap. .is always very expensive. Better wait for more clarity.

Stocks are! cheap .

Stocks are! cheap .

real estate. Soon.An End-of-the-World Investing Scenario Currently. for instance . some of our seemingly intractable problems begin to be addressed and respond? What if Would that break the cycle of fear…. But! what And maybe so.dread……paralysis…gloom? . Even begin to? if ……things get better? …. risk assets – stocks..are priced as if the world will end.

5. real GDP growth exceeds 3. Greece and Italy restructure their debt.) Barack Obama vs.i%. . --.) U.S.) Crude oil falls to $88 a barrel.420. A bank meltdown is avoided.) Europe develops a broad plan to solve the sovereign-debt crisis. unemployment rate drops to 8%.) S&P 500 exceeds 1. Spain and Ireland strengthen their finances. gain Senate. Republicans retain House.Ten Predictions from a Person with Economic Hope  1.10% gain 3. Mitt Romney for president. European economy contracts. 4. 2.

Singapore and Korea.” such as nations in Scandinavia. with cuts to defense.) Congress reduces the U. debt by $1. Medicare and agricultural subsidies as well as some tax deductions. India and Brazil surge 15%-20% .) Stock indexes in China.5 trillion over 10 years.S. 9. 7.) Computer hackers attack major financial institutions. Australia. 8.Ten Predictions fro a Person with Economic Hope  6.) Syrian President Bashar al-Assad is ousted. 10.) Investors buy currencies of countries “that seem to be managing their economies sensibly.

Believe What You Want  We’re already in recession  The Financial Crisis of 2008 was just a warning  Home values will fall forever  Western Civilization is doomed  “Big” . .Government is our only hope now As for me and my house . ……….and advocate for market-based solutions to our problems.” We’ll also think.. and believe. trust.with apologies to Joshua – “We will follow the Lord.and Bigger . hope.

. And don’t take me -.or this economic stuff -. Life is more than money. May God bless you and prosper you.too seriously.Happy New Year! More importantly.

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