Market Overview

2012 Investment Outlook


Investment outlook2012 started off with a bang, with the S&P gaining > 1.5% on the first trading day of the year. The metals did great as well, with gold (NYSE: GLD) rising 2.3% and silver (NYSE: SLV) rising > 6%. It seems like investors had taken off their risk-off hats, and all the concerns about Europe had been muted, and the thinking of a China hard-landing became China hard not to have a soft landing.

However, of course, none of the underlying problems had been solved. Europe still has not had a sound solution for its sovereign debt problem, and China's real estate market continues to freeze with few transactions even though prices had not come down much. Everyone is betting the Fed or Europe will print more money, but so far we only know that interests rate will stay low in the short term while oil price remains high. In addition, being an election year, Republicans have the incentive to starve additional stimulus this year and keep the economy down until the election is over.

As we wrote a year ago, the US market had a few things going for it in 2011, particularly with the tax advantage of equipment purchasing for small businesses, not to mention the reduction in social security tax as well. While the bonus depreciation will still be 50% for 2012, the incentive clearly diminished when comparing to 100% for 2011.

With so many global economic issues unresolved, political landscape being unclear, investment outlook can best be described as cloudy. We remain unconvinced that US equity will advance smoothly over the year, and expected gold and silver to come down a little more. Nonetheless, if the US, Europe, and China all open their spigots on money printing at the same time, then equities will be the way to go, and metals can continue their long climbs again. Until then, investors should navigate the market carefully.


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