Slim’s Predictions for 2012

I’m a believer in cycles; in the markets, nature and life. So, after reading some interpretations of the meaning of the end of the Mayan Calendar, on December 12, 2012, it seems like why bother; especially with predictions of next November’s Presidential election. Thankfully, after further study, some Mayanists believe that the “End of the Great Cycle of the Long Count coming to completion” also means the start of the next one. So in contrast to the end of the world; a continuation of the current political environment seems almost palatable. So with some distorted sense of comfort, I proceed.

With the rest of the world’s economic undercurrents and geopolitical risks, prognosticating for the coming year is a bit like walking hot coals. Still, in my days on the trading floors, I’ve been described as having a relatively clouded sense of risk or a giant set of brass b…; well you know. So, here we go.

Europe/Euro: The European situation will remain in focus, of course. My take is the EU wants to show the world they can deal with this issue. It only goes one of these two ways: Greece has to make a deal for its debt or the EU the EU-ECB has to float bonds (which Germany hates right now) as a bail out. The big issue to me is whether a Greece debt deal is deemed a “credit event”, triggering the CDSs. Imagine if Greece cuts a deal at a 50% discount or more and the CDSs are not triggered. It would invalidate these securities, and anyone holding CDSs on sovereign debt of any country would panic and sell the debt; causing more chaos than any default. So I don’t think the world allows that solution. My predictions: Germany and France bend and floats Euro bonds and the situation calms. At first, the Euro currency falls to below $1.18 and ends the year near its highs; over $1.40.

Gold: Most analysts you heard talk throughout 2011 spoke of a near certainty that gold rises over $2000 an ounce sometime soon. If you read my article in greenfaucet.com on Oct 31, 2011, “Gold, The Hook is Set”, or watched my show, you would know that I had been bearish on gold as it bounced back over $1800, calling for a drop to the low of $1530 or lower before this correction was over. Well, that happened in late December. So I’m feeling kinda full of myself as I make my next call. I think the deflationary forces out of Europe will keep gold under pressure next year. For 2012; gold will not exceed last year’s high. I’m calling for a high in gold of $1730 and a low of $1325 an ounce.

Oil: Oil gained around 8% last year after soaring in the spring and collapsing into the fall. The last-quarter rally was boosted as the markets added in an Iran premium. And for this coming year, Iran will certainly be in the news. The question is, as the US tightens the noose on Iran, financially, will they try to close the Straits of Hormuz or will they attack Israel or will Israel decide it’s time to do something about the nuclear threat? It is likely something will happen in 2012 in this regard. I see oil spiking up to around $123 by mid-year and then giving ground again, making a low of around $93 a barrel later in the year.

US Treasuries: This was the best performing market last year, much to the disbelief of many T-Bond bears. That made it two good years in a row, with 30-year bonds up around 17%. I do not think it will be three in a row. As the year progress and indications of the European situation calming appear, bonds will have a very big decline. I’m calling for a high for the year for 30-year bonds in January, 146 and a low the second or third quarter at 123.

Best and worst stocks: Believing in a coming rotation, many of this year’s winners should be next year’s losers. That’s my call for the worst stocks of the 2012; with my best short stock one that has done well and sits at extreme valuation. My best long stocks are companies that had been under pressure in 2011 and are now base building; some with incredible valuations. 

SLM’s “Dirty Dozen” worst stocks for 2012: Starbucks (SBUX), McDonalds (MCD), MasterCard (MA), Visa (V), Chipotle Mexican Grill (CMG), Humana (HUM), United Healthcare (UNH), Apple (AAPL), Darden (DRI), Urban Outfitters (URBN), Wynn Resorts (WYNN) and my best short candidate – VeriSign (VRSN), which is near a year’s high and has around 100 P/E.

SLM’s favorite 12 stocks for 2012: Norfolk Southern (NSC), Federal Express (FDX), AT&T (T), Cisco (CSCO), Teva Pharmaceutical (TEVA), General Electric (GE), Halliburton (HAL), Devon Energy (DEV), Peabody Energy (BTU), Northern Trust (NTRS), Prudential Financial (PRU), and my long pick of the year – JP Morgan (JPM).

For details of why I picked these stocks, watch my Dec 29^th and Dec 30^th Ask SLM archive at tastytrade.com.

U.S. Stock Market: This past year saw the stock market widely unchanged, up over 8% early in the year and down over 14% in the fall. The last quarter, however, brought solid buying, with the DJIA rallying some 1900 points from its October low. That rally, except for a few bumps, should basically stay in force through the first quarter, possibly into the summer. I’m calling for a second quarter high of 13,600 on the Dow Jones Industrial Average. As we get into election time, chances of a conservative sweep; A Republican President and Republican control of both houses will scare the market. That’s because a balanced budget and austerity is scary, as we learned from Europe. So I see the DJIA making a low in the last quarter low of 11,560.

I’m calling the close for the year on the DJIA at 11,900 and the S&P 500 at 1225.

US Presidential Election: With the Iowa caucus still a week away and the Republican nominee still up for grabs, how could anyone think they have this figured out? Here is my best analysis. I think the hardline conservatives in congress have scared the crap out of moderate republicans. That’s why Bachman and Perry are doing so poorly. So, sadly for me, since I love that fiscal conservatives made a stand, and I’m a Ron Paul guy; I think it will be the person closest to the center that gets the nod - Mitt Romney. Next, the impotent congress has given President Obama powerful ammunition for his election. Add to that, the Supreme Court surely will uphold Obamacare and the (outrageous) individual mandate. So I say, in a close race, Obama wins re-election.

And just as a bonus, the Senate has 33 seats up for grabs, 23 which are now held by Democrats. So if it splits evenly, say 17 to the democrats – 16 to republicans, by the math,  the Senate comes under control of the Republicans, which will then hold both houses of congress – Obama and a republican congress means four more years of a total mess.

Full Disclosure: I am short AAPL way of bearish options strategies and short VRSN by way of long put options.

 

Watch Ask SLM live, 11:30-Noon, daily, at www.tastytrade.com.