2012 Outlook

"Don't worry about the world coming to an end today.  It's already tomorrow in Australia." - Charles M. Shultz

Well we have almost made it to the end of 2011 and certainly a year that most of us would like to forget.  Others however would like it to continue on forever, but such is life; there is always someone that benefits at the expense of the rest and 2011 was definitely one of those years.

Heading into 2012 I like to look ahead to see how to position my investments and in all honesty I doubt that I will be making many changes.  My private equity investments are all looking relatively solid and all should continue to prosper in 2012, and based on my outlook for the global economy, my fixed rate deposit investment is looking very good.  So what is my outlook for 2012?

When I was a boy growing up in Cape Town we used to have a "fort" where our neighborhood gang of boys would congregate to plan our next attack on the neighborhood girls.  We were very fortunate that we lived right next to the girls only high school so we could spend tons of time working on plans that usually included insects and mud.  Little did we know that a few years later we would be begging them to take notice of us but at that time the fun was to scare them. 

To get to the clubhouse you had to climb an eight foot high wall, balance along the top for about 10 paces and then climb up the A framed roof of the garage.  The roof was made of metal so when there was due or a rain it could be very slippery.  There were more than a few times that we would slip and would be saved by the gutter at the bottom of the roof!  Once you had navigated the ascent you then walked along the pinnacle of the roof to the edge and swung yourself over the edge lowering yourself down until hopefully your feet touched the hole in the wall.  From there you would swing yourself into the "fort" which was the attic above the garage.  I am still amazed that none of us ever fell the 20 feet onto the concrete below and even more surprised that our mothers even let us use the place, but it was a great place to hide!

So why am I wasting your time with this story.  I think that it is a perfect summary of the market and how 2012 will play out.  The pitfalls are enormous with everything from a collapse in Europe (falling 20 feet from the roof) to another global scare (slipping down the roof to the be saved by the gutter).  It is wrought with pitfalls and the upside is limited.  Undoubtedly there will be massive rallies that will be fleeting and these will be followed by sharp violent reversals.  I would not be surprised by weeks of five plus percent moves in either direction all ending the year either where we started or lower.

Fear is still very much present and Europe is more than likely already in a recession.  Any more slips and it will destroy what little the United States has achieved in the way of a recovery.  Interest rates will remain low and may even continue to contract and it is looking more and more likely that the United States congress will be stuck in no-mans land unable to make any decisions that have a lasting benefit to society.

Not a happy environment to end the year but all of us should give thanks that we missed the mess this year and that we are well positioned for next year.  Remove the stress, stay in cash and enjoy 2012.  All the best for the holiday season and the New Year.