Outlook for 2013
What lies in store for the coming year and what does it mean for your investing strategy?
BY: GORDON PAPE
Last month, I was invited to give my views on what’s ahead for 2013 at a conference of financial advisors. Predicting the future is never easy — something is almost certain to go wrong. But here goes.
European angst continues. There is not going to be any quick and easy solution to Europe’s problems. The fact the crisis has dragged on for this long makes that very clear. And it could get worse before it gets better.
It’s hard to see how Greece can stay in the eurozone. The country is a financial disaster, the jobless rate is at depression levels, and people are rioting in the streets. The only way out may be to dump the euro, renounce all foreign debt, and reintroduce a deeply devalued drachma. That would send a major chill through world financial markets.
We avoid the fiscal cliff. The right wing of the Republican Party lost much of its clout and credibility in the election. President Obama emerged as a clear winner. There will be a lot of bluster and breast-beating but a deal will get done.
China regains momentum. The slowdown in China may be causing concern for our resource companies but it’s a lot more worrisome for the incoming politburo. The last thing they want to see is social unrest caused by unemployment and lack of opportunity. They are going to do everything they can to stimulate growth and get the economy back on track. My guess is that we’ll start to see some positive results from that early in 2013.
Gradual recovery in commodities. If China rebounds, it follows logically that commodity prices will too — which would get our resource industries back on track and improve their share prices and the funds that invest in them.
The bond bull ends — maybe! One of the big surprises of 2012 is that bonds have outperformed stocks once again, contrary to all the predictions of last January. We should finally see an end to the long bull market in bonds over the next year — but keep in mind that experts have been predicting that for the past three years and it hasn’t happened yet.
So to summarize:
1. It looks like the coming year won’t be a lot different from the one we have just experienced, except that bonds probably won’t be as strong.
2. We are likely to see slow growth for at least the next couple of years but the chances of a new recession are relatively low.