As the usual suspects resume their long-always, perma-bull calls for stocks looking into 2012, we are reminded like Groundhog Day of every other January since stock markets began. Always the same old forecasters calling for broad market targets magically 10%+ higher than where the year begins. Never any mention of the downside risk to capital or the neck-snapping losses that followers could experience in the interim.
To hope for higher prices when asset valuations are already at nose-bleed levels and investment yields are savagely small, is to hope for a continuation of the contrived, debt-soaked, risk-rich, return-poor conditions that have been punishing investors and savers now for more than 12 years.
Beware the flabby devils and reckless sooth-sayers who evidently have no conscience or concern with repeatedly recommending stocks regardless of climate or conditions. They are paid handsomely by the risk-sellers to make their forecasts, and apparently for them, high pay is all the credibility they require. The fact that their followers once again lost money in 2011 and have now fared poorly for more than 12 years, is apprently not their responsibility or problem.
For my part, I enter 2012 as apprehensive of downside risks as I was in January 2008. I am optimistic that a global economic downturn this year is likely to knock stock and commodity valuations significantly lower during the next 12 months. I am hopeful that, unlike 2008, this time there may be greater awareness and complaint from taxpayers which will afford less political latitude to those who would rather further indebt our economy and workers to prop up unworthy leaders and institutions than let truth and the natural correcting forces of capitalism restore order and financial health to our system.
I know that when the props finally fail (and they will), there will be some incredible investment opportunities for those who are ready and know what they are looking for. I am very hopeful that we will make progress toward truth, disclosure and some meaningful investment opportunities in 2012. In this regard, I am very much in sync with the hopes expressed so eloquently today by John Hussman in his weekly letter:
We enter 2012 with a great deal of hope, but our hopes are not for more bailouts, or money printing, or any of the myriad policies that investors seem to hope will save bad investments and sustain elevated valuations. Instead, our hope is that in 2012, the market will finally “clear,” in the sense that bad debt around the world will be recognized as bad and restructured; that overleveraged financials will be taken into receivership instead of forcing austerity on every corner of the global economy in order to make them flush again; that rates of return will rise enough to compensate and encourage saving – and high enough to encourage borrowers and other users of capital to allocate the funds productively. Of course, in order to restructure bad debt, someone has to accept a loss. In order for rates of return to rise, valuations must decline. In short, our hope is for events that will unchain the global economy from an irresponsible past and open the gates toward a prosperous future.
Read the whole excellent article here.