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It’s 2012 and get ready for more ridiculous volatility and artificially created prices in the financial markets as the forces of Macro fundamentals quickly converge on the seemingly positive Micro environment.

Wow…pretty good title for our first write-up of the new year.  So what does it mean you ask?  Let’s try to provide a concise synopsis of what’s in the pipeline for 2012.  Simply put…all the can kicking that took place in both the US and EUROZone last year was just smoke and mirror policies that helped avoid the Macro imbalances in the system (e.g. unsustainable debt) that would affect the Micro environment around the world.  Well guess what, nothing has changed except that time continues to run shorter and shorter given that no tangible plans have been made to address a plethora of serious problems.

Eventually what may transpire for the EUROZone is perhaps a drop out or two of weaker nations (e.g. Greece) as their domestic economies simply weren’t built to service the debt load they are facing.  And what that means is that all the money that was thrown at the problem during 2011 (e.g. can kicking) was a massive waste.  On the US side, early numbers may allude to a trimming of the unemployment rate, however the factors that are causing job destruction in the US haven’t even been talked about, so don’t get excited about any sustainable improvement on the jobs front.  Real estate you ask?  Well, the latest trend in some problematic areas in the US have been municipalities plowing over abandoned homes (this generally does not signal a turning point in the market).  So what about these artificially created prices in financial markets?  Let’s just call it negative real interest rates which exist out to 30 year duration in the US Treasury market….(talk about the creation of greater economic imbalances, this just spells trouble down the road).

Can kicking has put off the affects of massive Macro imbalances which continue to get worse, not better, as time elapses.  2012 will simply depict the convergence of these imbalances on the Micro environment (e.g. consumer demand, unemployment and volatility in the prices of financial assets).  Whoops, almost forgot to mention a US presidential election that should make things even more interesting for volatility.


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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