The year of 2011 may go down in history as the year that never was. Our financial markets, despite a rollercoaster ride throughout much of the period, ended the year amazingly enough at roughly the same levels as where they started. The S&P 500 index concluded 2012 at 1,257, the same as a year ago. The Euro versus the Dollar was still at $1.30, a figure difficult to accept with all of the dour news pouring across the Atlantic, and the Yen remained strong in spite of a horrific earthquake and devastating tsunami.
It may be time to buckle your seatbelts or resort to taking a long-lasting sleeping potion. Most experts believe that we will see a repeat of 2011 right before our very eyes in 2012. Hopefully, we learned a few lessons along the way, but here is a brief recap of a few significant events that transpired over the past twelve months:
- We learned to broaden our definition of the word “crisis”. The European debt crisis actually began to surface in November of 2009, and it is now entering its third year on the global stage. The word “crisis”, as a matter of fact, comes to us from the Greeks and is supposed to represent a situation that has reached a critical phase. Perhaps, things move more slowly in Europe or the “critical phase” keeps being delayed by political machinations, but the officials in the know are now telling us that the so-called crisis may last for years. It is hard to believe that a country with an economy no larger that that for Dallas-Ft. Worth could cause such a stir, but credit default swaps may be the “culprit” once again, this time on sovereign bond issues instead of toxic mortgages;
- In Japan, we witnessed a true natural and national crisis occur back in March. For some of the hardest working people on the planet, an earthquake and a subsequent tsunami was the last thing anyone expected for a country still trying to recover from two decades of recession. Living on the “Rim of Fire” is far more risky than living in California, as “24/7” news cameras revealed. The national grid came to a screeching halt, export trade froze in its tracks, yet the Yen strengthened, even after several interventions by the Bank of Japan and other central banks. A weaker currency would bolster the rebuilding effort in progress;
- On our shores, the Fed was successful in expanding the money supply by its buyback of $600 billion in securities with its quantitative easing program, dubbed “QE2” by the press. Banks were still hesitant to loan the funds to small businesses, stalling the modest recovery that began to take shape before June. What will make commercial banks focus on lending instead of transaction–based bonus compensation? Bring back “Glass-Steagall” was often heard in many corridors, but political gridlock blocked the debate on any new initiatives and resulted in a credit-rating downgrade, to boot;
- We learned that uncertainty begets volatility in our financial markets. Equities, commodities, and currencies gyrated wildly during the year, yet the Euro and Yen maintained strong positions despite numerous shorting attempts by forex traders. The lesson was that, in a time of crisis, banks, companies, and individuals repatriate their private “stashes” of assets overseas for survival of the home front. These capital flows thwarted major forex hedge funds and retail traders alike, leaving both groups speechless and recording losses.
Hope you paid attention in 2011 – the “record” is stuck in “repeat” and still playing!
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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