2011 – ‘the year that time forgot ?’

To expect history to forget the economic and sovereign turmoil that embraced 2011, seems a difficult ask; however 2012 brings new challenges and areas of focus, to the extent that the Eurozone crisis may become a sideshow to other major events on the 2012 horizon.

2011 was a difficult year for the majority of stock market players, with contrasting performance across the globe. What seems to have passed us by is the relative success of the larger US companies, with the Dow Jones index finishes an amazing 6% higher on the year; compared to the UK’s FTSE 100 index falling 5.5 % and Italy’s FTSE MIB Index experiencing a painful 25.7% decline. During this downward journey for the European Stock Markets in particular, the price movements were violent, which resulted in even the most savvy of investors or day traders, licking their wounds. Certainly in the 25 years I have been trading I have never seem such a relentless pattern of markets looking so weak at one moment in time and then turning on a sixpence a second later to look like the best thing since sliced bread. These conditions favour few investment or trading strategies. Even if you lean towards range trading, you may have to see your position go significantly against you before a chance of profiting.
This extreme volatility has resulted in many institutional market-makers sitting on their hands, which in turn reduces the liquidity, which in turn increases volatility further.. and so on. The question on everybody’s mind right now is what will 2012 bring for the financial markets, global economies and the Eurozone.

Coming back to my point of the Eurozone crisis story being sidelined by other events in 2012; I almost feel that it will not make much difference, in the the long run, if some European countries break
rank and go on their own. This is not to say that instability and uncertainty won’t feature in the short term for countries who pull out (or get booted out) of Europe; however fiscal independence did work for the majority of these nations…for hundreds of years previous to adopting a single European currency. So a possible scenario is that the weaker, debt ridden Mediterranean countries may well leave the Eurozone one by one throughout 2012, but will gain strength from their independence eventually and thrive again. This would leave a stronger northern European Eurozone; possibly just consisting of the Benelux counties, Germany, and France; thus tempting the likes of the Scandinavian counties to join and even Britain ! Either way, the end result is not necessarily a bad one, giving an element of credence to those who look to profit from long term investments in European equity markets.

So what could divert our focus for the next 12 months ? Well where should i begin… continuing turmoil in the Arab states, a US presidential race with a potential for change of leadership in the four most powerful counties in the world; America, France, Russia and China… Then there’s the global economic outlook to consider; not just whether we are double dipping, but just how big the second dip will be..
Depending on the direction the economic outlook takes, this will no doubt directly impact interest rates. If the economy is rebounding (upwards) then this gives the green light for an increase in rates, taming any resurgence of inflation, but threatening the debt ridden consumer, who to date had ridden the recession with the bonus of lower mortgage payments.
Either scenario for the economic growth may well override the focus on Eurozone woes (although partly connected), coupled with threats of unrest in the middle east and uncertainty in South-East Asia.
With stock markets looking attractive for their rate of return, given the low interest rates available from the banks, there may well be opportunities to profit in 2012; but be warned, the unexpected often lies beneath, so prudence may be necessary to prevail the coming months..

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