1/3/2012 3:44 PM ET|
The 6 big market events of 2012
4. Civil war breaks out in Iraq, contributing to a spike in oil prices
The departure of nearly all U.S. troops from Iraq late last year may have been good news for their families back home, but it was bad news for Iraq. All hell is going to break loose as the three main cultural factions go at it.
The problem with Iraq began in 1922, when the Brits invented the country by cobbling together three disparate cultural groups -- the Sunnis, the Shiites and the Kurds. With the U.S. pulling out, they'll be freer to go at it again -- and that's exactly they'll do, predicts veteran oil analyst Charles Maxwell of Weeden & Co.
"I believe that there will be a period ahead of extreme civil violence, worse than anything we have seen before in Iraq," he says. "It is hard to see how a unified state can emerge from this turmoil."
Combined with other tensions in the Middle East that threaten to disrupt oil supplies -- such as attempts to stifle Iran's nuclear weapons program and the ongoing civil unrest and regime change in so many oil-producing countries -- strife in Iraq will send oil to $115 a barrel for West Texas Intermediate crude, predicts Maxwell. Gasoline could hit $4 a gallon.
Those prices won't hold, so that won't derail the recovery. But oil spikes will be another source of stock market volatility. Maxwell predicts the average price of a barrel of oil for the year will be in the high $90s.
Oil producers, obviously, will benefit. Morningstar analysts favor Hess (HES, news), Marathon Oil (MRO, news) and Patterson-UTI Energy (PTEN, news). Analysts at JPMorgan Chase cite Pioneer Natural Resources (PXD, news) and Denbury Resources (DNR, news) as two of their best ideas for 2012.
5. Gold will hit $2,200 an ounce
After the November elections, expect another debt-ceiling crisis. Expect more talk of a U.S. credit rating downgrade. Debates will rage about extending the tax cuts put in place during the administration of President George W. Bush, which are due to expire at the end of the year.
This continuing three-ring circus of a government performance will spook investors. "It will show the government is unable to deal with anything," predicts Thomas Winmill, an expert on gold who manages the Midas Fund (MIDSX). "If it looks like the government is losing control, people will get panicky."
Gold, once again, will serve as the haven. All of this will contribute to a move up in gold prices to as high as $2,200 an ounce.
Along the way, other factors will also contribute to a rebound in gold, now almost 20% off its 2011 high. Central banks around the world will maintain loose monetary policies, which support gold prices, because they create fears about currency debasement and inflation. Negative real interest rates will help too, since this leads people out of cash and into gold in search of higher returns.
Besides gold mutual funds and ETFs, gold stocks should benefit. Right now, many of them are trading at the lowest valuations in nearly a decade, despite the strength in gold itself, which has stayed above $1,000 an ounce since late 2009, says Frank Holmes, the CEO and chief investment officer of U.S. Global Investors. "The cheapest ounces of gold aren't in the ground, they're listed on the stock exchange," he says. A good example, he says, is Randgold Resources (GOLD, news), a top holding in his U.S. Global Investors Gold and Precious Metals Fund (USERX, news).
Winmill likes Goldcorp (GG, news) because of a big expansion in production this year, and the limited geopolitical risk. Goldcorp production is mostly in North America. Goldcorp is the top holding in his Midas fund.
6. Facebook 'friends' the average Joe in the market
The wealthy have been able to invest in Facebook for years -- on exclusive stock exchanges for the privileged that run in the background. 2012 will be the year the average Joe gets a crack at shares of the world's most popular social networking site.
The IPO will value Facebook in the $100 billion range, pegging co-founder Mark Zuckerberg's wealth at about $24 billion overnight, by some estimates. That will put him ahead of Google co-founders Larry Page and Sergey Brin. The big surprise here will be that Facebook pulls a Google and does the IPO on its own. After all, who needs to "friend" Wall Street bankers (and give them lots of fees) when you're Facebook?
But will the stock be a buy? The company certainly has potential. The task of turning the social-networking buzz into profits has only just begun, says Timothy Ghriskey of Solaris Asset Management. But it all depends on the valuation at the time of the IPO, he notes.
If Facebook is luckier than Google, it will time its IPO to coincide with a market top -- perhaps in May or June. That'll be good for Facebook. But it could hurt investors who buy if the Facebook IPO signals a top in the market. I wouldn't be surprised. Many of the most popular Internet IPOs last year came out near market highs during April through June -- then saw the market swoon.
If we see a repeat, buying Facebook as an investor on the IPO will mean buying high and suffering through a low. Which means, unless the Mayans are right and the world ends this year, Facebook won't feel like your friend at all.
At the time of publication, Michael Brush did not own any shares mentioned in this column. His newsletter has suggested Hess as an investment.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
VIDEO ON MSN MONEY
Gas prices will go down, the economy will do well, because it is an election year, then all promises will be forgotten just like always.
The Fed has left its key short-term rate at a record low near zero for the past three years. In August, it said it planned to leave the rate there until at least mid-2013, unless the economy improved.
In January, the Fed will release an interest rate forecast for the October-December quarter of 2012 and for the next few calendar years, the minutes show. It will update that forecast each quarter. Forget it if you want to be a saver for your retirement in CDs etc, you may as well spend the money now while it is still worth something otherwise, current policies will cause you to loose it.
Arrow to the knee: I have to agree completely. We all make mistakes. As long as I can understand the idea that the writer is trying to convey, I'll overlook simple mistakes that we all make.
To make an issue of them is pretty petty in my book.
I am kind of positive myself, what the heck. it looks that we can also bet on oil going up, if we consider the Iranian problem in the brew. I have seen investors get all happy when energy prices go up even when regular consumers-(us)- have to sweat the small stuff to make ends meet. But it is very early January and it just could be good karma to make a marked courtesy before the economy which is about to unfold. So let's hope it makes a smooth upward spiral and never may it look like someone threw the spool out and rolling downstairs...
".....I'm bullish precisely because others are so negative.
Really???? Good luck with that, buba.
Feed me a can of beans and allow me 3 hours - Then, I'll tell you what i think of all of this.
It's ashame there are no letters in our alphabet to describe the sound of a fart. If there were, the above wouldn't be necessary.
Ffffffffft, prrrrrt, BOOM . . . it doesn't quite work, does it.
You negative people posting need to understand one thing, if someone doesn't start with a positive outlook then all you'll see and have is negatives.
I personally would welcome a positive outlook cause I'm tied of all the negative bad news.
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[BRIEFING.COM] The major averages ended the midweek session on a flat note after spending the day inside narrow ranges. The S&P 500 hovered near the 2,000 mark for the majority of the trading day, but slumped to new lows during the last hour of action. The index then returned to its flat line, where it settled for the day. For the third day in a row, participation left a lot to be desired with just 487 million shares changing hands at the NYSE.
Equity indices opened with slim gains, ... More
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