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Peter Switzer's 2012 predictions

With the New Year upon us, what should we expect to see that could make a difference to our wealth bottom line?

What will we see this year?

I see the year ahead in two halves, with the first being economically more challenging than the second. And this should have an ultimate bearing on what the stock market does. However, given the fact that stock markets have a history of anticipating future economic and market expectations by around six months, could the first few months of 2012 be positive for stock prices?

It sure is tempting to jump on this historical bandwagon, as the fourth year of a US presidency has historically been positive for stock prices, and Barack Obama faces an election at the end of the year.

That accepted, there are three issues that equity markets will have to deal with before all those investors on the sidelines, protecting themselves in cash or bank deposits, decide to take a punt on stocks again.  

Three things to deal with

The first is Europe. What the EU member countries and the related regulators decide to do is bound to have a big bearing on stock prices. The recent history of decisions from the Continent doesn’t do much to raise optimism for share prices in 2012. But I do think we’ve seen baby steps in the right direction that will emerge as more stable strides of a ‘youngster’ in the first part of the year.

Hopefully by year’s end we’ll see more maturity in what comes out of the EU and this will shore up market confidence.

Of course, if the Europeans show surprising credibility with their decisions in the early part of 2012, I’m sure we’ll see a kick in stock prices. I believe any such spike that might happen this year will be linked to Europe’s policies on debt management. If this happens, a new higher trading range will result until the next hurdle — economic progress in Europe — starts to give off positive expectations for investors.

All that said, I don’t have great faith in our European buddies and that’s why I’ve argued that the first half of the year will be more challenging than the second. 

Slow boat in China

Adding to the issues for stock prices will be a slower-than-expected China, which I don’t think will be as bad as some doomsday merchants would have it, but it won’t be helped by Europe, which will be in recession.

According to the latest Associated Press survey of 30 economists, the USA should grow by around 2.4 per cent, which isn’t bad and should support stock prices. However, even this is likely to unfold in two halves as well, with the second part of the year showing stronger share price growth compared to the first.

The survey of economists in December got it right when it concluded: “Beyond Europe, troubles in other areas could also upset the US economy next year. Congressional gridlock ahead of the 2012 elections and unforeseen global events, like this year's Arab Spring protests, could slow the U.S. economy. Three economists said rising nuclear tensions with Iran are a concern.” (Detroit Free Press) 

On the home front

On the subject of stock prices, the Aussie stock market is overdue for a comeback. Even though we’ve seen a disappointing calendar year for stocks, on a financial year basis we’ve seen two positive years in a row. I expect we’ll see another by June 30. 

Interest rates on the slide

Locally, I expect interest rates to fall at least once more but I suspect we’ll need two cuts to turn around both consumer and business confidence. If this happens, we’ll see our economy get stronger over the course of 2012, which will also help the Gillard Government’s political stocks, though the introduction of the carbon tax will be a big test. 

The tax cuts

Against this, tax cuts will run ahead of the new tax and this will have the double-barreled effect of helping the economy grow, as well as offsetting the dread linked to the carbon slug on our hip pockets. 

What to do this year

If you’re someone who’d put your hand on your heart and admit that you’re unsystematic towards your money life and wealth building, then, as others are promising to lose weight and give up smoking, be the only one who not only pledges to get your monetary life’s act together, but also the one who actually does it.

As early as practicable, either write down your plan to build your wealth or bite the bullet and stop being a cheapskate and go to a financial adviser. When it comes to getting richer, a good system to make money and time are your two best friends. 

So here’s what to do

In a nutshell, do a budget for 2012, create a savings target per month and then use this amount to pay off debt, to buy shares or a property. It would be ideal if the strategy includes minimizing your tax bill with the saving used to fund your investments.

By the way, in recent years, surveys of New Year’s resolutions have shown that sorting out money issues have become more popular with Aussies over losing weight and giving up smoking!

However, I suggest all of us need to make a supporting New Year’s resolution — promise to put a system in place that means you can’t chicken out on the deal you make with yourself.

Stock markets won’t be down and struggling forever. I think 2012 will be the start of something bigger and better for those trying to build wealth via shares and super. Start your new financial you and have a Happy New Year!

Published on: Friday, January 13, 2012

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