2011 was an extremely volatile year, yet amazingly the stock market indices ended essentially unchanged. What’s in store for 2012. While predicting the future is not exactly easy, here’s what I think happens in the year ahead.

Stocks End Up 10-15%

While I believe volatily will still rear its ugly head from time to time, I think stocks will overall have a good year. At some point in the 1st quarter of 1st half of the year, I anticipate that there will be a European event which causes markets to shake a bit. This will likely be a good buying opportunity.

At some point, I believe that the Fed will also step in and perform more easing. This might not come in the form of a formal quantitative easing declaration, but it might come in the form of pegging future policy to unemployment rates. This will ensure further easing at the expense of inflation to get unemployment down. This will be bullish for stocks. It’ll be even more bullish for gold. While stocks end up on the year, gold will outperform stocks yet again.

The only risk here is that I expect corporate earnings have peaked. Corporate earnings will likely start getting revised lower. Despite this headwind, corporate profits will remain strong, dividends and buybacks will continue to be big and stocks will go higher moderately.

Housing Stays Crappy

While most of the declines in housing is behind us, the good days of housing are still a ways off. With foreclosures and the shadow inventory of houses still dragging down prices, it’s tough for any pricing gains to get traction. Moreover, the fact that unemployment on young people is high prevents new household formations. Lastly, current homeowners have to write a check in order to sell a house – this means they likely won’t have the ability to write a check for a down payment on a new house. The result? They stay put.

Middle Class Struggles

The struggles in the middle class aren’t going away because these struggles are rooted in structural issues in this economy. Unemployment might get marginally better, but it’s still elevated. The standard of living for the masses will continue to decline.

Politics

Politics will continue to be politics. While I’m a huge Ron Paul fan, it’s not likely that he’ll get the Republican nomination despite the fact that he’s doing very well these days. Expect an extraordinary amount of class warfare rhetoric as Barack Obama takes aim at Mitt Romney who has a net worth of $500 million. The Bain Capital private equity stuff that Romney has taken heat on so far… you haven’t seen anything yet. In the age of Occupy Wall Street, this is Obama’s best angle to get re-elected. Ugh, it’s so annoying.

The Good News

Despite an economy that remains sluggish and a political environment that is absurd to say the least, the good news is that your life can be fantastic no matter what is going on in the world out there. Stay grounded, enjoy your family and enjoy life! Happy new year!

It seems like you can’t get on TV and talk about your views of the economy unless you’re either in one extreme or the other. Either the American economy is great and the Dow is going to 15,000 or you’re a gloom and doomer and think the Dow is going to 5,000. The reality is that neither camp is right in my opinion.

I’m of the opinion that there are structural problems with the economy. First and foremost, there’s too much debt. The debt overhang of the general economy and at the individual level will be a burden preventing future sound growth. Think of it this way, the debt service at the individual prevents you from investing in other activities or buying other things. More of your money going to banks versus productive investments or consumption is good for the banks, bad for the general economy.

Second, because of advances in technology and cheaper labor overseas, American workers are too expensive and under-skilled. This means that high unemployment is here to stay.

Now, does this mean the economy is going to crash or the dollar will crash or some other catastrophic event? I don’t think so. First, the policymakers are very good at extending the problem and preventing an all out collapse. This doesn’t mean there aren’t consequences to “kicking the can down the road”. There are. But, the reality is that America still has more leeway on this than most other nations because of the power of America. Is this power and dominance deteriorating? Yes, I believe so, but it is a very slow process.

Expect the US government to continue to prop up the economy and offer various deficit spending programs to infuse cash into the economy. Debt will keep increasing at the national level, and inflation will likely continue to increase at a measured pace. Yes, your dollars will likely continue to buy less and the standard of living will likely decrease for the masses over time. But the key here is “over time”.

If you’re hiding out in a bunker waiting for chaos, I think you’re wasting your time. Find opportunities out there to make money. It’s not easy and they aren’t obvious, but there ARE opportunities. The economic conditions just warrant being more cautious and more frugal and might make you have to work harder to get ahead. So be it. And yes, have a little emergency stash just in case I’m wrong and the world goes to crap next year.

Image from Goldbarsandguns.com

Old Wall Street and old financial planning was defined by the following:

1. Buy and hold strategy
2. Diversification
3. Stock picking
4. Discouragement of alternative assets like gold
5. Discouragement of any attempt at market timing

This led to an explosion of the following:

1. Financial advisers – there are tons of financial advisers that really all tell you the same thing (see the list above).
2. Newsletters which offer “hot stock tips”
3. Wall Street profits – The above list was very conducive for maximizing wall street profits because it meant you gave them all of your money at all times

This system worked for a while. In fact, it worked well for a few decades. It worked well as long as the macro-economy was essentially a rising tide, making all boats rise in tandem. The economy was a tailwind pushing all traditional asset classes higher which meant things like buy and hold worked well.

Now where did stock picking fit in? When times are good, stock picking means you’re essentially just picking some stocks that beat other stocks but still all of them are doing ok.

Stock picking was all the rage because everyone was convinced that stocks were where you should be because the performance was so great. Stock picking gave individual investors the idea that they could generate even larger returns therefore they ate it up. Hot stock tips spread via newsletters and word of mouth like wild fire. The reality is that these tips could work if someone read the fundamentals right. Unfortunately all of this ended in 2008.

When the government intervened in the markets in the name of “stability” and to prevent “catastrophe” as we were told over and over by politicians of both parties, no longer did business fundamentals become the bigger predictor of a stock’s future performance. Traditional stock picking died.

Now, instead of diving in and finding an undervalued company, it is much more valuable to be able to dive in and predict the following:

1. When will the government intervene again? Specifically, what is the Fed’s policy actions going to be in the near future?
2. What global macro events will hit the markets? Today, a good example of this is the European debt crisis)

The markets have record high correlation between individual stocks and the overall market – this means more than ever, stocks are all trading together in unison based on the overall direction of the market.

Focusing your attention on the macro events and the government policies which are driving the markets much more than business fundamentals is much more valuable versus traditional stock picking. The market is really hardly an open market anymore.

What the Wall Street folks who are pro-Fed and pro-easy money might not realize is that this is eroding the confidence of the individual investors in the market. More and more investors are saying screw this and are pulling money out of the markets. This will continue to hurt the old Wall Street business models that we discussed in the beginning of this article.

The bottom line is that I hardly spend any time picking stocks. I have a few companies I like and monitor, but the majority of my focus is on the global macro environment. I’ve been telling friends now for over a year to watch Europe and wait. I tell them to wait until Europe implodes (its coming) and then to put money into some good multinational stocks which will get hammered upon Europe’s implosion. Put money in those companies then ride it back up. Stocks like Philip Morris (PM) fit that bill well. There.. I just picked a stock, but its less about PM and more about the macro environment. You could replace PM with another multinational and the performance would be similar.

The other thing we haven’t talked about yet is timing.

By focusing on macro events you can time them. When the markets rally because of another central bank printing more money, perhaps this is cause to pause and consider how long-lasting such a rally might be. Wait for stocks to come down before allocating more cash.

Lastly, often times the stock picking I do is on the short side. Most stocks I pick are the overvalued ones that people have gone nuts over. For example, Groupon (GRPN). The business model is a joke and I shorted it at $30 the day it debuted on the market. I just covered yesterday for under $17 a share. That’s a 40% plus gain in a couple weeks. I’m not a day trader and I don’t recommend day trading, but I do some trading when I see extreme case.

I am implementing this strategy at my example mutual fund that you can monitor by clicking here.

For approximately 5 months I have been managing my “mutual fund” via Youtualfunds.com – which is a very cool platform. My performance over the last 5 months has been very good. While the performance is encouraging, I’ll be the first to admit that a 5 month time frame is very short. You can follow my performance by clicking here.

Youtualfunds.com is a very slick platform where users can build their funds and have objective tracking of performance. Users can then link up brokerage accounts to funds they like and the system will automatically mimic the fund with their actual account.

So, if you like my fund that much, you can even hook up your brokerage account to it.

Again go here to see the fund.

Let me know what you think.

The current economic collapse has caught most American’s in a peculiar buying situation: you can either avoid purchasing new technology and fall behind on the technology curve, or you can purchase it and encumber yourself in more credit card debt than you could have ever imagined.

Every great tech company on the market has an excellent array of products ranging from low-priced, budget model computers and smartphones up to extravagant, fully-loaded models that will take the words out of your mouth and post them to your favorite social media websites.

If you are not sure about the type of device or computer that will fit your needs and budget the best, you need to take a look at all of the tech companies and find the best deals on their products. Every company has expensive, top-shelf merchandise. Fortunately for you, each company also has cheaper options, as well as features that make the expensive machines worth purchasing. Here are some of the advantages and disadvantages of the major tech companies:

HP

While HP may have seen a hit a weak stride when they introduced their TouchPad, they more than made up for the tablet misadventure when they started selling the Touchpad for under $100 in the United States, driving up incredible demand for the cult-status webOS tablet. As for laptops, until recently HP had a nice run of being the #1 computer seller in the world. It’s hard to argue against sales numbers, so they must have been doing something right. One key to their success has been producing high value-for-performance machines like the 17-inch HP dv7 laptop for extremely low prices when compared to other leading manufactures.

Apple

Most people tend to shy away from Apple because of the stigma that it is the highest priced brand on the market. While their MacBook, iPad, and iPhone products do command premium prices, they are also proven machines that tend to last for a long time. Unlike machines that run on Windows and other operating systems, viruses are not prevalent on Macs. By investing a little more money into an Apple device, you will not have to spend it on anti-virus software or on hiring your local Geek Squad.

Android/Google

When purchasing a smartphone that runs on the Google-based Android OS, you can expect to pay a little bit more than you would for an iPhone. That is unless you can get by with a lower-end smartphone that delivers just basic features and performance. Most mobile carriers offer previous versions of Android phones for a lower price when you purchase a contract with Verizon, AT&T, T-Mobile, or Sprint.

Dell

Dell has generally been the standard computer company of small and large businesses alike. With tablets and mobile browsing becoming more popular with consumers across the world, Dell CEO Michael Dell is still committed to providing average customers with the best options for laptops and desktops. According to PCMag, the chairman has stepped up his commitment to making sure that his PC business is always dedicated to consumers instead of trying to drift off into tangential endeavors into new product categories.

Sony

The Sony Vaio is one of the highest performing computers on the market. Professionals in industries such as architecture, graphic design, science, and business have been using these machines instead of the standard Apple products because of the reliability and power built into Sony machines. Unfortunately they also cost quite a bit of money at most retail locations.

The soft spot for Sony is in their video game department. You can purchase a brand new PS3 for only $250. This machine not only connects you to video games, you can also browse the Internet, send email, and watch Netflix videos without the aid of a laptop. As their commercials say, “It only does everything.” If you are looking for a serious multitasking machine, the PS3 is a surefire bet.

If you are still hesitant about purchasing a computer in this down economy, try visiting each company’s website and comparing specs and prices. Also check out retailers like Best Buy, Amazon, and eBay for the latest prices on all of these products. One of the best ways to save money on your technological needs is to do some heavy sleuthing.  For example, a quick search for HP “model name” + keywords such as “coupons,” “discounts,” and “deals” — you’ll find a plethora of savings available to you.

Those of us who criticize “fiat currency” are familiar with the term “race to the bottom”. It refers to the competitive devaluing of currencies around the world. Essentially countries want lower currencies priced against other currencies in order to stimulate exports. Of course if your exports are cheaper for other countries, then stuff is also more expensive for your own people, but that’s irrelevant, right? Well, what happens when EVERYONE is devaluing against eachother trying to all stimulate exports? Well, you have all currencies losing value. This is why it’s stupid to compare the dollar to the Euro. Or the dollar to the Yen. They’re all losing value. Losing value against what? Well, real things. The most obvious one being gold. Try and find a chart of the gold priced in the top 20 currencies in the world over the last ten years and you’ll see what I’m talking about.

It’s a race to the bottom.

As I mentioned recently, the Europe situation is no where near to being fixed no matter what the PR representatives (politicians) tell you in order to attempt to calm the markets.

This week, it all went to hell again (what’s new)…

From Beacon Equity:

Greek Prime Minister George Papandreou is resigning; now, he’s not—just a rumor. Referendum scheduled for the Greek people; now, it’s not.

Berlusconi cannot leave his underage tarts for a day to prepare for a G-20 meeting. Italian bonds are on life support from the ECB from a near blowout Tuesday of more than 450 basis points to the German 10-year bund. 

Dexia collapses. Who knows what counter-party risk is stuffed?

The new ECB chief Mario Draghi surprises the market with a 25 basis points cut at its ‘marginal lending facility’. Portugal, Spain and Ireland salivate over getting a similar deal given to Greece, teetering banks in France and German. Now French banks are under severe pressure in a circle-jerk default scenario throughout the EU.

Japan, Switzerland, UK, and China are trashing their currencies to bits along with the euro—and the result of all of this Argentina-style mayhem? The USDX drops!

In fact, the rally from the 73.42 low of Jul. 28 to 76.92, as of Thursday, is a whopping 4.8 percent. That’s the extent of the rally into the ‘safety’ trade. CNBC calls US Treasuries the ‘safety trade’, yet calls gold a bubble trade after the yellow metal corrected back to the planet Uranus following its trip to Pluto.

Ignore the minute by minute noise. Focus on the big picture.

The big picture is that there is way, way more total debt in the world with regards to global GDP than in years past. There has to be massive restructurings. Yes this will really rattle the markets and there will be times that it is really ugly. But things will survive, and our politicians will probably replace the current system with another system that will be inherently unsustainable.

Expect standards of living and purchasing power to drop across the board.

For example, the Greeks think they are choosing between austerity measures associated with staying in the European Union and going on their own and not having austerity. Either way they will have a drop in their standard of living. If they stayin the Euro, they have massive austerity. If they leave they’ll have massive inflation with the Drachma or whatever it is called. Either way their standard of living goes down. Politicians can hold off market forces for a time or a season, but eventually it’s impossible to hold them off.

It’s hard to find a better asset to hold during such a time than gold.

It takes special talent to destroy a state (New Jersey) and a private company (MF Global). MF Global has had its shares halted and will be heading for bankruptcy. Jon Corzine, former CEO of Goldman Sachs, Senator and Governor of New Jersey is the CEO of MF Global. He’s essentially the epitome of everything wrong with Wall Street – the shining beacon of politics merged with global finance. I hope he goes broke.

It’s been a while since I’ve updated 20smoney.com – September – November is a very busy few months so my time is limited. I hope to be back to a regular update schedule soon. Thanks for all of you who have emailed asking about updates…

I’m going to run through the major topics going on right now and provide some commentary. Look forward to your comments..

Occupy Wall Street

There are a few facts which OWS is pissed about:

1. There is a disproportionate amount of wealth accumulated in the top 1% of society
2. Wall Street gets special favors from Washington DC – usually takes the form of bailouts, monetary policy, regulations, etc. (Yes, regulations are a favor from Washington, not the other way around – more on that later).

I agree with these statements. That’s about as I and OWS agree with and I’ll explain why.

The reality is the OWS protestors are drawing attention to some legitimate problems, but other than that, they are almost entirely uneducated and often do nothing more than regurgitate leftist talking points when asked to articulate anything of substance. For example, ask them the problem and they say to let the “bush tax cuts expire.” This is so dumb on so many levels it’s hardly worth discussing, but I will anyways. First, you know a phrase is politically charged when a president’s name is attached to it. Bush tax cuts. Obamacare. You get the idea. Second, this is such a surface level issue. I almost wish they would let them expire just to show these clowns that nothing will change as a result. The problems are structural and way bigger than a 3% tax increase on the wealth.

The reality is that Wall Street doesn’t need to be regulated by Washington. Washington needs to allow the free market to regulate it.

If Washington DC stepped away and allowed the market to regulate Wall Street, hundreds of the so-called 1% would either be broke or in jail as a result of bad investments or flat out fraud. That’s all the regulation you need.

Instead, Wall Street “buys” favor through campaign donations and influence and receives bailouts and a constant Federal Reserve backed monetary/inflationary policy which benefits the wealthy and powerful. They also control regulations. Politicians will tell constituents that they are regulating Wall Street through the implementation of bills like Dodd-Frank, but they let the corporations essentially write the regulations. The regulations favor big business and put hurdles in place that prevent small business from competing – regulations slant the playing field to keep big corporations in dominant roles. Again, the free market as the regulator prevents this.

The Occupy Wall Street crowds unfortunately don’t understand any of this. Most politicians don’t either. Although, Ron Paul does and continues to hammer the point – unfortunately, few are listening.

Income Disparity

Extreme income disparity where there is a growing gap between the super rich and the poor is not the problem. It is a symptom of the problem which I just outlined. Focus on the root problems, and the income disparity issue becomes less of an issue.

Focusing on the true problems however requires backing away from the politically charged rhetoric and requires understand of economics, monetary policy and the current environment of American politics (more than just the Democrat vs Republican nonsense which is nothing more than a distraction.)

Europe

Europe is even messier than American politics. You have something like 17 countries trying to make political decisions in unison despite having 17 different sovereign nations. If you think certain states in American don’t like the idea of their tax dollars bailing out a state like California, imagine Germans bailing out Greeks. It’s absurd and the German public is against it.

The bottom line is there is just too much debt in the developed nations and western Europe is a major part of that. There will have to be debt cuts – we’re already seeing this come into picture clearer with talks of 50% debt hair cuts of Greek debt. Greece is only the start. Once they have debt forgiveness, other nations will line up for similar deals – in fact, Portugal is starting to already talk like this.

There will be debt re-structurings and yes this will hammer the European banks which will also hurt American banks. There will be more volatility as a result of this. Any word out of Europe is for the most part from politicians. You have to look at these statements of so-called solutions (there is one every two weeks) as nothing more than PR. PR to satisfy the markets. It works until… it doesn’t. When it doesn’t you have the market hammer sovereign debt and skyrocket borrowing rates (i.e. Greece). At some point the same thing happens in other countries like Italy.

Defaults are much more politically acceptable once another country has defaulted. Once a country like Greece defaults, other countries will be able to do so as well. Therefore, you’re likely to see defaults in bunches. It’ll definitely rattle the markets.

For a simple investment thesis, hang on to cash until Europe hits a climax. This will hammer multinational stocks like Philip Morris Int’l (PM). When this happens, buy that stock. Of course there are other factors, but like I said, it’s a simple investment thesis.

If you want a better idea on what is going on in Europe and how they got to the current state, check out Michael Lewis’ new book, Boomerang.

Netflix

Netflix (NFLX) has been a shining example of a high-flying “mo-mo” stock (momentum stock) which has now died. The company’s model is effectively broke especially considering their core competitive advantage was against brick-and-mortar stores like Blockbuster. Now they’re competing against technology companies like Amazon, Google, Apple, etc. as well as the content companies and studios that they contract with to stream content to consumers.

I shorted Netflix in the $140 range, then covered the day the stock cratered 35% to roughly $75 a share. It’s now up a few percentage points. If it goes above $100 again, I’ll re-short. The stock is going lower and could hit some insanely low levels. Eventually maybe another company buys it, but even with that they have billions in contracts that would have to be assumed by the acquiring company. Netflix is in trouble.

More updates soon…

With more than one year separating us from the 2012 Presidential election it’s admittedly a little lousy how much media attention is being paid toward the campaigns of potential candidates and the President’s chances of reelection. So much can change between now and then that projections are impossible and predictions are improbable. But if one thing universally weighs on the minds of the President, his opponents, and the American people, it’s projections and predictions about unemployment. The following fact is a fundamental one about American politics: the President cannot be re-elected when the country has a lousy unemployment rate.

That’s been the way it’s been historically since the Great Depression, anyway. Obama is obviously aware of this, and from now until November of 2012 he will be fighting fiercely to see his jobs bill passed by Congress. It’s so important that the jobs bill in essence has been written to tie itself in with every middle-class problem from lousy public schools to mom and pop dependence on small business credit cards, in order to make it make sense on main street. It’s just one of several economic plans the President is unveiling and will continue to unveil as 2012 gets underway.

But analysts, experts, pundits, and political junkies all agree on one thing in addition to the fact that Obama needs to see unemployment lower in order to win reelection: his jobs bill has no chance of passing the Republican-led House of Representatives. If Obama and his people are any good at what they do, they know as well that the plan’s passing in this political climate is unlikely. So why will he be essentially wasting his time selling economic cures that won’t see the light of day?

Because he’ll need to explain to the American people come this time next year why the unemployment rate continues to hover in the same place it has for years now. The calculation his political team is counting on is that he’ll be able to blame the solution-lacking and solution-preventing Republicans in Congress for the economy continuing to suffer. Mixed with the likelihood that in the months leading up to the election the President will call in just enough favors to lower the unemployment rate to a cool 8.x%, his team hopes they can convince the American people that he’s trying. But little can be done in a political system where power is divided three ways and one branch is unwilling to agree to do anything to fix the economy.

Projections and predictions of 2012 made in 2011 are unlikely to be true. But one thing is true: no American president in office during a period of high unemployment has ever seen a second term. Times are different, but are the politics? One year separates us from knowing the truth. Plenty can happen in the interim.

Interestingly, the mainstream media is starting to pick up on a few trends that I’ve been talking about for years: namely that the 20-somethings coming out of college are going to be in big trouble. The reasons for this are:

1. College degrees are becoming not much more than a piece of paper that says you’re slightly better than someone who didn’t goto college.

In other words, they don’t mean as much as they used to.

Why? Because college has turned into so much more than education. Now obviously there are exceptions to everything I’m about to say, but…. college has turned into a 4 year vacation for millions of youngsters where they are to “find themselves.”

Whenever someone spends four years to find himself, it usually means he was lazy and sat round Starbucks talking about idealistic crap that is irrelevant.

Moreover, most people graduate from college without any real skills towards anything. Now, I wouldn’t be opposed to a sort of liberal arts education if the economy were roaring and individuals had my generation had a better work ethic, but both of those are not the case. Which brings me to my next point…

2. My generation isn’t self-reliant

How many college graduates do a half-ass attempt at finding employment during their last year of school, fail, and then just move home until someone pops up? A lot.

25% more young adults live at home now than before the current recession.

My parents as well as the parents of many of my peers came out of college with nothing. No money and nothing to fall back on. They went out and made a life for themselves.

Most people my age are unable to go do this. Maybe its a generational thing or maybe it is a result of the previous generation “pampering” us, but most 20-somethings are content to live at home and halfway search for employment, while halfway being content to not move on with life.

3. Debt levels are extraordinarily high

While the impact of the college degree has decreased, the debt levels required to finance that degree have increased. So, you have a piece of paper to hang on the wall and you live at home with mom and dad. Add to the mix $100,000 in student loans and you get a good idea of what millions of 20-somethings look like today.

Their work ethic and motivation is minimal, their debt service is high, and they really are incapable of doing much for an employer. Quite a combination.

What’s the point?

Why talk about this? Well, I mention it to hopefully wake a few people up. It’s time to get on with life and make something happen yourself. Stop waiting for someone else to do something for you.

Go get a couple jobs doing work that you don’t really want to do. Make some contacts. Find people who know people. Work your way in. Do more than the next guy. Make some money. Learn a skill.

Good luck.

Other good information can be found here: car insurance and life insurance.