After all the screwing and unscrewing, the S&P 500 finished 2011 deadbang flat. Now what? The pundits have started the year talking about what effect a slowing China and recessionary Eurozone will have on the nascent recovery in the U.S. By the end of this year, we will be talking about the expiring Bush-era tax cuts- and almost nothing else. This, in retrospect, will be the story of the year.
All things being equal, taxes on the rich will triple in 2013. Meanwhile, the national debt will be at the last knot on the rope. Whoever the GOP candidate is, presumably Mitt Romney, the age-old question of whether to raise taxes or cut spending, will take center stage throughtout 2012, beginning with a refresh on the debt ceiling/payroll and unemployment debate. In a presidential election year, Washington will go from dysfunctional to destructive. In the end, those who would steal from the rich to give to the poor, and those who would steal from the poor to give to the rich, will compromise. They will agree to steal from the poor to give to the poor- just as they did with the 60-day payroll tax extension.
The ultimate outcome will not be nearly as important as the process, in the view of global markets. Everyone will be trying to figure out how to protect themselves, regardless of which way the waves seem to be breaking. Never a good thing for the ‘animal spirits’. The really bad news, is that there is no election result likely to change the inevitable day of reckoning coming in 2013 and 2014. Italian-style debt with Irish austerity.
Looking back on 2012, the best place to invest money may prove to have been that little slot on the piggy’s back.