The Dow Jones industrials ($INDU) ended 2011 up 5.5% at 12,218. The S&P 500 was exactly flat at 1,258, and the Nasdaq Composite Index ($COMPX) finished down 1.5% at 2,605. Some of the challenges will become apparent in the week ahead when financial markets reopen after the New Year's weekend and Iowa holds its presidential caucuses. There are important economic reports, including the always-important monthly jobs report, due Friday. The market week begins Tuesday with December's report on manufacturing from the Institute for Supply Management and reports on factory orders and December auto sales on Wednesday. On Thursday, many of the largest retailers will report December sales, the first time anyone will see if the holiday shopping season was a success or a bust. Weak reports will cast a pall on the markets. Watch Target (TGT), Costco Wholesale (COST), Nordstrom (JWN) and Macy's (M). All that will help set up the big questions for investors in 2012. And may explain Tom McClellan's "violently sideways" market with big, shock moves that ultimately lead to a market that's little changed.It's important to note, however, that he sees the violently sideways market lasting maybe into June and setting up a big second-half rally. He is an optimist as 2012 begins, and he's a rarity. Can a U.S. recovery really take hold? Boy, that would be great for stocks. And the past few months have produced better data. Jobless claims have been falling; payroll employment has been moving higher. Auto sales have been rising. There have been teeny-tiny signs that the housing market may be coming to life, although prices remain pressured or are just starting to stabilize. That one reason why Home Depot (HD) shares jumped nearly 28% in the fourth quarter. A lot of big money is making a bet that the housing bottom is nearly at hand. Will Europe prove too big a burden? Readers are tired of Europe. Everyone is tired of Europe. The fear, however, is that what purports to be a solution to Europe's debt crisis leads to something very bad happening. The most likely bad thing happening is a country leaving the eurozone and setting off a banking crisis. That's why the shares of so-called money-center banks such as JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) were crushed in 2011.There is almost no way to avoid pain from Europe, with recession, already raging in Greece, hitting Italy, France, Spain and, probably, the United Kingdom. The Germans won't be able to avoid the pain. Business knows this. Nearly a fifth of the companies in the S&P 500 have already warned that fourth-quarter earnings will be lower than expected. Slowing revenue from Europe is believed to be a factor in many of the warnings. It certainly was the case with Oracle (ORCL), when it warned on Dec. 20. Only 27 companies in the index have boosted their forecasts.Will China be able to slow its economy without crashing it? The Chinese are trying to steer around a gigantic real-estate bubble, something Americans know all too well. One signal that they may be succeeding: The price of copper rose 9% in the fourth quarter. That may reflect some optimism about the U.S. housing market as well. Can the world survive austerity? Europe is going into a major round of austerity, the price of German assistance in not letting the euro collapse. Republicans and Democrats have been fighting over budget cuts nonstop since the end of 2009, and that will be a big theme in 2012's elections. State and local governments have been cutting back sharply in recent years. Public-sector job losses have emerged as a drag on domestic economy. The worry about austerity is it will choke off consumer confidence well beyond the public sector and cause the economic recovery to stall out. Moreover, the worry is that the lack of economic prospects causes major social unrest. Looking for the canary in coal mine? Watch Greece and Italy.Will the U.S. elections scare everyone too much? The stakes for all concerned are quite high, and it is quite possible that the intensity of the campaign rhetoric, the apocalyptic warnings that nonstop advertising will unleash will scare so many people that they stop spending. The budget battle last summer did dampen consumer spending. What if commodities shoot up again? A big run-up in commodities, whether oil, gasoline, food or cotton, won't help anyone. In 2011, crude oil moved up nearly to $114 a barrel by the end of April and fell back as consumers stopped buying and held back on making new auto purchases. The fact is, most confident predictions of soaring oil and gasoline prices usually don't take into account that drivers will adjust. Crude oil is up 31% since early October. The next few months may test consumers' willingness to change their behavior.There are some things one can't predict: earthquakes, flooding, bad weather, wars. All played significant roles in the volatility that wracked markets in 2011. The Iranian threat to blockade the Strait of Hormuz -- made several times in the last few weeks -- would probably send oil prices sharply higher.The week ahead: All about the economyYou don't have to wonder much about earnings except on Thursday, when the key reports are from Family Dollar Stores (FDO) and seed producer Monsanto (MON). The former will offer a view of U.S. consumers. The latter will tell us a bit about what the global economy is willing to pay for a basic food component -- animal feed. Then, you'll be left to ponder what fourth-quarter earnings will look like. The basic view is that earnings may disappoint.
Wall Street analysts are expecting an 8.5% gain in fourth-quarter profits. That's down from a consensus for 15% growth in October. The fourth-quarter earnings season will start after the close Jan. 9, when aluminum giant Alcoa (AA) reports results.
wow. wow. am i shocked. an actual lucid, constructive question to discuss instead of the endless supply of clicks which get us nowhere ...
"How do we spend more to jump start the economy and repay debt in good times while keeping a balanced budget?"
ostensibly, we elect politicians such as obama (who fell down on the job in many respects in this regard) to gather economic teams to be supported by congress (they have millions and millions, and hundreds of staff to support this research) to answer this very question and then begin to implement the solution.
our gdp and economic potential is HUGE. we remain the world's largest economy with the default currency and a still-high credit rating and the best system of law/governance on the face of the earth. we have tremendous natural resources and human potential.
first: don't kill the patient (Uncle Sam) while in recovery. get him out of recovery before throwing him onto the treadmill and into a fiscal diet. the consensus is that we are NOT SPENDING ENOUGH!!! where is the infrastructure spending? where is the EE/ER one year FICA tax reduction? where is the export economy stimulus? where is the repatriating of TRILLIONS in corporate cash hoarded overseas to be put into required education and re-training of those thrown out of work? where are the tax credits and tax penalties to force US corporations to hire US workers? why do we allow Apple to make obscene profits and not produce product in America? why are we not raising taxes on the one percent who took most of the $15 trillion that put us into debt? if we imlemented a sane tax policy (such as under clinton) we would have plenty of revenue to institute a comprehensive fiscal policy of job creation.
second: it is a simple fix. read it. the bi-partisan debt reduction committee report. it is only about 60 pages and can be skimmed and understood in less than an hour. why was the first phase - a $4 trillion debt reduction "Grand Bargain" package offered to boehner by obama in july not accepted and put into place? why did boehner have to walk out of the negotiation in shame because he could not gather House votes to pass the balanced approach the committee proposed and what America wants? read it. ask questions. why is this not in place NOW????
here it is. read it. we paid a lot of money and took over a year to produce this:
home page: http://www.fiscalcommission.gov/
the report, plan: http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
keep asking those question stx - and DEMAND answers from congress!!!
max, your #2 scenario is part of the bi-partisan simpson-bowles "balance approach" to debt reduction and long-term recovery for the USA. unfortunately the process is dead in the water due to the republican roadblock in the House. here is why:
http://articles.latimes.com/2011/nov/04/opinion/la-ed-norquist-20111104
after posting this link dozens of times, i have never had a single (no, not even one) conservative or republican comment on the situation or support any changes so that the House is able to govern America once again. all they say is "but the donkeys did this" or "the democrats won't that" or the "liberals won't do this" .... nary a single utterance of outrage at the handcuffing of our Congress by a lobbyist and the tragic implosion of the Tea Party into a do-nothing caucus run by Eric Cantor who sabotaged the legislation to stop insider trading by Congress.
OWS takes to the streets and protests. the mainstream conservatives go the other way and stick their collective heads further into the sand to muffle all debate. it is maddening and sad. oh well, as they say "it's a free country" so if we want change it will have to be in the streets with non-violent awareness events/gatherings and at the polls in November. we'll see if they wake up ...
thanks for the feedback max ... i know that i am opinionated and take quite a few "opposing views" since i am neither republican or democrat, but i am a degreed, trained economist (for whatever that is worth) and it rankles me when i see these black and white (mostly conservative) viewpoints that are presented as gospel and verse whenm the issues are so much more complex.
the economist we pay a lot of attention to (besides dr. nouriel roubini and the investment research company) is gross' sidekick at pimco, Mohamed El Erian. google him or go to bloomberg for some excellent clips. on housing in particular - he is a strong proponent that we as a nation will remain in the morass ala japan until we force these bad mortgages back onto the banks and federal govt. to put most people back above water on their mortgages (the ones who can sustain payments on the reduced mortgage levels).
we can right this ship that is America if we can implement strong, focused policy solutions without the TP and the republican roadblock getting is the way at every turn. hopefully the lights will come on with voters in 2012 and they will reformist TP folks, moderate republicans and those who agree to actually move forward with mainstream solutions. it can be done.
God bless America....
excellent post 'cept that last sentence thingy ...
" ... debt is job creating, but that is only short term and will lead to another debt driven recession."
not necessarily true dear. debt may be job creating or not, depending on how it is used. if debt is used for sorely-needed infrastructure spending then it is certainly job-creating and also creates a wide economic "multiplier effect" that creates more jobs beyond those providing the actual infrastructure, since the workers at that level immediately spend their earnings back into the economy. this is fact proven by the programs undertaken in the great depression.
the job-creation may be short-term unless it fosters a true recovery, which is long-term.
as to leading to another recession, yes, but only if the debt is not repaid when the economy recovers. this novel concept has never yet been tried due to the propensity of politicians to keep spending. example: clinton AND the republican congress handed off a balanced budget to bush who proceeded to .... well you know the rest ......
the solution: put in a balanced budget amendment NOW to kick in after the recovery is assured and a lower, sustainable unemployment rate is achieved!!! do it now!!!
Tried earlier.....Try again.
Some picks for 2012:
Lockheed Martin(LMT),SiriusXM(SIRI),Csx Corp.(CSX),Frontier Com.Corp.(FTR)
Lowes Co.(LOW),Home Depot(HD),Medtronics(MDT),Altria(MO),Trina Solar(TSL)
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