Brian Sullivan: Currencies, Gold and Euro Bailout
1. The U.S. will avoid recession in 2012.
Until mid-spring of this year I’d been negative to neutral on the U.S. economysince mid-2005. Six years of negativity is a long time, and though I wouldn’t say I’m overly optimistic, I do think the U.S. economy will avoid another recession. Nearly every piece of economic data recently has come in better than expected; more jobs are opening up every month and most of the worst housing markets seem to have at least flattened out. I still grade the economy a “C” at best but the small signs of life popping domestically should keep us out of recessionunless Europe completely collapses.
2. The euro zone bailout will top $2 trillion.
One of my predictions last year was that Greece would default in 2011. Though those who label such things with terms such as “default” for legal reasons may argue against it, it’s clear to most rational beings that when a creditor is paid less than par on a bond and given no real choice to accept anything else, it’s a default. That said, Greece is one thing, Italy and Spain another. Though Greece may have been “solved” for the time being, the euro zone debt crisis is far from over. The European Central Bankwill have to bail out Italy and probably Spain (Hungary will default, but it’s too small to matter) and to do so it will have to print, print, print Euros.
3. The euro reaches parity with the U.S. dollar.
See prediction No. 2. The common currency will be worth one U.S. dollar by year's end. My theory isn't overly complex. The ECB will be left with little choice in saving banks and their sorry sovereigns other than to print, print, print euros, and more of something almost always leads to a lower price.
4. U.S. stocks will rise 5 percent to 8 percent.
Sure, we have problems, but the rest of the developed world has bigger issues and capital will continue to flow to, as one of my sources calls it, “the least dirty shirt in the laundry.” It won’t be a boom year for stocks, but continued solid earnings and expectations for a change in the White House should pushequitieshigher. (Last year, I predicted the Dow Jones Industrial Average would rise 8 percent to 10 percent and it's still possible.)
5. Gold prices will drop at least 10 percent.
I predicted the same for 2011 and have been spectacularly wrong so far. My rationale, however, remains intact: A stronger dollar will devalue everyone’s favorite speculative metal. Buying by emerging market central banks has propped up gold pricesmore than I thought possible this year, but cash and capital have better uses than a non-industrial metal, so I continue to expect a dumping of gold in 2012. That and a stronger U.S. dollar should drive the price down. Ignore the doomsday commercials. If indeed the Mayans are right, holding a heavy block of yellow metal won’t matter much anyway. Invest instead in a bunker and canned foods.
(Editor's note: Sullivan did not contribute predictions for 2011, although last year some were predicting his joining CNBC.)