Predictions 2012

Greg Valliere: Politics & Government

1. Mitt Romney defuses concerns over his religion, and flip-flopping, and narrowly wins the presidency.

The winner is not decided until the morning after the election. The GOP completes a "trifecta," holding on to the House and gaining control of the Senate by one seat. This touches off a euphoric stock market rallyfor a couple of days that is tempered by a nasty post-election fight over economic policy.

2. Regardless of whether he wins re-election, President Obama will kill the Bush tax cuts for the wealthy in December of 2012.

Investors will flock to take advantage of a 15 percent capital gains rate that will go back to 20 percent, dumping profitable assets ahead of the change on Jan. 1, 2013. To compound the economic uncertainty, congressional leaders will fail, as usual, to agree on measures to avoid automatic spending cuts that will take effect in January 2013.

3. Automatic across-the-board cuts to Pentagon spending are rejected by Congress.

Hawkish Republicans insist that the nation's security would be jeopardized by meat-ax defense cuts. But automatic spending cuts in domestic discretionary outlays are left on the table with a compounding factor — the need to extend the nation's debt ceiling once again, in late 2012, amid the usual fears about default . The austerity theme on discretionary outlays will not go away.

4. The Federal Reserve gets through the year without having to make any interest-rate changes.

The FOMC's language, however, is shifted to promise accommodative policies as long as unemployment remains above 7.5 percent. The Fed adds more mortgage-backed securities to its portfolio, but the central bank refrains from embracing QE3 as the economy grows modestly despite persistent headwinds from Europe.

2011 Scorecard

Well, I'd generously grade myself a B+.

1. The markets will receive a mighty scare in May.

Market anxiety over the debt ceiling was definitely the case (and there may be more to come).

2. Over a dozen challengers will announce for the presidency.

True enough but I goofed on Tim Pawlenty, who I thought would emerge as the GOP frontrunner — and, you know, Pawlenty must be kicking himself for getting out too early.

3. Gridlock will prevail in Washington.

I predicted gridlock in Washington and market anxiety over the debt ceiling, which definitely was the case, and geopolitics certainly was a great wild card as Iran got closer to producing a nuclear bomb, as I predicted.