Market Outlook 2012

12/12/2011 12:01 am EST


Larry Williams


I believe there are several things that will affect markets in 2012. The most significant of which will be the decline in gold, which I envision will take place shortly after the first of the year and will last until late July. This will add to investors' confusion since this does not mean stocks will rally. In fact, I believe there is a substantial decline coming in the early spring of 2012 based on the yield curve between 3- and 10-month treasury rates. After a brief rally for most futures at the start of the year, my work suggests we will then have a downturn until mid-summer.

In looking at the global picture, the only question is: Will the Eurodollar die of a heart attack or self-suffocation? Certainly things in Europe are unsettled and that is not about to change as cathartic economic processes are taking place there. This process will have an impact on the American economy as well. Perhaps that is why my cyclical work is negative for gold and commodities.

But there is more than that.

The economies of China, Japan, and India have also begun receding. This is best seen in imports to the West Coast. Lawrence Dunnigan, manager of business development with the Port of Oakland recently said, "All of the imports are very soft this year."

My friends in China are now frequently referring to a recession taking place there, which is no news to anyone who has looked at the Shanghai stock index. The index has been in a continual bear market for several years now. Imports from Asia to America are down, imports from Asia to Europe are down a lot; Europe has stopped buying, and given the turmoil taking place in Europe, it is difficult to expect a reversal of this trend.

A quick look at commodity prices and the United States shows the last quarter of 2011 has produced a substantial decline across the board, the worst since 2008, and future prices are typically a harbinger of deflation and tough times ahead.

My suspicion is that an unsettled worldwide economy will create a flight to the US dollar in the coming year as investors seek protection from the European debacle and Asian meltdown.

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