Fear and Loathing on Wall Street 2012

The markets are looking to finish the week flat as light weak volume keeps any big swings to a minimum. The weak volume does add volatility to the market though so any swing could happen fast. As of 10 am EST the Dow is down 11 points, the Nasdaq is down 1 point and the S&P is down 1 point.

Many analysts believe the new year will bring fear back into the markets. Traders will once again have their eye on the euro zone as the sovereign debt crisis continues there.

“The market may come back with fearful sentiment on the 3rd of January and attack [the euro zone],” Nick Beecroft, senior markets consultant at Saxo Bank, told CNBC Friday.

“The euro zone faces continuing problems.”

The euro has been taking a hit all month long and against the dollar has fallen from 1.34 to 1.29.

The euro zone faces another uncertain year as countries now try to enact solutions proposed at an EU summit in November. One thing analysts have agreed on is that the crisis can not continue for another year without something drastic happening. Economists do believe the problems will get better because according to Holger Schmieding, chief economist for Berenberg Bank, in an interview with CNBC “policy makers will take more forceful action if they really have to.”

Credit crunching is one of the major problems in Europe and is similar to the financial crisis the U.S. saw in 2008.

“There’s a credit crunch going on in much of the euro zone,” Schmieding said.

“Market perception is that sovereign holdings of the banks are toxic.”

Banks continue to either be bailed out or borrow money, but the problem is they don’t lend out the money they get. The banks just sit on it and build up their cash holdings.

One way or another something is going to happen next year. Now whether that means Europe get its act together and fixes it or if it falls apart and drags the global economy down with it depends on who you ask.

If you listen to politicians and policy makers they all say the same thing. They praise each other for working together and making progress even though little progress is made. Many investors and economists known as “doom and gloom” sing a different tune.

Jim Rogers, an American Investor and author, believes that money printing by the central banks is the biggest risk to global growth in 2012. Rogers believes this is caused by “too much debt.” When asked in a recent interview by Australia’s Finance News Network about how U.S. citizens fell about the economy Rogers said, “I was surprised at how much optimism there is.” Rogers thinks the main problem will continue to be the Central Bank buying government debt and Congress spending too much money. When asked about who he supports for President and why, Rogers wouldn’t specifically endorse a candidate, but did say Ron Paul “seems to understand the problems that are facing America.”

Marc Faber has also been talking about the global economy recently. Faber also worries about the crisis in the EU and of what he thinks is any meaningful solution to the situation. In a recent interview with Reuters he slammed the derivatives market saying “I am convinced the whole derivatives market will cease to exist.” You can read more about what Marc Faber said in our previous post.

All in all 2012 looks to be one interesting year. Be it the continuing EU crisis to a possible China hard-landing, investors have plenty to worry about. Add in a shaky US labor market and you have all the ingredients for economic downturns across the globe. The Mayans may be wrong about the end of the world, but come Dec 2012 if things don’t turn around we may not be able to tell.

written by

Danny is the old hat at Active Investor. One of the been around the block a few times traders, his main focus is on overall market conditions. Be it some new merger talk or Washington being Washington, you can expect Danny will be on top of it.
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