Market Outlook 2012 - Thoughts of a Professional Investor

By: Deric O. Cadora | Thu, Jan 5, 2012

An exercise I find quite useful to perform at the beginning of each year involves putting together an executive summary of the prognostications found in my Member Letter. In this fashion, any major discrepancies in the big picture outlook can be identified and addressed. The methodology discussed in the Member Letter involves cycle analysis, primarily for the dollar, stocks, gold, and the CRB. The outlook for each of these asset classes is outlined below.

The U.S. Dollar in Decline

More so than the last few years, I believe 2012 and even 2013 will be dominated by the behavior of the U.S. Dollar. A currency war is underway... a race to devalue... and I have little doubt the United States will "win" this war. As anticipated in the 2011 Outlook, the dollar formed a major low last spring, though the low was not quite immersed in the sense of crisis I expected. That crisis, I believe, will arrive with the next 3-year cycle low in the autumn of 2014.
In fact, the rally out of the 2011 low may be exhausting itself as I type. Public sentiment for the dollar is running very hot, and dollar cycles are behaving exactly as would be expected in the vicinity of a major trend change. Furthermore, as I will discuss below, commodities just left behind a major cyclical low in December, lending credence to the presence of a turning point for the dollar.
Given the macroeconomic backdrop in Europe, almost no one believes the dollar can fall. Therefore, once a trend change becomes obvious, everyone will be rushing for the exit simultaneously. The key level to watch during the decline is, of course, the 3-year cycle low from May 2011. Once that level is breached, we will have a failed cycle on our hands and should see generally lower prices for the buck until the next major cycle low in 2014.

Commodities - An Inflationary Storm Has Arrived