Sunday, December 30, 2012

2013: Images from the crystal ball

Around this time of the year I take out my crystal ball and peer into the future.

The China conundrum
I think a major theme in China will be the post-investment driven economic growth. As I explained in 2010, I think China will find that it is quite difficult to move to a consumer driven model. The new leadership is the first which has no links to Deng's development focus. It is possible, and this I hope, that new leadership is quite pragmatic and that should help the world economy in a big way. I think we need to watch what steps China takes over next few years.

Possibility of War
I think there is a distinct possibility of a war in near horizon say ~2015-2017. I have been seeing a war possibility for some time now since 2009, though now I think we are closer to it than then. It is still too early to say who will be the warring parties.

The other Problem of Japan
Kyle Bass has been vocal about problems in Japan, however I reflected on in 2010 that is the other problem of declining and even reversing Japanese investment in the world. I believe this force will have major repercussions on global equity valuations equally. 

US Dollar, gold etc.
I don't see US dollar equation getting upset in 2013 though I think future will be quite a different story. The overall direction US dollar should take over the long term is down. However, the decline will not be steady decline it will be a sharp fall over a few weeks followed by financial markets turmoil. Conversely, gold will experience new highs in the long term but will be ambivalent this year. While US dollar may not decline steadily, gold can appreciate steadily and we may see this trend in 2013.

US Fiscal cliff
I don't think US Fiscal cliff is a major issue as it is made out to be - it is rather a slope than a cliff as Yves Smith and Bruce Barlett say. There is good sense for Obama to wait till January 1 actually comes to better his own bargaining power. I don't see Fiscal cliff actually materializing into a disaster. Equity markets though may make mountain of a mole-hill.

A question of India
India will continue to see uptrend till around middle of 2013 after which Indian markets will decline secularly. This theme is continuation of my forecast of June 2012 wherein I explained the policy paralysis. I hope to get out of the markets between late May or mid-June.

So quite an eventful year ahead I must say. My best wishes to you all and I will see you next year. Merry Christmas, Happy new Year and happy holidays. Cheers Rahul!