Avoiding the Danger Zones in the Year Ahead

12/30/11 Baltimore, Maryland: And here we are at the end of the week…and the end of the year.

And we’re no surer of what is going on than we were at the beginning of it.

The Dow rose 135 points yesterday. But gold kept going down. It is looking more and more like gold intends to make its big correction now… It’s been down for 6 days in a row.

We’ve been waiting for it. We’ve been hoping for it. We’ve been counting on it.

Is it here yet?

We don’t know. Gold is edging down towards $1,500. But it is still solidly ahead for the year! What kind of bull market correction is that?

Who knows? Maybe 2012 will give us a better opportunity to buy more gold… We hope so…

In the meantime, the markets are fairly quiet. The politicians are keeping their mouths closed too.

Here at The Daily Reckoning Christmas headquarters we’re drinking eggnog, eating fruitcake and wondering what 2012 will bring. We’ve given up trying to actually look into the future. We don’t seem to have the knack for it.

Instead, we’re just trying to figure out what we OUGHT to believe in order to end the coming year in the best possible situation. That is, what belief is least likely to be fatal? Which is most likely to pay off?

Generally, you ought to believe that things will turn out worse than they actually will. Why? Because the danger is on the downside. And this is a dangerous market.

Europe could blow up at any time. Despite what you read in the papers, Europe’s debtor nations — and the banks that hold the debt — are just a few basis points from disaster. Traders and speculators are taking it easy over the holidays. We’ll see what happens when they get back to work in January.

China, too, is a danger zone. Trouble is, we don’t know exactly what the danger is. The economy is still growing at more than 5% per year. If the growth rate goes up…China will put a big strain on the world’s demand for oil and other commodities…which will make it harder for US and European families to make ends meet.

On the other hand, China is also showing signs of a slowdown…or even a blow-up. Shanghai property prices are said to be falling…fast. And the size of China’s bad debts may be greater than America’s subprime or European ‘olive country’ bonds.

Meanwhile, the US is sitting pretty. For now. Money is fleeing China and Europe for the perceived safety of the USA. Whatever else may happen, there’s one thing investors can count on. Ben Bernanke and his merry band of price fixers will print the money necessary to pay off bondholders.

But America is dangerous too. It has a doomed currency…an out-of-control military…and a dysfunctional Congress. Sooner or later, it will blow up too.

We don’t know which bomb will go off first. But at least we know to keep our heads down in 2012.

That’s all we have for this week,

Best wishes for the New Year…

Regards,

Bill Bonner,
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books,Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.