Investors will be slow to comprehend the impact of all of these events and will not get fully invested until March or April – just in time to get hosed again. By then, the S&P 500 will be at 1,600, the top of a 14-year range, where it always fails in a 2 percent growth economy. Get ready to fail again.
2. The next leg of the European sovereign debt crisis comes back triggering the summer downturn. It will be started by Spain, but then spreads to Italy and France. This creates a hiccup in China, so the recovery slows there. A nasty, public slugfest in congress over the debt ceiling will further give stock owners ulcers. The way is then cleared for a 20 percent swoon down to 1,300.
3. Bargain prices in the fall will give us a nice springboard to rally into the end of the year as the Federal Reserve will use any substantial weakness in the market to launch another quantitative easing program. Japan's new, more aggressive monetary easing and epic public spending should be reaching its stride by then. China seems to always have another $500 billion stimulus budget that it can pull off the shelf at any time.
4. The Treasury bond market has finally peaked but is not ready to pop the bubble yet. That day is coming but not this year. Bond yields will just move to a higher trading range. The range for the 10-year Treasury bond yield was 1.40 percent -- 1.90 percent in 2012. We probably move in a new range of 1.90 percent to 2.50 percent, but not much higher than that.
5. The U.S. government runs another $1 trillion deficit for the 6th year in a row.
6. Gold is not dead; it is just resting. The Fed’s QE3 is entirely focused on the housing market through the purchase of mortgage backed securities, so the effect on the broader money supply is delayed. However, I expect the effect to start kicking in sometime in 2013 bringing a new high for gold with it. Until then, the pain trade for gold holders is on.