Dr. Keppler

We are now starting a new year; new beginnings are usually accompanied by optimism and hope. Yet, at the beginning of this year, I have received many e-mails and calls of distress from clients, students and friends. It seems that almost everyone is expressing serious concern and anxiety about 2012. The dier forecasts for this New Year include an actual prediction by the Mayan Calendar that civilization and the world will end in 2012.

Many financial analysts and pundits are also making some seriously alarming predictions about the financial markets. I have heard many theories about potential catastrophic financial events and some are postulating possible outcomes that would have been unthinkable only a year ago. Unfortunately, global leaders have not provided any words of comfort or optimism. They are not sanguine about the upcoming year, German chancellor, Angela Merkel, has warned that the year ahead will "undoubtedly" be harder than 2011. This is one of the starkest remarks in a series of downbeat messages from European leaders expressing fears over the economy.

Merkel said Europe was experiencing its "harshest test in decades" but would ultimately be made stronger by the crisis. Her solemn New Year greeting, broadcast on Saturday, set the tone for other European counterparts. The Greek Prime Minister, Lucas Papademos, spelled out a continuation of harsh austerity measures, while the Italian president, Giorgio Napolitano, warned that sacrifices would have to be made if the country was to avoid "financial collapse".

The French president, Nicolas Sarkozy, said people had to be "courageous" when facing the challenges ahead. "I know that the lives of many of you, already tested by two difficult years, have been put to the test once more. You are ending the year more worried about yourselves and your children," he said, adding: "This unprecedented crisis, which is without doubt the worst since the Second World War, is not over". However, Sarkozy, who is lagging behind in the polls just months from a presidential election, vowed that there were nonetheless "reasons to be hopeful" and that no further public spending cuts would be made.

In Italy, Napolitano was less eager to gloss over the economic position of a country, which last year was feared to be on the brink of becoming the next eurozone country to seek a bailout. "Sacrifices are necessary to ensure the future of young people; it's our objective and a commitment we cannot avoid," he said in his New Year speech.

"No one, no social group, can today avoid the commitment to contribute to the cleanup of public finances in order to prevent the financial collapse of Italy," Napolitano added. As growth stalls in countries across Europe, governments are coming under pressure to make further cuts to spending and fears are growing that 2012 could bring a second recession.

In Greece – the first country to have sought a bailout in 2010 – Papademos warned that there would be no let-up in the austerity measures, which many Greeks feel are too tough. "We have to continue our efforts with determination, so that the sacrifices we have made up to now won't be in vain," he said in a televised address.

In the U.S., reflecting on 2011, Obama said it was a time of great challenge and great progress for the U.S., including the end of the war in Iraq, the death of Osama bin Laden and signs of an economic recovery.

"There's no doubt that 2012 will bring even more change," Obama said. "And as we head into the New Year, I'm hopeful that we have what it takes to face that change and come out even stronger, to grow our economy, create more jobs and strengthen the middle class."
In spite of this somber mood, the markets closed the past year near their highs and opened the New Year even higher. A rather perplexing outcome considering the magnitude of challenges and problems that currently confront our planet.

Naturally, everyone wants to know if the markets will continue to move higher in 2012 or whether we are going to experience a dramatic pullback. In the last quarter of 2011, the markets have been characterized by uncertainty and increased volatility.

I anticipate that the markets in 2012 will continue to experience this same type of roller coaster behavior. The markets will likely experience powerful swings in both directions. Uncertainty and fear combined are both extremely powerful forces and contribute to highly volatile markets.

Trading these markets will require a high level of skill combined with a nimble and flexible approach. It is important not to become married to a single direction in these tumultuous markets, much like a roller coaster, the markets will dip and rise when least expected on news, events and speculation.

Investing and trading in uncertain and volatile markets requires a constant focus on volume levels and a careful study of the actual volume breakdown levels for any traded instrument. Actual Market activity will be the most reliable indicator of what is likely to happen rather than relying on the predictions or forecasts of pundits.

I am optimistic by nature and I feel that some progress will be made in handling some of the pending issues. However, I am also pragmatic and realistic about 2012. I know that there are going to be some unanticipated surprises and many unintended consequences for various actions, policies and events. Naturally, the market will reflect and factor these occurrences throughout the year. Stay informed, be alert and flexible. Do not become over committed to any one theory or prognosis for the markets.