Investment Strategy Series: Will the Economy Recover in 2012 or we will witness Apocalypse?

For those who have been reading my posts on the current economic turmoil and the future as I see it, must have noticed that I firmly believe that we were never out of the woods. There have been so many events that have contributed in narrowing down the pace of economic recovery worldwide. Most of the 2011 has gone down as a year filled with fear and uncertainty. So, now is time to relook at the current global economic scenario and try to take a sneak-peek into the future. Not many of us could have predicted that we will land where we are, but I am sure that everyone has learned that a downturn can turn out to be a hard quest which can last much longer than initial predictions.

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One cannot ignore that fear and uncertainty have crippled the recovery process so far, and the stocks are trading cheap. One may argue that if the stocks are oversold, then it makes sense buying at this point. Well, it’s a widely accepted approach for investing that when fear and uncertainty becomes pointlessly high, it might just be a good idea to do some bargain hunting. But, let me warn you that the market has its own mind and it can test your patience to your extremes. What I mean by this is that the market can remain cheap longer than it seems as fear is a powerful force which can keep the buying interest away despite rock bottom prices.

So at this point it’s really hard to predict a recovery, both at economic front and the stock markets. The economic woes may continue to haunt us many more years to come but that may not be the case with the stocks as they appear to be on better fundamental grounds.

Can the US handle Another Economic Meltdown?

In the US, Federal Reserve is doing its bit to stabilize the financial markets and recently they have made the announcement that the interest rates won’t move up any higher till mid 2013. Now, that could have been a good trigger for stocks to rally, but it did not happen. At this point, calling a market bottom won’t be a wise thing to do, at least this much you should have learned from the 2008 recession.

Chances are bleak. Really, after spending its way out of one crisis, US have forced itself into another gloomy situation with rising debt. And, this time the Federal Reserve can’t do much. Certainly, they cannot bring down the interest rates from where they stand, and neither can they continue with more monetary pumping. So, hard it is, but US is out of ammo to fight one more economic downturn. The only hope is that the economy will heal itself, and that the political intervention does not make it harder from here.

So, what should be your Investment Strategy now?

Mutual Funds and ETFs that can outperform in 2011, 2012 and beyond

2012 will be the year of apocalypse. We have been hearing such predictions for years, and I don’t want to believe in such crap. What I fear the most is the economy falling back into a prolonged recession, as the situation is ripe for one. I don’t know what will trigger the next meltdown, but the probability of it happening is dangerously high. It could start with the Greek Default, tensions reemerging in Middle East, US and Chinese currency wars or just anything from the platter of disaster the whole word is feeding on.

There is so much volatility that you cannot take a directional call right now, so I suggest that you be wise with your investment strategy and only take necessary risks. If stocks are out of your risk taking capacity, then avoid them and stick to safer investments.

Gold: A Glimmer of Hope or Fool’s Paradise

I have no clue how stocks and bonds will perform in 2012, and I will certainly avoid betting on precious commodities. So, under such a scenario I have developed a strategy that might just work fine to help me steer through the tough times. I have decided to go ahead with a balanced portfolio initially with 50% stocks and 50% bonds. Now, this strategy may not meet your income generation targets and might not be fit for your risk tolerance level. But, as we have no clear idea of whether the economy will get back on track in 2012 or we will witness a double dip recession, this might just work fine. Personally, I don’t think we will get a clearer picture anytime before mid 2013, so chances are that uncertainty will prevail for two more years.

The best way to profit in such scenario is to actively switch investments in stocks and bonds. Every time the stocks fall amid panic, you should be bold to increase your allocation there. And, when you see a quick rally, don’t hesitate to book partial profits and get back in safer bonds.

Handpicked Stocks with attractive Dividend Yields for 2011 and beyond

No matter what happens, you should stick to your strategy. There will be times when a sharp pullback in stocks will make you believe that the rally is for real, but believe me, we cannot have a lucky escape after a lost decade of bad decisions. For now, interest rates capped, stocks remain range-bound, and fear keep coming back are the new normal you should learn to adapt with.

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