Haris Memon. What is the most Volatile currency in 2012? _ _ _ Hangman.

Outlook of 2012

Haris Memon

What is the most Volatile currency in 2012?

_ _ _

Hangman

EUR

Hangman

Exchange Rate Forecast11q4 12q1f 12q2f 12q

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Major Events in 2012

European government will trigger the collapse

of financial institutions and a crisis throughout Europe and beyond.

Does this potential path echoes the chain reaction that followed the bankruptcy of Lehman Brothers in September 2008 that led to a global financial crisis?

European Debt Dilemma

It is likely that Europe will experience a mild

recession next year.

Any Solution?

The key to a successful European stabilization plan is for the European Central Bank to commit to the path of rate cuts established in November 2011 so as to promote growth and lending.

European Debt Dilemma

2012 Elections

2012 Elections

2012 Elections

The outlook for China is important to the

markets in 2012 on two fronts:

First, China’s growth trajectory and composition is important to world growth (8-9% predicted).

Second, the risk of a banking collapse in China may grab investor attention.

Growth and Financial Stress in China

Congress risks starting a trade war with one of United

States largest trading partners.

There is already a bill that has passed the Senate that would impose tough tariffs on certain Chinese goods in the event of a finding by the Treasury that China was improperly valuing its currency to gain an economic advantage.

The renewed trade pressure on China from the United States may result in more rapid currency appreciation versus the dollar further spurring a desire to grow domestic consumption in China.

Growth and Financial Stress in China

Overheated property market

Bad loans in the Chinese banking system are on the rise and may increase sharply over the next several years.

Chinese government has plenty of capital to help recapitalize the Chinese banking system if it becomes necessary.

I do not expect a banking crisis to emerge in China in 2012, yet the headlines may provoke volatility.

Growth and Financial Stress in China

Economic growth is going to be weak.

Expect high single-to low-double-digit returns for the S&P 500.

Corporate profits are driven more by business spending and manufacturing than the more consumer spending-driven GDP.

Stock Market Investing

In June 2010, I called McDonald's an "indefinite hold" -- not

much has changed since then. This stock is not particularly cheap, but continues to deliver impressive returns on invested capital; all the more admirable for an industry susceptible to commodity inflation and breathable margins.

The king of cola has some big-time backers, famously among them is Warren Buffett . Coca-Cola (KO) derives more than 75% of sales from outside the United States. If you're looking for diverse global sales and exposure to multiple currencies, this is a great company to own. But the stock isn't cheap.

My Stock Pick

Caterpillar(CAT), like McDonald's, is a tough stock

to recommend at current prices. When the financial crisis came to a boil in 2009, Caterpillar's net income and stock price both fell precipitously. But for those bold investors who bought in March 2009, you're sitting on approximately a 300% gain.

If you believe that a worldwide economic recovery is under way, Caterpillar may continue to be a great investment. But if you believe that the world is teetering on the brink of another crisis, then this high-beta stock looks a little scary. Invest wisely.

My Stock Pick

Warren Buffett recently announced that Berkshire

Hathaway accumulated $10.7 billion worth of IBM stock-- a 5.5% stake in the company. Oddly, this news comes as IBM(IBM) stock is reaching all-time highs.

It's hard to imagine IBM as anything but fairly-to-over valued, yet the numbers suggest that IBM is still one of the cheapest in the Dow.

If IBM can continue to grow cash flows, the stock will remain an attractive investment. As for the quality of IBM's cash flow, the tech giant has one of the most consistent free cash flow/net income ratios in the business (consistently hovering near 1.0).

My Stock Pick

Forget the cloud. Don't get caught up with social networking.

With all my apologies to Apple(AAPL), 2012 will be the year for Google(GOOG) in IT.

The stock ended 2011 on a high note. The company is firing on all cylinders, exhibiting excellent growth in all of its businesses: search, advertising and mobile devices, Android. The company will successfully monetize its acquisition of patents from Motorola Mobility (MMI) once that deal is approved and completed. Yahoo! (YHOO) is in disarray.

Furthermore, Google appears to have its expenses under control and sports a great balance sheet. I expect the company to earn $45 per share and am willing to price the stock at a multiple of 18 to 20 on those earnings, targeting a year end price of $810 to $900.

My Stock Pick

Microsoft?

Oil

Negative news from Europe. 

Lack of transparency into the Chinese markets

Increasing supplies from Libya and Iraq are coming on line faster than many thought.

Combine this with a slowing Europe and a U.S. consumer who is getting slowly better at conservation and you've got weakening prices for oil.

Iranian sabre-rattling in the Straits of Hormuz

Newly U.S.-free Iraqi infrastructure

 Hiccup from newly instituted Libyan oil company

Could be approaching the all-time highs we saw in 2008 of $147 a barrel

Oil

Gold

Gold was undoubtedly a confusing investment to many. It traded with risk assets, then traded in tandem with the euro, oil and stocks and inversely to the U.S. dollar.

China’s Buying Binge?

Gold Prices Lose Steam as S&P Downgrades France

Gold

China and India accounted for 41% of total gold consumed in 2010, according to the World Gold Council, but both countries are struggling to maintain their fast and furious growth.

Indian demand has been ravaged by high interest rates and a devalued rupee, making gold more expensive to buy.

China's economy can also slows drastically

Why would you buy Gold?

Gold

Bulls take comfort in the fact that inflation is outpacing interest rates, leading to negative real interest rates in most countries. As people's money in the bank is literally worth less, investors flock to a hard asset like gold to preserve their wealth.

How Long though?

Gold

Leo Larkin, metals and mining analyst at S&P Capital IQ, thinks that $1,900 gold might not be that much of a stretch.

"People get so caught up with the next three minutes for gold and they should really be focused on the next three years," says Frank Holmes, CEO of U.S. Global Investors. "Does anyone really believe in the long term strength of the U.S. dollar ... We're just going to have to live with this volatility for another 12 months," says Holmes, who still thinks gold price could double to $3,600 an ounce in 5 years.

What about Silver?

Commodities (annual average) 2000-10 2011e 2012f 2013f

WTI Oil (US$/bbl) 54 95 100 105

Brent Oil (US$/bbl) 52 111 110 110

Nymex Natural Gas (US$/mmbtu) 5.81 4.05 3.5 4.25

Copper (US$/lb) 1.93 4 3.9 3.9

Zinc (US$/lb) 0.75 0.99 0.94 1.1

Nickel (US$/lb) 7.36 10.39 9 8

Gold, London PM Fix (US$/oz) 586 1569 1675 1600

Pulp (US$/tonne) 694 977 912 950

Newsprint (US$/tonne) 575 640 680 725

Lumber (US$/mfbm) 273 255 260 300

Commodities Forecast

Comments or Queries?