December 30, 2011, by James Dailey, Portfolio Manager

2012 Outlook

In many respects, I think it would be productive for us and our investors to pull a Rip Van Winkle next year. My confidence in our outlook is pretty high, but I think we are likely to endure an unpredictable journey to get there. Falling asleep for 12 months would probably be easier, but that would result in missing all the "fun"!

Economy

Leading economic indicators from Economic Cycle Research Institute suggest that much of Europe is already in or entering recession, and that Germany and France are at risk of heading in that direction. The US is likely already in recession or will be in the near term. Emerging markets like China, India and Brazil are experiencing classic cyclical business cycle dynamics, as higher inflation rates drove tighter monetary policy, which resulted in inverted bond market yield curves, and now their economies are poised to slow significantly. Even Australia, which has gone without an official recession for 20 years, appears to be heading in that direction. It is possible that a global recession unfolds...