For most folks, it’s easy to remember the big events that happened in a given year. A bit harder is remembering those things most folks fretted, but never came to fruition. So with 2012 in the rearview, we present our list of things that didn’t happen.
A sudden eurozone splintering
For much of the past three years—2012 being no exception—many feared a sudden eurozone disintegration. There’ve been myriad variations on the idea: stronger countries leaving the euro, weaker ones being forced out, two monetary units, etc. All the same, the fear didn’t become reality in 2012 as European leaders continued to do what was necessary to keep the monetary union intact—albeit often at the last possible minute. The eurozone still isn’t out of the woods, as some countries have myriad issues to resolve, but European leaders and the overall populace have shown tremendous resolve to prevent a disorderly breakup in the immediate future and commitment to maintaining the euro in its current form—at least for a good long while. (For our far-reaching collection of our thoughts on the eurozone, click here.)
A US recession
It’s been fully three and a half years—42 months—since the last recession ended in June 2009. Yet throughout, many continually fretted a recession immediately in the fore, or at least an economy growing at a snail’s pace. The first half of 2012 was slow, true, but Q3 2012 GDP clocked in at a swift 3.1% q/q annualized, marking the 13th straight quarter of overall growth. What’s more, GDP was already at new all-time highs prior to 2012’s start and keeps building on those highs.
While government spending and other GDP measures have varied (often considerably) quarter to quarter, consumption (the largest component of GDP) has been overall resilient and the private sector strong. True, there are still pockets of weakness in the economy (nearly always are), but overall the stronger parts continue to pull along the weaker—something that doesn’t look to be changing anytime soon.
Chinese hard landing
Headlines near constantly predicted an immediate Chinese hard landing. Didn’t happen—Q3 GDP rose 7.4% y/y, in line with expectations and just slightly below the 7.6% pace a quarter earlier. Although the lower rate marks the seventh consecutive quarter of slowing growth, it’s still growth. Through the first three quarters of 2013, growth clocked in around 7.7% y/y, meaning the government’s full year target of 7.5% is likely within reach.
Yes, the target growth figure of 7.5% is off the heady double-digit growth of 2010, but China’s economy is growing off a much bigger base. Which means China (in dollar or yuan terms) continues to add more to global economic activity than before.
Despite billions in the Fed’s quantitative easing efforts, inflation in the US and elsewhere remains muted. Yes, “inflation is always and everywhere a monetary phenomenon.” But much of that increased money supply hasn’t seeped into broader measures of money.
To get money moving through the economy, the banking system must make new loans. But the Fed’s policy of buying long-term debt and creating new excess reserves flattens the yield curve and saps banks’ appetites for lending. It’s a puzzling policy from a Fed that claims to want to be stimulative. That the economy continues to grow in the face of this is a testament to the health of the private sector. But this also prevents inflation from igniting in the near term.
The “fiscal cliff”
Much ado about the fiscal cliff (and related political shenanigans, like the debt ceiling) ended with a typical, last minute compromise. For more, see our 12/07/2012 cover story, “Falling Off a Cliff and Hitting a Ceiling,” and our 01/03/2013 cover story, “Out With the Old, In With the Same Old.”
Market nosedive after Middle East tensions
Scary things are a constant in this world and Middle Eastern countries have squabbled and saber rattled at neighbors for decades. Nay, millennia. But 2012 passed without the breakout of broader conflict. Even so, history shows even large-scale geopolitical events tend to have a fleeting, and not necessarily negative, impact on market direction.
Resurgence of protectionism
While there were and are some isolated instances where protectionist measures have risen, overall, barriers to free trade continue to fall around the world, with many more still in the pipeline.
… And now, for what did happen in 2012
Global economic growth continued. Stocks ended the year up nicely. Greece defaulted twice, but the eurozone remained intact. Yields across Europe’s periphery (Portugal, Spain and Italy, etc.) fell and Ireland successfully returned to debt markets for the first time since its 2010 bailout. US corporate earnings and revenues continued to push higher. US consumers continued consuming.
Overall, the year had more volatile moments and plenty to frighten (as most do). The existence of fears isn’t confirmation that stocks must fall. Rather, it’s confirmation the world continues to function largely as it always does. So when headlines swirl and folks pound their bully pulpits calling for the worst in the year ahead, keep perspective and think forward to what we might write here as we look back on 2013.