2012 predictions

My predictions for 2012:

1) A China crash. China looks like Japan in the late-80s. There’s been a massive rise in real estate prices, and freely flowing credit. Even the country’s leaders admit there’s a bubble, and even China’s cheerleaders admit the official numbers are suspect. The argument is over whether those leaders can manage the downturn. Are they superhuman? Probably not. I’m not saying that China won’t become the world’s largest economy, eventually. I just don’t think its rise will go in a straight line. See Paul Krugman recent column.

2) Obama re-elected. Yes, his approval ratings are at dangerous levels for an incumbent. But the economy is what matters, and it’s on the upswing. Obama still has a lot of fans – we just don’t hear from them – and the Republican challenger will have a divided party. If it is Romney, his main argument will be that you need a business-person to run the economy. But do people really like business people like Romney that much (he was a private equity manager who laid off a lot of people)? Most of all, Romney is fundamentally unlikeable, and unlikeable people don’t become president. The media will help to keep things tight, but Obama will win – with a landslide.

3) Manufacturing repatriated. We’ll start to see some of the manufacturing that we exported to Asia and elsewhere start to come back again. A few reasons: rising wages in Asia, falling wages at home; increasing worries about “just in time” supply chains and supply shocks; rising fuel and transportation costs. For more, see this report from Boston Consulting Group.