Elections in the world's two largest economies, heightened volatility in financial markets and a continent in crisis - 2012 has been an eventful year keeping the pundits busy making predictions about which way our world was headed.
While the bulls have made hugely optimistic forecasts, the bears have touted the worst-case scenarios. From the collapse of a global power to a surge in a stock price, several boom-to-bust observations have been made this year. We've come up with a list of nine such "expectations" for the year that have not quite gone according to plan.
Read ahead to learn the major predictions that never came to pass in 2012.
The Facebook Hype
Facebook's $16 billion initial public offering (IPO) – the third-largest ever in the U.S. -- was a market love affair that quickly turned sour.
With a subscriber base of one billion people – or around 40 percent of the world's Internet population -- the social network site had investors salivating over its earnings potential. Seeing huge interest, Facebook raised its target price range from $28-$35 to $34-$38 per share three days before the listing.
Many investors on Wall Street had no doubt that Facebook's shares would pop on their first day of trading. But the company's debut on May 18 fell far short of the hype. The website's stock closed flat on Day 1 and declined almost 11 percent on Day 2. Analysts attributed this to the company's rich valuation and the Nasdaq's computer glitches on the first day of trading, which dented confidence in the stock. The disappointing debut performance scared away investors for many months, with its stock falling as low as $17.73 at the beginning of September – less than half the list price of $38.
After almost half a year of losses, Facebook's stock has started to pick up momentum. Since November, its shares have risen 30 percent, boosted by investor relief that the expiration of trading restrictions on a large block of shares (owned by early investors and company employees) in mid-November did not lead to a wave of selling. However, the stock continues to languish far below its offer price at $27.70.
If this doomsday prediction had materialized, the state of global financial markets would look vastly different now.
An inconclusive Greek election in May, which saw radical anti-bailout parties make big gains, led to strong speculation that days of its membership in the euro zone were numbered. The widely cited forecast of the indebted nation's exit was even assigned a nickname: 'Grexit' (a term coined by two Citi analysts). Prominent figures in the investment community, including the world's largest bond fund Pimco's CEO Mohammed El-Erian, were among the many naysayers. In May, El-Erian was quoted in the media saying a Greek exit was "inevitable," adding that investors should start preparing for it.
The government of Greece, which has debt levels projected to reach 190 percent of GDP in 2013, has struggled to implement the spending cuts and tax hikes required to lower its debt burden and secure its next round of bailout funds from euro zone countries and the International Monetary Fund, due to public opposition over the new policies.
However, the outcome of Greece's second election on June 17 – in which the pro-bailout New Democracy party claimed victory – alongside the parliament's approval of a tough 2013 budget in November has tempered fears of this doomsday scenario. Further progress was made last week, when euro zone finance ministers reached a deal to help reduce the country's debt levels, paving the way for the release of 43.7 billion euros in loans starting in December. Analysts expect this will fill the country's financing gap until 2014.
After the recent deal the International Monetary Fund head Christine Lagarde said Greece's debt is now heading back toward a "sustainable path." The "Grexit" debate, which was raging hot earlier this year, has since cooled off.
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US Bond Bubble
The U.S. bond market is headed for a crash and U.S. Treasurys are junk...analysts have been telling us through most of the year.
These comments have been prompted by the Federal Reserve's ultra loose monetary policy or bond purchases via its quantitative easing program that have kept interest rates at rock bottom to kick-start the U.S. economy.
Global economic uncertainty, heightened by the euro debt crisis, has seen investors fleeing to the safety of U.S. Treasurys and pushed yields to record lows as prices race higher. Bond issuances hit a record high this year – surpassing the $1 trillion mark in October and inching closer to an all-time record set in 2007, just before the global financial crisis.
This build-up has led to worries about an impending bust. The fear is that as inflation begins to creep up again, the Fed will be forced to abandon its ultra-loose policy, which could trigger a sell-off, pushing yields sharply higher and making it harder for the U.S. government to pay back investors.
Billionaire Wilbur H. Ross told CNBC in March to get ready for a bust in 10-year bond prices and longer-dated Treasurys, because the idea that inflation is gone and artificially low rates can last is "silly." Despite these doomsday predictions, investors continue to rush intoTreasurys. The yield, which moves in the opposite direction to price on the benchmark 10-year note has declined from over 2 percent to 1.6 percent in the past 12 months - well below its average of 4.4 percent of the past 10 years, according to Reuters data.
The outlook for inflation in the U.S. remains benign, and growth is also expected to remain lackluster next year, suggesting U.S. monetary policy will remain loose for some time.
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Double-Dip US Recession
Fears of another recession in the U.S. in 2012 made headlines as early as last year after several economists predicted a further deepening of the economic downturn in the world's largest economy in the first half of the year.
The last time the U.S. fell into a recession was from December 2007 to June 2009 during the global financial crisis. An economic recovery has been shaky since a turnaround in 2010, when gross domestic product (GDP) grew by 2.4 percent. In 2011, GDP growth fell to 1.8 percent, raising fears of a double-dip recession this year.
In October last year, notable economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, told CNBC that the U.S. economy, along with the euro zone and U.K., were headed for a second recession within the first two quarters of 2012. Those fears were further strengthened this year when former U.S. President Bill Clinton said in June that the U.S. was already in a recession.
But we are at the end of the year, and the U.S. economy has held up. Last month third quarter growth figures were revised up to show that the economy grew at 2.7 percent, best since the fourth quarter of 2011. Despite weakness in the labor market, the U.S. economy is still on track to clock a growth rate of about 2 percent this year. However, the new year could pose a fresh challenge. The economy faces another threat of recession if the so-called "fiscal cliff" -- a series of tax hikes and spending cuts that will come in to effect on Jan. 1 -- is not avoided.
Japan Debt Crisis
Like the U.S. bond market, many strategists especially hedge funds have sounded the alarm over Japanese government bonds (JGB) and predicted that yields would rise dramatically in 2012 - leading to a debt crisis.
Fears arise from that fact that Japan's government can still borrow money for 10 years at under 1 percent despite having a public debt more than twice the size of its economy, while it faces negative growth and an aging population. With banks holding a large amount of Japanese bonds, which has become a safe haven amid Europe's debt crisis, a rise in interest rates could hand them large losses.
Kyle Bass, one of the best-known hedge-fund investors, told CNBC in May that Japan would follow Europe with a debt crisis, offering investors the best opportunity to bet against it. He pointed to the Bank of Japan (BOJ) buying trillions of yen worth of bonds, saying there are number of perils associated with the strategy of a central bank trying to print its way out of a debt crisis. But Japanese bonds, in the meantime, continue to firm. In the first week of December, the benchmark 10-year yield hit a nine-and-half-year low of 0.685 percent on expectations of more monetary stimulus from the BOJ, and could go lower after the December 16 elections with the man most likely to be prime minister - Shinzo Abe - pushing for more aggressive easing by the central bank.
See the full list: Predictions That Went Wrong in 2012
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