By Ted Schwartz

Well, it turns out the world did not end on December 21. Shocking, isn’t it? So, we have to look ahead to what we might expect in 2013.

Dr. Doom here is actually mildly optimistic. We are not in the business of forecasting, but we think taking the patient’s vitals does give you an idea of what his condition is. So, we have many risks due to the inability to agree on public policy as I pen this. However, even the lowest expectations that I have for our public servants does not entertain the likelihood that they will plunge us into a recession on purpose as opposed to finding at least a half-baked solution to the fiscal cliff.

Once that is behind us, I see a slow positive momentum building. Things are getting better, though not quickly. Housing is showing signs of having bottomed and that should help along with generally improving conditions elsewhere. The biggest threat to the markets may come from over confidence and high expectations rather than actual problems. The backdrop that I see propelling markets is a beginning of money flowing towards rather than out of equities. They are fairly valued while bonds are way overvalued. We believe this will cause investors to realize the equity risk is more appealing at this point than the risks of bonds given their extremely low yields. Despite the fears around taxation of dividends recently, we believe that investors will find those dividends appealing versus the yields they can get in fixed income.

Unfortunately, we think we will not see serious solutions to our long term problems discussed or implemented in 2013. That means the next “Black Swan” will continue to lurk in our future and may even find some nourishment next year.