3 Keys for the Rest of 2012

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The middle of the year is a good time to take a pause and look at what's worked and what hasn't so far in 2012. So let's take a look at what's happened so far this year with an eye toward learning whatever lessons we can, and making educated guesses about what the rest of 2012 will bring.

Where we stand
In the U.S., the financial markets have certainly had their ups and downs, as the aging bull market in stocks and the far, far longer winning streak for the bond market have kept vying with each other for supremacy. Meanwhile, the turmoil around the world continued, as the European crisis has ebbed and flowed over the months to cause plenty of anxiety for investors, while slowdowns in China and elsewhere in the emerging-market world have made investors there reconsider whether the long-term bull story is still intact.

But a few niches deserve particular attention, not just because of their performance so far this year, but because of their implications for the future. The three I've picked stand to have a big impact on investors in the rest of 2012 and beyond.

1. Bonds haven't died
Most financial writers -- myself included -- have pointed out the sheer folly of investing in bonds at their current low yields. Even with Treasuries yielding so little that their meager income doesn't even keep up with inflation and taxes, let alone provide any real return, investors haven't slackened their demand for the perceived safety of bonds.

That's actually been great news for stock investors. As companies issue more debt, they have greater latitude to make potentially game-changing strategic moves that would push share prices up strongly. Yet the bond investors who buy that corporate debt won't share in the rewards from such moves. In fact, they'll be more at risk, because a buyout or other major strategic change would increase default risk. Fitch Ratings recently named Dow components Alcoa (NYSE: AA  ) and Hewlett-Packard (NYSE: HPQ  ) along with more than a dozen other companies as being particularly likely to take strong action that could benefit their shareholders at the expense of bond investors.

Bond investing has worked lately because of big capital gains from investors who've bought at low rates only to sell to investors willing to accept even lower rates. That greater-fool theory will only last so long until someone's stuck holding the bag.

2. International markets will matter more than ever
Many U.S. investors don't pay much attention to overseas markets, figuring that keeping track of the economy closer to home is challenging enough without trying to stay abreast of foreign matters. Yet if you don't stay aware of the global economy, you'll get blindsided by economic currents that will eventually affect U.S. companies.

One great example came last week, when Ford (NYSE: F  ) plunged after its CFO said that losses from its international division could triple in the second quarter from their first-quarter levels. The stock drop came despite reassurances that results in Ford's North American operations and its credit division looked solid.

3. Energy's getting pulled in every direction
Volatility across all the energy markets has ramped up substantially and will likely continue to do so. Even after a recent bounce in natural gas, U.S. Natural Gas ETF (NYSE: UNG  ) is still down 25% for the year. Moreover, crude oil has turned out not to be indestructible, as its price has also declined on fears of an economic slowdown.

Meanwhile, solar energy stocks have gotten hit even harder, as First Solar (Nasdaq: FSLR  ) has lost half its value and Chinese solar makers have proven especially vulnerable to poor conditions in the industry. The energy industry is interconnected, so that when prices in one sector decline, it can create a cascade effect that works its way through the other sectors as well.

As last Friday's big move up in energy prices shows, good news can spur gains just as easily as bad news has led to losses. Until the macroeconomic picture gets clearer, you can expect to see more chances to get into energy stocks. If you share the long-term view that rising demand for energy will inevitably move prices higher, then these pockets of weakness should give you good buying opportunities.

Live and learn
In an ever-changing world, the lessons you've learned from the first half of 2012 can't predict the future flawlessly. To be a good investor, you can never stop learning, constantly adding to your knowledge and being better able to anticipate the future while also more efficiently handling the consequences of being wrong. If you come at investing from that point of view, you'll find you'll always find valuable lessons from watching the markets.

With the world economy being more important than ever, make sure you don't miss out on the companies that are doing the best job of taking advantage of opportunities abroad. Find out all about them in our latest special report: "3 American Companies Set to Dominate the World." This report is completely free, so don't miss out!

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.

Fool contributor Dan Caplinger never stops learning. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is a great teacher.

Read/Post Comments (5) | Recommend This Article (55)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 03, 2012, at 7:58 PM, carefulinvestor wrote:

    I am sorry - what is the point of the article? Pure gibberish.

    Buy no more bonds (extremely low yields)? Well duh?

    Diversify internationally (beaten down stocks)? Duh?

    Invest in energy stocks (ditto)? Duh?

    You must have hired a writer from Yahoo "News".

  • Report this Comment On July 04, 2012, at 12:57 PM, burrowsx wrote:

    The big boys are moving the hook up and down in the water to attract the fish. There will be a bigger than usual move down in August, to make the economy appear less successful than it is, to cast a pall on the nominating conventions, as the financial industry works to repeal the minimal changes imposed by Dodd-Frank (and incidentally to get rid of Barack Obama).

    The continued move towards Mussolini style corporazioni will be championed by the Bain of our Existence.

  • Report this Comment On July 04, 2012, at 1:20 PM, swiver wrote:

    It seems to me that all of the pundits seem to think that they have to communicate extremely long newsletters every single day, or they aren't doing their job. Perhaps they are paid by the paper trash they generate when they read their drafts.Thus we are bombarded with information, rubbish, nonsense, etc.and often the need to substribe to another newsletter. MF seems somewhat better than the herd, and I hope that it doesn't fall into this "publish by the pound" trap.

    I want to know what to buy, and when to sell it, and not a whole lot of cr*p; I can get that when I go to the pub.

  • Report this Comment On July 05, 2012, at 6:37 AM, tototruffa62 wrote:

    well said

    what they don't get is the NONSENSE to cheer "different opinions" among analysts on MF.

    The newsletter must have ONE opinion on stocks they recommend, or simply (please at the right time) declare things are going the other way, so protect your positions at THIS price or just bail out..

    there's no shame to go in and out several times until you make money (even a little) and better than follow a super-must have-stock 40-50% down..

    The "buffett-like" advice is also a nonsense because his liquidity is infinite: no matter how low a position goes, will ALWAYS be a small part in his porfolio, worth to double down..

    What about the average Joe ??

  • Report this Comment On July 06, 2012, at 3:37 PM, TMFDarwood11 wrote:

    "In an ever-changing world, the lessons you've learned from the first half of 2012 can't predict the future flawlessly."

    Well, Ya think so?

    I appreciate the article, but as a long term investor, which is my term for someone who expects to live more than a week, a year or 10 years, I must say that I don't live and breath on how the market does today, or did yesterday. That's a matter for day traders.

    I appreciate the challenge the authors at MF face. That is sometimes providing relevant and effective information to those who want to buy a "10-bagger" each and every day, so they can sell it tomorrow and buy another one.

    I suppose, if this were Aesop's fable, I'd be one of the tortoises. But that's my point. We all have long term objectives. We all want to win the race in the end. We all want to have sufficient finances in 40 years, unless we're at the ripe age of 103.

    For those who want entertainment, or drama, I suggest they go over to Cramer at Fox. Or the talking heads on MSNBC.

    For those who want instant results and to avoid the drama, just go over to your neighborhood casino and walk up to the roulette wheel and put everything you have on the color and number of your choice.

    But this isn't the movie "Death Race 2000" and you will wake up the morning after and possibly penniless and wondering how you will pay for that latte at Starbucks. But consider that if you were broke and that was your situation how wonderful it would be "to have those really big problems."

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