Where does the stock market go from here? For those of us who started the year skeptical, is it time to abandon our skepticism and jump in whole hog? For those of us who have caught all or much of the rally is it time to start taking profits or is the best course to stand pat?

I ended 2011 and started 2012 saying that I thought the first half of 2012 would be scarily volatile and investors should keep their powder dry for a second half rally after the People’s Bank cut interest rates. Wrong as of seven weeks into 2012.

About two weeks ago I opined that the rally now underway would run through February 29—when the European Central Bank offered European banks another 1 trillion euros in loans. Until then, I said it was safe to play the rally. After that, the odds of a correction would increase. Do I still think that?

Let me give you my take on where we are now and what moves are most likely to result in good returns with a reasonable amount of risk. Read more

More evidence that Brazil’s domestic economy and its export sector are headed in different directions at the moment.

Yesterday the Banco Central do Brasil reported that economic activity in Brazil climbed by 0.57% in December from November. That’s the second monthly increase in a row after growth stalled in the third quarter with the period essentially flat with the second quarter. (Year-to-year growth in the third quarter fell to 2.1%).

The news wasn’t nearly as positive from Vale (VALE), the world’s second largest mining company. (Vale is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ .The iron-ore exporter reported that fourth quarter net profit fell 20% from the fourth quarter of 2010. Sales during the quarter were down 1.2% on lower iron ore prices. After staying stable from April through September, iron ore prices have taken a dive with the Tianjin spot price in China falling to $116 a metric ton in September from a peak of $181 in July.

This is Vale’s third straight quarterly earnings miss. For the fourth quarter, the company reported earnings of 90 cents a share versus the Wall Street consensus of 95 cents a share.

Besides the 19% drop in the average selling price for iron ore from the level in the fourth quarter of 2010, Vale got hit with falling copper (down 16%) and nickel (down 20%) prices.

If you’re looking for a reason behind the price drops, you don’t need to look any further than the decline in growth in Europe from the effects of the euro debt crisis. Read more

Maybe you think the “solutions” to the euro debt crisis being pursued by German Chancellor Angela Merkel and European Central Bank President Mario Draghi are totally wrong. Maybe you can’t imagine that these two leaders are seriously proposing to condemn the EuroZone to a year of recession followed by more chaos and, at best, slow growth again in 2013 and 2014. Maybe you think that Merkel and Draghi will cave in under pressure rather than see Greece default and rather than watch demonstrations sweep Madrid and Rome. Maybe you can’t imagine that EuroZone leaders will cling to a “fix” that has been so thoroughly rejected by bond markets.

Okay, but I think it’s time to take Merkel and Draghi at their word. They are wedded to a plan that consists of austerity, pain, and recession—and years of it. And on the evidence there is a good chance that Merkel and Draghi can actually make their plan stick politically. The Germans are the biggest and strongest economy in the EuroZone and the German government and the Bundesbank control the cash needed for any solution.

So let’s say that Merkel and Draghi are able to execute their plan—against all opposition and against whatever personal advice you or I would offer. What then does the EuroZone and the global economy look like?

Let me sketch in the most likely scenario here. And then I’ll suggest its effects on the financial markets. Read more

I’ve been looking for an exit on Maxwell Technologies (MXWL) for a couple of weeks now. I was hoping for something closer to $18, but after repeated drops to $14.95 (on December 19) and $14.77 (on December 14), the $16.09 close on December 21 looks to be about as good as I’m going to get in a market that isn’t treating anything that smacks of technology or China any too kindly. As of December 22, I’m selling Maxwell Technologies out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ with a gain of 28% since I added it to the portfolio on January 23, 2007.

Why sell Maxwell now?

Maxwell’s bright future is built (mostly) around its ultracapacitors. These energy storage devices can store and then release energy faster than a battery and operate more efficiently than batteries under unfavorable conditions such as low temperatures. They’re winning greater and greater acceptance in the market for uninterruptible power supplies on wind turbines (you have to keep those blades pitched correctly all the time or winds can damage the turbine), on hybrid buses, and in stop-start systems for cars and trucks that improve fuel efficiency and reduce emissions by turning off and then restarting engines when the car slows or stops.

Getting ultracapacitor technology into turbines, buses and cars is a long process. Maxwell calculates that getting its product qualified by PSA Peugeot Citroen, the second biggest carmaker in Europe, took about four years. (Subsequently qualifications by other automakers would take less time because they would be able to see the results from PSA Peugeot Citroen, the company estimates. In its third-quarter conference call with analysts the company said it expected another major qualification about 15 months from November 2011.) Now, however, product orders are starting to ramp with the company estimating that 300,000 cars using its ultracapacitor product will be on the road by the end of 2011 and 1 million by the end of 2012. European Union rules require that 65% of cars produced in Europe next year reduce CO2 emissions to a level equal to fuel efficiency of 42 miles per gallon (if they use gasoline) and 48 miles per gallon for diesel. Stop-start systems can reduce fuel consumption by about 15% in urban driving.

I don’t have any doubts about the eventual market for stop-start systems—or about the advantages of ultracapacitor-based systems since they provide greater reliability in cold weather and allow automakers to use small batteries in their cars.

My problem is timing. Read more

I’m worried–make that very worried–about the first half of 2012 for investors.

Why? The global economic picture looks very unfriendly to financial markets in the first six months of the year.

Not so much because the forecast for growth is so bad. In early December economists surveyed by the Philadelphia Federal Reserve Bank projected that the U.S. economy would grow by 2.1% in the first half of 2012. That’s a long way away from a recession even if it’s not the magnitude of growth that would cut quickly into the current high unemployment rate. Barclays is projecting that growth in China will slow to an annual rate of 7.8% in the first quarter of 2012, the quarter the investment bank is forecasting as the slowest of 2012. And even in the EuroZone, the origin of the current global economic slowdown, the Organization for Economic Cooperation and Development forecasts that growth will turn negative in the first part of 2012 but the end-of-November prediction of a 0.4% contraction in the first quarter of the year would still amount to just a mild recession.

Not the best of times certainly but not exactly a replay of 2008 either. So why am I very worried?

Because stock market history argues that the correlation between the magnitude of economic growth and stock prices is actually not all that strong. What’s more important is the direction of change in rates of economic growth and the degree of uncertainty about future growth rates. On both those two measures—direction of change and uncertainty—the first half of 2012 scores as a very worrying period.

Let me start with China to show you what I mean. Read more