By Leon LaBrecque, J.D., CPA, CFP, CFA

Here are a few predictions and observations that provide you with our firm’s economic and political perspectives for the New Year. You may want to sit down with a favorite beverage, or even an aspirin. In general, we’re certain this will not be a nice and steady year.

1. We appear to be nearing the end of an oscillation period. Since 1903, the market has been behaving in 13-year oscillations, followed by upswings (1903-1915, 1929-1942, 1968-1981, 1999-2012?). Each oscillation is marked by technological growth, economic downturn then growth, and usually some “tipping point” at the end. We could be at the end of an oscillation, given the right tipping point.

2. Europe is still messy. The European Union (EU) still has an immense amount of work cut out for it. The “fixes” of the ECB are still only symptomatic and don’t reflect the underlying problem: Greeks are different from Italians, and Irish are different from Germans. Unless the underlying economies have some governance, the EU will continue to suffer and will probably spend a part of 2012 in recession.

3. The market has room to run. The S&P 500 has a relatively low valuation (the Price to Earnings ratio is quite low by historical standards). Interest rates are so low that bank deposits of CDs don’t offer much of an alternative. Money has been flowing out of stocks. It could very easily flow back in, but probably before late fall. (Can you guess why?)

4. The U.S. economy has room to grow. Despite rumors to the contrary, the U.S. economy has grown for nine straight quarters through the end of 2011 (since the third quarter of 2009). With low interest rates, we could see real estate start to move, car sales start to pick up, and companies making more money. Don’t be surprised that our next threat is not recession but inflation.

5. On November 6, there will be a presidential election, the outcome of which will be narrowly decided. Importantly, 33 seats of the Senate are up for grabs, including 22 Democratic Senate seats. It seems very unlikely that the two parties will get along before the election, and barring a Republican sweep (and a Senate supermajority), it seems unlikely that the two parties will get along after the election. More gridlock seems likely.

6. Unemployment will likely continue to slowly decline. Corporations have wrung almost every drop of productivity out of their workforce, and it seems likely that the only solution to expansion is to continue hiring. Note that the government workforce is shrinking, and the private workforce is growing.

7. The Bush tax cuts will expire on 12/31/12. Expiration of these cuts raises taxes on virtually every taxpayer, changes the rates on dividends to ordinary income, raises capital-gains rates, brings back the marriage penalty, eliminates the child tax credit and raises the Alternative Minimum Tax (AMT). Roth conversion and municipal bond purchases will become more useful as the yearend deadline ticks away.

8. The Unearned Income Medicare Contribution (UIMC) will start in 2013. The UIMC adds a 3.8 percent additional tax on upper-income individuals (over $200K for single and $250K for married) on all unearned income like dividends, interest, and capital gains.

9. The Debt ceiling will expire again in 2013. Remember the fun we had in August of 2011? Well, it happens again, in early 2013.

Bottom Line: 2012 doesn’t look boring. Be ready to take advantage of opportunities and avoid the downdrafts. And consider whether this combination of events might cause a “tip” in the market that has had virtually no upward movement since 1999.

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Leon C. LaBrecque, CPA, CFP, CFA, is an estate-planning attorney. He is CEO and chief strategist for the independent wealth-management firm, LJPR, LLC, headquartered in Troy, Michigan. You can email LaBrecque at leon.labrecque@lipr.com. LIPR’s website address is http://ljpr.com, and its telephone number is 248-641-7400.