Well happy New Year, dear reader. If you're reading this, you made it to 2012. Congratulations!

Now we'll see what the year brings. It was not a great one for the ASX/200. It finished down 14.5%. But things can only get better, right?

Personally, we hope they get a lot better. The relentless gloom of last year took a toll on investors. But that's how the Bear works. He grinds you down until you almost give up. Then, he quits gnawing on your thigh long enough for you to think that you may just get out of this thing alive.

Then whammo! It's back to the soft tissue!

Needless to say, watching (and feeling) your money being eaten alive by a multi-year bear market is not pleasant. In fact it's the kind of experience that might prompt you to make a change by, say, selling your shares and giving up on the market once and for all. A lot of Americans appear to be doing just that.

Investors withdrew a net $135 billion from stock mutual funds in 2011. Some of that money went into lower-yielding, more conservative bond funds. Some of it probably went into cash straight under the mattress. And some may have even gone into gold, which, despite shedding 20% from its all-time high, finished the year up 11%. That marks 11 consecutive years of higher annual gold prices.

But from conversations over the break, your editor got the impression that a lot of investors are starting to tune the stock market out. It's too much trouble. It's too unpredictable. The carbon tax and the mining tax are due to hit this year, as well. Those have the potential to cause even more uncertainty and to lower corporate profits.

Mind you, the mining tax will only lower corporate profits if anyone actually pays it. "Downward pressure on iron ore prices means the federal government may make little if any revenue from its pending minerals resource rent tax, an accounting firm that advises miners warned," according to Katie Walsh in today's Australian Financial Review.

Now wouldn't that be a howler! The government goes and introduces a tax at exactly the peak of the commodity cycle, and on the cusp of global depression, and surprise surprise...falling base metals and bulk materials prices may wipe out the "windfall super profits" that the Treasurer was counting on. Nice going, central planners!

But back to the stock market. Australian investors don't really have the luxury of giving up on the share market. The superannuation system is designed to funnel money from your pay check directly to the well-heeled fund managers in the "wealth management" firms affiliated with the big four banks. It must be nice when your customers have to spend money with you, eh?

Of course there are many flavours of super. Investors can own fewer stocks if they really want. But that will be one of 2012's big questions: will investors quit on the share market? And if they do quit on the share market, does that mean the correct contrarian thing to do is...buy shares?

It depends. Are shares cheap? The S&P 500 trades at 13 times trailing earnings. That's 20% lower than the historical average of 16.4. It looks cheap. But remember, there are two elements to a P/E ratio: the price of the share and the earnings. Price only tells you what you'll pay.

Another big question for 2012 is whether corporate earnings are going to be rich enough to entice investors out of their savings account at the bank and into the risk of the share market. The fact that so many people are fed up with the stock market is interesting. It ought to tell you that when people give up on stocks, it's time to buy stocks.

It ought to tell you that. But we're not sure that's what the current social mood is really about. The current social mood is fearful, risk averse, and fatigued. That's not a combination of moods that leads to a bull market.

And in any event, psychology and emotion are just one aspect of the issue. The other aspect is very real: paying down or writing off a huge debt overhang that drags on growth. Spain spoiled the New Year's cheer when it reported that its government deficit would be 8% of GDP instead of 6%.

This small fact reminded everyone that Europe's economic troubles were not resolved in 2011. In fact, according to German Chancellor Angela Merkel, "2012 will be full of danger and risk." You don't say?

Of course, life itself is full of danger and risk. If you wanted to live a risk-averse, danger-free life, you'd probably never get out of bed in the morning. That would get boring after awhile, and probably uncomfortable (bed sores).

There are other, larger, looming issues to deal with in 2012. The merger of big finance with big government is the modern version of corporatism. That's what Mussolini called Italy's economic model before fascism became trendy in Europe. Unfortunately, it's becoming trendy again, and not just in Europe.

But we'll leave that for tomorrow. There is a whole year of reckoning ahead and there's no need to try and do it all at once. Welcome to the New Year, dear reader! It promises to be...new!

Dan Denning
for The Daily Reckoning Australia