SOON IT WILL BE A NEW YEAR

 

We've said it before and we'll say it again, we like energy stocks for 2015. And if you note some decent dividends, we like them even more.

But we like these energy puppies even more than that for 2016-2017.  We expect coming off these over-sold conditions a rally in 2015. Going out further we think they'll deliver some serious profits plus some nice payouts along the way.

No doubt plenty might warn of a value trap with further declining oil prices, maybe dropping from the current level to $30 or so. And that's always a real possibility, but that scenario includes the assumption everything goes as planned with no serious surprises.

The one thing you can count on there will be some surprises in 2015, just no one knows for sure where and what.

Now let's take a quick look at what the pundits are predicting investors buy for the new year. Right off the top is the U.S. Dollar as it's expected to continue its upward move owing to the divergence meme.

Cheaper oil prices they say means more for non-staple spending, so this falls into the consumer discretionary category like autos and satellite media and certain retailers, eschewing essentially staples like food, utilities and energy.

Another mene soon to makes the rounds if it hasn't already is the good-news-becomes-bad news, forcing the Fed off the dime when it comes to interest rates. And sort of a sidebar to that theme is the sooner rather than later debate.

Our own view is to look where others either are not looking or shying away from like emerging markets. Though it may turn out not to be, it should be clear that Abenomics and the ECB are going to pump some air into those paper assets. But the surprise that the air gets pumped but the impact takes a holiday is a possibility few are expecting.

And not many are expecting all that liquidity sloshing around to generated the unexpected, whatever that might turn out to be. Like the U.S. Supreme Court Justice who some time back noted he couldn't define pornography but "I know it when I see it." Like central bankers everywhere, you'll most likely know it when you see it, too, in the past tense, however.

Even if the Fed acts in 2015 there's some historical data suggesting that the market continues to climb during the earlier stages of rising interest rates.

There are of course other risk factors more subtle floating out there like certain proposed international trade deals that have little to do with trade and much with further obliterating national sovereignty. One of the more ironic is the Fed's bead on reeling in the risk TBTF banks can carry on their dockets.

Here you have what at best is a quasi bank, most likely the most dangerous of the entire banking species, riding herd on banks while no one--and we mean no one--hold the reins to reeling in them and the risks they continue to take.

What much of this adds up to, so say the experts, is lots of volatility. Volatility is like a lot of things in life, however, it's your friend so long as you're on the correct side of it.

So stay alert. Soon it will be a new year with new surprises.

DIVERGENCE MEME

We've mentioned more than once the diversion meme. It appears such has now become the dangerous consensus. Here's a quote from Marc to Market.

This divergence theme that we have been writing about for more than six months has now become the consensus.  Consensus views are often wrong.  We look at ways the consensus can be wrong about the divergence.  There are three basis ways the divergence consensus can be wrong: The US disappoints.  The eurozone surprises to the upside.  Investors are too pessimistic on Abenomics.   If everyone agrees, what could go wrong?


This is not to suggest that the consensus view will miss the mark this time. It's just to raise a caution flag that all investors should have when lots of folks are lining up on one side of the economic vessel. Last year's bond market performance is an example that ought to be fresh in most investors' minds.

There's much liquidity splashing around out there and it looks as if more is on the way. Adding to that liquidity pool is cheap oil prices. Just last week Japanese 10-year government bond yields slipped to their lowest-ever level, 0.31%, as buyers were willing to accept just three yen of interest for every 1,000 yen invested.

Yields on shorter dated bonds were even lower as government officials show how desperate they are to create some inflation. The two year bond auctions there last week for the first time had investors accepting negative yields, in other words, paying the government to take their money.

Some of us here in the U.S. believe we've been doing just that for a long time.

The two-year bonds were yielding minus 0.003%, doesn't sound like a way anyone is going to get wealthier anytime soon with Japanese core inflation running at 0.7%.  Japan's government debt by some estimates is twice the size of the economy and Moody's recently down graded the country's credit rating, causing a brief blip in inflation that was shorter than some Hollywood celebrity marriages. 

The  whole globe appears to be crying out for some inflation. There's plenty of it out there, but it depends on who and how they get to measure it.

2015 S&P 500 PREDICTIONS

 

Here's some predictions for the S&P 500 for next year from the Wall Street crowd. You might want to file them somewhere and keep track as the year progresses.

Wednesday in an abbreviated session the S&P 500 closed at 2,080 with many expecting the Santa Claus rally to continue to the end of the year.

Wall Street S&P 500 targets for 2015:

Bank of America Merrill Lynch 2,200

Barclays 2,100

BMO 2,250

Citigroup 2,200

Credit Suisse 2,200

Deutsche Bank 2,150

Goldman Sachs 2,100

JPMorgan Chase 2,250

Morgan Stanley 2,275

Oppenheimer 2,311

RBC 2,325

UBS 2,225

Wells Fargo 2,222

BlackRock 2,160

Fundstrat Global Advisors 2,325

EXCHANGE RATES

Currency exchange rates matter, especially when it comes to the game of beggar thy neighbor, something we will likely see more of in 2015 as countries try to export their way to economic nirvana.

Everyone knows that oil is down nearly 50% since mid-June. But take a look at the Japanese yen; it's dropped nearly 20% since summer against Uncle Sam's greenback.  As one observer recently noted "..it's actually cheaper now to buy a new iPhone in Tokyo and have it shipped over than it is to buy one here in the U.S."

On a trade-weighted basis the yen is down over the last two years nearly 25 percent. If you can't stimulate domestic buying then do what other major export nations do, debase your currency. The euro tells a similar story. The risk of further ECB easing in monetary policy supposedly set to begin early next year looms large for weakening the euro.

In essence Europe needs a weaker euro to compete with a weaker yen.

The dollar index, a benchmark that weighs the dollar against its major trading partners, recently traded above 90 for the first time in eight years. Part of the reason for the upturn is the so-called revised strength in the U.S. economy coupled with the safe harbor meme, but there is much behind the scenes scrambling to make the U.S. the buyer of last resort.

Think of it as the now popular divergence theme MSM and others  seem to love so much which recently got a booster shot from the economic revisionist crowd.

Even the British pound fell to its weakest level in 16 months against the dollar, trading at $1.55. Commodity currencies have likewise taken a bath as fears of the global slowdown grew starting with China.

That brings us to the Chinese yuan. The dollar of late has been up against that currency also. A cheap yuan was something American politicians not too long ago use to complain regularly about, often threatening the Chinese if they didn't push it higher.

The yuan now has another currency, the yen, snipping at its heels since the trade-weight yuan has risen nearly 20 percent over the last few years, much of that rise owing to the weaker yen.

Keep in mind that China, Europe and Japan are big energy users. Could these lower energy prices put an unaccounted for source of liquidity into the mix that causes further unexpected mispricing of assets?

THE NIGHT BEFORE THE NIGHT

It was the night before the night before Christmas and Asian stocks along with the U.S. dollar appeared to be celebrating early.

Much of the emphasis seems to be coming from those well-known members of the Economic Revisionist Illuminati who revised U.S. third quarter growth up to five percent.

The dollar up, the yen down, an exporter's best dream. Forget the sea. What you have here is easy money on the left, easy money on the right and the lack of any foreseeable threat of rising interest  rates smack dab in the center.

Otherwise known as Japan, the European Union and the United States. Like the three wise men of the season, this noted triumvirate is also off on an journey. 

 Abe, Draghi and Yellen, sounds like a law firm bolted down on the 75th floor in a Gotham high rise. Here's more from Reuters.

(Reuters) - Asian stocks gained and the dollar stood tall on Wednesday thanks to surprisingly robust U.S. economic growth, helping investors head into the Christmas holidays in a more relaxed mood after the global market turbulence of the past two weeks.

Risk appetite was sharpened by from revised data showing the U.S. economy grew at 5.0 percent in the third quarter, the quickest pace in 11 years and the strongest sign yet that growth has decisively shifted into higher gear.

That drove both the Dow .DJI and the S&P 500 .SPX to record closing highs overnight.

MSCI's broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS gained 0.2 percent. The Shanghai Composite Index SSEC bucked the trend and shed 2.6 percent as profit-taking seen earlier in the week appeared to gain momentum. [.SS]

South Korea's Kospi .KS200 was up 0.4 percent and Tokyo'sNikkei .N225 rallied 1.2 percent.

"America's strong economy is pushing the dollar up and the yen down, and that's a big plus for Japanese exporters to the U.S.," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.

The strong U.S. GDP prompted markets to bring forward the timing of a likely hike in interest rates by the Federal Reserve, which last week gave an upbeat assessment of theeconomy.

The bullish outlook pushed up Treasury yields and gave an already strong dollar fresh momentum. The two-year U.S. Treasury yield US2YT=RR rose to a high not seen in almost four years in light of raised interest rate expectations.

The greenback fetched 120.320 yen JPY=, edging closer to a 7-1/2 year peak of 121.86 yen touched earlier this month. The euro sank to a fresh 28-month low of $1.2165 EUR=.

"Risk appetite is returning at a faster pace than expected, thanks to the temporary pull-back in Russia risk and a well-balanced statement from the Fed last week," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

However, given thin holiday trading conditions and continued instability in crude oil prices, equities and currencies could be volatile, he said.

The Russian ruble plunged to an all-time low in mid-December on the back of lower oil prices and Western sanctions, which make it almost impossible for Russian firms to borrow from the West.

The ruble has since regained some lost territory, shored up by informal capital control measures designed to head off a repeat of the inflation and protests that marked Russia's 1998 financial crisis.

Weighed by industry data that showed a surprise build in domestic stocks, U.S. crude oil dipped 38 cents to $56.74 a barrel CLc1 after gaining $1.86 overnight on the U.S. growth figures. [O/R]

"It's ironic. The U.S. economy is starting to boom and crude oil prices are contracting in the opposite direction," said Ben Le Brun, market analyst at Sydney's OptionsXpress.

Gold traded close to a three-week low as the improved sentiment dampened investor appetite for the safe-haven metal. [GOL/]

Spot gold XAU= was up 0.3 percent at $1,179.21 an ounce, within distance of the three-week trough of $1,170.17 hit on Monday.

NOTHING HAS CHANGED

How do you spell catastrophe? Well, it starts with the letter c and finishes like this: central banks.

Nothing has changed except the value of a bunch of paper assets.

This is an open quote to the Martin Wolfs, the Mario Draghis and global politicians and bureaucrats everywhere.

Central banking has lost its way. Trapped in a post-crisis quagmire of zero interest rates and swollen balance sheets, the world’s major central banks do not have an effective strategy for regaining control over financial markets or the real economies that they are supposed to manage. Policy levers — both benchmark interest rates and central banks’ balance sheets — remain at their emergency settings, even though the emergency ended long ago.

While this approach has succeeded in boosting financial markets, it has failed to cure bruised and battered developed economies, which remain mired in subpar recoveries and plagued with deflationary risks. Moreover, the longer central banks promote financial-market froth, the more dependent their economies become on these precarious markets and the weaker the incentives for politicians and fiscal authorities to address the need for balance-sheet repair and structural reform.

Here's the link.  http://www.marketwatch.com/story/the-fed-is-heading-for-another-catastrophe-2014-12-23?

LOOK FOR THE UNSEEN

We like it when we see quotes like the this one in today's Financial Times from Saudi oil minster  Ali al Naimi "the world may never see oil at $100 a barrel again."

In what the Times called "an usually frank interview," Naimi claimed Opec was pursuing a new tact.

It's not in the interest of Opec producers to cut their production, whatever the price is. Whether it goes down to $20, $40, $50, $60 it is irrelevant.

Some observers say that the market should expect more volatility as it enters "scary times" for the next several years, as oil casts a wide net in the making of so many products. Either way, it's a clear shot at the world's high cost producers in places like the shale industry in the U.S. and Canada's oil sands.

That group also includes deep water produces like Brazil and projects in the Arctic.

The low prices are also showing up in some unusual places. British Petroleum, the UK giant, is seeking lower penalties owing to its 2010 Gulf of Mexico spill, citing declining oil prices since mid-summer and the future impact they could have on exploration and production.

One might argue that BP is joining the ranks of Argentina, though in our view BP is on much higher ground owing to the size of the penalty the government is asking. Greedy governments are greedy governments. And the U.S. is one of the greediest.

BP has already ponied up $1.3 billion under the Clean Water Act and $846 million for research into the Gulf and to promote tourism to the region. According to reports, the government is estimating that 4.2 million barrels spilled into the Gulf and they are asking for the maximum penalty under the Act of $4,300 a barrel.  

That brings the total to somewhere between $16 and $18 billion depending on who's left in charge of the calculator, since the U.S. government is saying no less than $16 billion.

Now that, my thirsty friends, is pure greed. 

Whatever the outcome, the newly predicted volatility, should it happen, will produce opportunities to make some money for those savvy enough and brave enough to follow French economist Frederic Bastiat's dictum, "What is seen and what is not seen."

So look for the unseen.

WATCH YOUR MOOD

Mood attracts its affinities.
    
It's the holiday season and most of us will be in a good or better mood depending on our circumstances. And that's the key. We too often let circumstances determine our mood. And why not, it seems so logical?

But that's really just another case of putting the holiday sleigh in front of those reindeer. Mood determines circumstance, not the other way around.

I once had a girlfriend who claimed she wasn't a morning person. So obviously, rain or shine, fresh smelling coffee or tasty hot chocolate, mornings weren't big memory makers around that house. 

Be careful what you claim.

Mood is just another way of saying claim. Claim a good mood as the last thing before you fall asleep every night and see how often you awake each morning with a good mood. If you want to own it, claim it.

Otherwise you don't really want to own it. So stop complaining and just enjoy your moodiness. It will never fail to reward you in what's known on Wall Street as PIK--payment in kind.

 Mood attracts its affinities.

Happy holidays to all and we look forward to a profitable investing year for 2015. 
t. man hatter
 

WHATEVER HAPPENED TO GEOPOLITICAL RISKS?

Ever wonder what happened to geopolitical risk?

With the falling energy prices, and, for now at least, the luster off gold after a 12 year bull run, one of the bigger surprises of 2014 was geopolitical risk didn't hurt the market.

On the surprise front, it's right up there with the bond market activity that few got correct.

Well, don't get too complacent. At least that's the view of New York University economics professor Nouriel Roubini as noted in a recent interview.

Roubini, who gained some attention lately with his warning about the current asset bubble and when it will go snap, crackle and pop, outlines his views to Yahoo Finance, naming five troublesome areas heading into 2015--geopolitical risk, a hard China landing, the failure of Abernomics to revive the long slumbering Land of the Rising Sun, a global currency shock owing to the strong U.S. dollar and a repeat Eurozone crisis.

"So far the impacts are more economic than financial," he said, citing the Russia-Ukraine situation and its knock on growth in Europe. "You don't see the financial impact but you can see the real economic impact."

Outbreaks of war are always there, since one is usually being waged somewhere on the globe nearly all the time, but cyber wars are the fairly new kid on the scene unless you've already been a victim of identity theft. The risk of their growing in scope and intensity remains large.

As for China, he expects growth to slow there to around 6% in 2016, but it could fall much lower to 3% or 4%, he postulates. Boiled down, it's a matter of importers versus exporters given, in his view, the strong dollar, citing India, Indonesia and Mexico as expected beneficiaries owing to their U.S. ties.

Just make sure should one or more of these risks hit the global financial fan, you're not running around asking: "Whatever happened to my portfolio?"

http://finance.yahoo.com/news/economic-dangers-coming-our-way-in-2015--nouriel-roubini-002244045.html

YOUR MIND VERSUS THEIRS

We wrote earlier about divergence in the U.S. stock market going into 2015. Here's divergence of another kind as crisis revisits Greece as if it ever went away.

If Syriza were to come to power, it would be the first of the radical new European parties that have sprung up since the crisis to form a government. Whether it would be able to extract meaningful debt relief from a German-led Eurozone that seems as determined as ever to prioritize structural reform and fiscal discipline isn’t clear, but the negotiations would certainly be as loud and as tense as anything seen since the Eurozone debt crisis erupted, in Greece, four years ago.

http://fortune.com/2014/12/09/crisis-returns-to-greece-as-pm-gambles-on-bailout-endgame/

Bailing out Greece further could be the first domino in the unraveling of the EMU. Recall, however, Romano Prodi's 2012 statement when he was President of the European Commission.     http://www.thedailybell.com/news-analysis/3629/EUs-Prodi-Admits-Leaders-Knew-Euro-Would-Cause-Ruin-but-Hoped-Political-Union-Would-Follow/.

Of course, anyone who suggests that the EU is being forced on the people of these diverse countries without benefit of a democracy will be called the usual names MSM and their fellow elitists reserves for outliers.
  
http://www.thedailybell.com/news-analysis/35893/EU-Shock-Report-Elites-Plot-a-Europe-Forged-by-Crisis/ 

But then our belief is: Let each man be persuaded by the consciousness of his own mind. Enjoy the reads.

WHO'S LEFT HOLDING THE BAG

If you're a fan of American college football, you know the sides to determine a national winner are now drawn up. Come early January we'll have a champion.

If you're a stock market buff you know similar lines for 2015 are beginning to take shape. As James Macintosh in today's Financial Times Short View article pointed out. Here it's known as divergence, the U.S economy expected to do better than pretty much the rest of the globe.

To be sure, there's a couple of layers here among sectors like in football: a good defense facing a good offense. So far this year defensive is winning as those so-called safer sectors like consumer staples, health care and those stodgy utilities nearly everyone love to dislike when their monthly bill rolls around lead the way.

A rough average of those three sectors combined so far produced a 20% return. Not bad and certainly not much being sorry there in being safe, especially when you note the S&P 500 is up 12% for the year. That in itself is a bit of trickery like the old Statue of Liberty play.

Among the offense, though they have scored, it's been a lot of incompletions and failed schemes. Cyclicals like industrials, chemicals and consumer discretionary firms have mimicked the old four yards-and-a-cloud-of-dust game, eking out mid-single digit gains.

Looking forward it seems investors and economists, as Mackintosh notes, are taking a similar tack with investors lining up in a slow-as-she-goes formation and those feisty economists looking for the long, deep ball.

In the market, like football, sometimes unexpected penalties and the referees get in the way, slowing the game down with things like instant replays. To the student of the game oil prices might be a good example here.

Small stocks in 2014 have been pretty much locked out not too different from those football schools not fortunate enough to be part of the BIG 5 conferences. But it's real late in the fourth quarter of 2014. And that brings up the inevitable what's up for 2015?

If there's any lesson from football, it might be last year's winners seldom repeat.

It reminds one of the old elementary schoolyard joke: Two birds are sitting on a fence. One is named Pete, the other Repeat. Pete falls off. Who is left?

The real answer is, whoever is holding the bag.

HOW THEY DID

Here's storyline from Bloomberg, "Gross Urges Investors to Take ‘Chips Off’ Table Amid Low Returns," from the former Pimco chief honcho. 

“Markets are reaching the point of low return and diminishing liquidity,” Gross wrote today in his investment outlook for December. “Investors may want to begin to take some chips off the table: raise asset quality, reduce duration, and prepare for at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields, QE and the trickling down of faux wealth to the working class.”

“Can a debt crisis be cured with more debt?,” Gross wrote. “I suspect future generations will be asking current policy makers the same thing that many of us now ask about public smoking, or discrimination against gays, or any other wrong turn in the process of being righted.”

What's interesting about this is early on in the Fed's QE saga, Gross was calling for more "artificial yield" creation not less. He was a big supporter for more QE, most likely because he thought it would help his huge portfolio at the time.

Gross titled his piece "How Could They?" 

“How could they?,” Gross wrote. “How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt?”

If Gross doesn't have a clue, here's a couple of suggestions for him, Paul Krugman and Keynesianism.

READ IT AND DECIDE FOR YOURSELF

In a recent post we told you gold is central bankers' the globe over worst nightmare. They hate the stuff and for good reason.
 http://financialspuds.blogspot.com/2014/11/choose-your.html.

Part of their scam is to vilify the gold metal so demand will stay low and they can continue to print artificial money. Coming into the recent Swiss vote on gold, as we noted, they rolled out the scare tactics, quoting a few so-called financial experts.

One such pundit, a Citibank wag, Willem Buiter, called gold "a 6000-year old bubble." Now as we've said many times before the status quo crowd hate gold and so-called goldbugs. It's a pejorative term, make no mistake about it, whenever it gets trotted out.

Yet there are no such terms for the paper asset crowd like equity hogs or bond bullies or fiat money freaks. So here's a response to Mr. Buiter's claim about a precious metal bubble from Zerohedge.
http://www.zerohedge.com/news/2014-12-04/dear-willem-buiter-if-gold-6000-year-bubble-then-what

Read it and decide for yourself.

AIN'T WHAT IT AIN"T

 It use to be the old gray mare. Now it's the U.S. jobs report.

Apparently, it ain't what it use to be, according to Marc Chandler of Marc to Market. It appears the non-farm payroll jobs were the fly in the non-farm bucket of jobs. Too volatile to track.

Seems we've heard that too volatile story before. So the Fed has decided to recalibrate its forward guidance indictor machine to include "...a broader range metrics, some of which are not even contained in the monthly employment report," Chandler writes.

For more on the report:

http://www.marctomarket.com/2014/12/us-employment-report-not-what-it-used.

WHO WOULD'VE THUNK IT?

What do you call being caught in the middle with no seemingly acceptable way out?

Well, if you're a political party, one from a country in what for the most part has been a two-party system in the European Union facing elections next year, you might want to hope for the best and expect something less. 

Realists might just call it what it is, a tough situation that at its core--something bureaucrats and politicians are noted for--reflects the incompetence and lack of taking care of problems before they get too large like a huge recession.

Scotland to all intent and purposes was just the tip of the political unrest iceberg. A lot of EU bureaucrats, after their huge sighs of relief, were hoping it would just fizzle and disappear. If you look at places like Spain and Greece, however, it's fairly clear it hasn't.

Immigration and how to handle it, for example, is a major issue as is high unemployment and the seemingly endless slow economic recovery that many promised would be here by now. It isn't.

Others are asking: "What economic recovery?" as central bankers choose sides in what should or shouldn't be done. Then there's the problem of all that overhanging debt and what to do about given those rule-bound Germans in Berlin as talk about some countries exiting the EU hasn't died out either the way many Brussels bureaucrats hoped.

For more on those upcoming elections here's a piece from Stratfor.

"<a href="http://www.stratfor.com/geopolitical-diary/europe-when-unthinkable-becomes-possible">Europe: When the Unthinkable Becomes Possible</a> is republished with permission of Stratfor."

Europe's economic crisis is slowly but steadily eroding the political systems of many countries on the Continent. New actors are emerging and threatening the supremacy of the traditional players. Alliances and events that seemed impossible only a few years ago are now being openly discussed across Europe. On Dec. 3, for example, Sweden announced it would hold early elections, partially because of political moves from the far right. In Spain, the ruling center-right party is openly discussing the possibility of entering an alliance with its traditional center-left rivals to prevent a protest party from taking over. Key members of the European Union, including Sweden, Spain, the United Kingdom and possibly Greece, will hold elections in 2015. In most cases, these countries will see outcomes nobody would have thought possible in 2008.

Sweden

Swedish Prime Minister Stefan Lofven announced the snap elections after his center-left government lost a budget vote less than three months after coming to power. Lofven's announcement was precipitated by a decision by the far-right Sweden Democrats party to support the opposition during a budget vote. Sweden's early elections, the first for the country in almost 60 years, will be held March 22, with the anti-immigration Sweden Democrats likely playing a central role. In Sweden's parliamentary elections in September, no coalition managed to form a majority government, but the elections were marked by the strong performance of the far-right party, which received 12.9 percent of the vote, up from 5.7 percent in 2010, when it entered parliament for the first time.

What is a Geopolitical Diary?George Friedman Explains.

While Sweden is one of the fastest growing economies in Europe, unemployment remains above pre-crisis levels. More important, Sweden has the largest number of asylum applications per capita in the European Union. Last year, violent riots shook Stockholm's immigrant-heavy suburbs, revealing Sweden's struggle to integrate its immigrants into mainstream society. Opinion polls show that Swedes still largely support the idea of living in a country that is open to asylum-seekers, but they are also worried about the economic and cultural impact of increased immigration. If the Sweden Democrats hold their place as the country's third-largest party, they will probably become key in the formation of a new government. This would put a far-right party in a position of power in one of Europe's main economies.

Spain

Spain's general elections, which will be held in late 2015, will likely have an even greater impact on its political system. The country's enduring economic crisis and a series of corruption scandals involving the ruling party led to a dramatic rise in popular support for Podemos, a left-wing protest party that wants to renegotiate the European Union's debt and deficit targets and restructure the Spanish debt. Podemos was created less than a year ago, but recent opinion polls put its popularity at around 28 percent — above that of the mainstream center-right Popular Party and center-left Spanish Socialist Workers' Party, commonly known as PSOE. Podemos' rise in Spain has been so resounding that on Dec. 2, Popular Party chief Maria Dolores de Cospedal said her party would consider an alliance with PSOE in order to form a government.

PSOE rejected the idea, while members of the Popular Party had backed away from it by Dec. 3. However, Cospedal's statements highlight the extent of the threat to Spain's two-party system, which was created after the end of the Franco dictatorship in the late 1970s. Before the crisis, Spain's mainstream parties normally captured between 70 and 80 percent of the vote. The 2015 elections will probably mark the first time in modern Spanish history that their combined support falls below 50 percent. The situation is particularly awkward for PSOE, which recently moved slightly more to the left to appeal to some of Podemos' voters. The party has yet to decide whether it wants to risk losing voters to the left by siding with the Popular Party or risk losing moderate voters by siding with Podemos.

Greece

Greece offers an example of what Spanish politics could look like in the future. Like Spain, Greece had a relatively stable two-party system that saw the center-right and the center-left alternate periods in power. But the economic crisis led to the rapid rise of the left-wing Syriza party, which opposes the EU austerity measures supported by the mainstream parties. In 2012, it took two elections for the mainstream parties to form an alliance to keep Syriza at bay. In Greece, where political rivalries are old and deep, such an alliance would have seemed impossible before the crisis.

Greece will probably return to the center of the European crisis next year when the Greek parliament attempts to elect a new president. If the parliament fails, it will be forced to hold early elections. With Syriza still at the top of the opinion polls, it would be more difficult to keep the upstart party from power this time around. Syriza has promised to restructure Greece's debt, a move that would probably make financial markets nervous and generate uncertainty across the eurozone at a time when Europe thought it had found some stability. When the European Central Bank promised to intervene in financial markets almost two years ago, the European Union lost the sense of urgency it had in the early stages of the crisis. The European Union, and particularly Germany, chose caution instead of action. Should Greece generate financial turmoil in Europe again, the Europeans will have to go back to the negotiating table and discuss all the issues that have so far been avoided.

United Kingdom

Finally, Euroskepticism will also be a key player in the United Kingdom, which will hold elections in May. Britain also had a functioning two-party system before the crisis, making coalitions relatively uncommon. But the rise of the anti-immigration UKIP party is seriously threatening this system. A coalition between the Conservative Party and the Labour Party or an agreement between the Tories and UKIP both seem impossible for now, but either would be conceivable if no party wins enough seats to govern on its own.

The current norm in Europe would have seemed impossible only five or six years ago. Most people would not have believed that unemployment in Spain or Greece could go above 25 percent or that nationalist, protest and Euroskeptical parties would become key players in European politics. More important, most Europeans would never have thought that the survival of the European Union would be under such a serious threat. For many Spaniards, Greeks, Swedes and Britons, the transformation of their political systems may still seem unlikely, but for some a surprise is likely coming next year.

Perhaps the real message here is: "We should've thunk it!" wherever and whenever the public sees two or more bureaucrats and politicians gathered around a committee or commission table.