If you could only read one short article to prepare for 2011, this is it. First we take a look at the consensus for 2011, and then our view.
Array of Bulls vs. Bears
The overall consensus for 2011 is overwhelmingly bullish, and that of course is a contrarian warning that the pool of buyers may be running low.
Bull Case
It's Official: Tim Geithner Has Been Vindicated For Writing "Welcome To The Recovery": Basically a collection of charts showing that US stocks, auto, and retail sales have been up in the past month. Duuuh, that’s why the overall consensus among investors is bullish. The question is, why does one believe that the trend will continue? Bulls generally site slowly improving data (true, but too slow to yet make a meaningful difference, especially in jobs) and coming QE stimulus, with more likely if needed.
That’s fine as long as there remain buyers for the debt used to finance the stimulus.
Bear Case
To balance the overall bullish view, consider the following articles for a bearish perspective:
Does This Make You Nervous?: Has a great chart showing mainstream magazine cover stories saying that the markets were likely to continue their current directions, superimposed on a chart of the S&P 500 that shows these indicators of popular sentiment marked major market reversal points. The clear implication is that a recent bullish USA Today headline suggests stocks are due for a pullback.
Finally! Someone On Wall Street Is Seriously Bearish!: Summarizes why Citibank is bearish based on similarities between the current Dow Jones Industrial Average (DJIA) Chart and those of other long term bear markets.
All Of The Huge Threats Facing The Economy Summarized In One Paragraph: A great summary from David Rosenberg of Gluskin-Sheff, one of the leading bearish analysts.
Our Take
The basic question is how long government money printing in the US, EU, UK, Japan and China can continue to effectively counteract deeply bearish fundamentals like the EU debt crisis and long term weaknesses in jobs, real estate and banking, and global debt overhang on a national, regional, and personal level. So far money printing has worked and continued economic weakness has kept the feared inflation at bay.
- If one believes this can continue for 2011, be bullish and buy risk assets like stocks, commodities, and the riskier currencies like the CAD, NZD, and AUD.
- If not, avoid or go short these assets and be long the CHF, USD, and related AAA bonds. The Norwegian Krone was recently suggested by a reader given it’s relatively high yield and strong underlying economic fundamentals.
We believe there are simply too many potential and likely time bombs ticking under the markets to avoid a major meltdown in 2011, though timing that is tough. That keeps us in risk assets while the party lasts (we don’t fight trends) but with stop losses at the ready and planned safety asset buys.
EU Sovereign Debt/Banking Crisis
Complete Story »
Amanda Swisten Scarlett Chorvat Kim Smith Hilary Duff Lake Bell
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