The markets are truly processing a number of significant debates and theories right now. Here are the most prominent factors affecting the economy and markets as a whole:
(1) The most interesting dichotomy to me is the difference in recovery approaches between Europe and the US. Generally speaking, post initial quantitative easing and slashing of interest rates to zero -- Europe has implemented austerity measures to battle deficits, allowed its currency to strengthen, and resisted further quantitative easing measures. Meanwhile, the US has actively sought to weaken its currency to encourage exports, almost certainly plans on further quantitative easing measures, and is openly pushing deficit concerns and austerity measures two years down the road.
(2) Goldman Sachs, Meredith Whitney and others have recently come out and said that the economic conditions for the next 6-9 months will remain very very poor and recessionary in nature.
(3) Home foreclosure moratoriums throughout various states will have the effect of hurting the number of sales that close, will keep the housing inventory elevated and putting pressure on prices, and will prolong the bottoming and recovery process for the industry.
(4) Recently its been stated that another $6 Trillion would be necessary for additional quantitative easing to have a significant effect on the economy. The Fed is currently thought to be considering increases of $500 Billion or $1 Trillion, meaning the impact is likely to be muted and only stabilize the economy's recent slight decline.
(5) Government continues to shed jobs drastically and now the state and local levels of government are truly beginning to feel the pinch of debt issues, which will lead to reduced budgets and employment over the next 2 years. In addition, some are starting to voice expectations that the financial industry will shed 80,000 jobs during 2011 as the recovery's meager pace will not warrant the substantial hiring that occured during the bullish run of 2009.
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