Friday, January 7, 2011

2011 Course Markers



As the year gets under way, I think its best to identify the key elements that will shape and steer the markets over the next year, or as I see it at least.

(1) Gasoline/commodity prices ($4 gas will be an impediment to consumer spending and economic growth while commodities have benefited and will continue to benefit from excessive Fed support).

(2) Political partisanship (if the sides don't work together and we get gridlock, then that means we continue to run high deficits, which is dangerous, so be mindful and take note of how much meaningful legislation, spending cuts, etc are being passed).

(3) Euro country & US Municipal debt issues (will result in strained finance situations, spending cuts and/or high deficits, increased unemployment and currency waves).

(4) Unemployment above 9% (or more truly, whether the economy starts to create 300,000 new jobs each month, which is the amount necessary to truly reduce the under-employed and un-employed numbers).

(5) Housing values (the biggest equity play for any American is their homes' equity and those values have begun decreasing again - for 4 consecutive months now and last month showed the first year-over-year decline since the tax credit recovery took hold -- which portends further foreclosures, more inventory, low demand and potentially lower housing prices still).

All that being said, even if these issues don't get resolved in 2011, I remain unconvinced that they will truly erupt in the next 12 months. Perhaps it'd be better if they did since an inflating situation only pops more damagingly, but let's enjoy the prosperity while it exists, and hope the government recognizes the medium and long-term budget concerns and takes meaningful actions to resolving them.

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