Shotgun Roundup & Final Bullet?

Keeping consistent with the 2011 theme, let's revisit the 6 market-determining factors for the year:

(1) Gasoline prices breaching $4 -- this hasn't happened and with the recent market decline and decline in prices, this is a noticeable boost to consumer wallets and the economy (in effect, a tax decrease).

(2) Political partisanship -- by far now, the most determining factor of the year in the US. The Fed has flushed the system with liquidity. However, the uncertainty and lack of agreement in DC is keeping the system from being re-calibrated and able to move forward into a new economic growth era.

(3) Sovereign debt issues -- For the US, politicans can only solve this problem by reforming entitlements (something likely left until the 2012 election debate), which means more uncertainty ahead. For the EU, this is a slow killer. The current Euro Fund of hundred of billions of euros is far too short. It needs to be expanded to a min. of $1 Trillion and a safe max of $3 Trillion.

(4) Unemployment above 9% -- continues and, again, is a new systemic reality absent fundamental changes from Congress.

(5) Home values -- double dipped and have no basis for recovery absent a broader level of social certainty which can only be delivered by Congress.

(6) Black Swan events -- unpredictable by definition but anything could happen. A country being forced to leave the Euro. The EU community allowing French banks to collapse. Further downgrades to country, state or company ratings. A 2011 recession. A Chinese property bubble burst.

The Ultimate Factors:

I truly believe the whole kit and caboodle boils down to 2 things: (1) Congress reforming entitlements and the tax code; and (2) The Euro Community creating a sovereign rescue fund that is $2 Trillion Euro in size.

Each has done half. The US has the fiscal stimulus but not the long term austerity. Europe has recession driving austerity but may not have solvency. A second recession (mild in nature) is not unlikely and may have already started (later data, revised, may show). What's more important is creating a stable environment of certainty so that corporations and companies can spend the next 1-5 years transforming themselves to fit the new reforms and expectations -- setting up a fertile ground for 10-20 yrs of economic prosperity. Its a healthy purging of a system gone bad, and the sooner we head down the road of reconciliation, the sooner we may prosper.

My fear is that Germany may not accept the reality that it must pay for and save the Euro, and that the US will push off tough decisions until the 2012 election. And what if that election leaves us with another divided government?