Quarterly Roundup

Now that we're nearly halfway through 2011, let's take a look and recap where we stand in terms of our January-identified course markers for the year.

(1) Gasoline/commodity prices -- thanks to QE2 deflation was avoided but commodity inflation was sparked. Near $4 gas became a tax burden on the economy and helped contribute to the current malaise and 2-2.5% GDP growth rate currently experienced. Fortunately gas prices have recently retreated, although not in a significant enough manner. Unfortunately, other commodities (food-related) continue to rise.

(2) Political partisanship -- whether its a budget, the debt limit or healthcare reform, Washington has failed to show any leadership or, more importantly, effective compromise. Looks like the stalemate will continue largely until the presidential campaigns start up. Political uncertainty breeds business inactivity.

(3) Sovereign debt issues -- Greece, Portugal and Ireland continue to stoke Lehman-esque fears, and US states and localities have been forced to thrash spending and employment in order to make revenues meet budget expenses. These contractionary forces continue to plague without immediate relief in sight -- considering the pitiful rate of recovery currently experienced, growth is not a significant tool or option to reducing debt.

(4) Unemployment above 9% -- high unemployment has hampered consumer spending, which is the main engine of the US economy for better or worse. With weekly jobless claims back on the rise and continuing above 400,000 it appears that what many once thought a temporary influence is truly structural in nature.

(5) Home values -- after rising due to short-term government stimulus, housing values have resumed their decline and actually double dipped into deeper losses. Without immediate relief or stabilization occurring until early 2012, housing will continue to rob the economy of construction jobs, credit flow and consumer confidence.

After running through these issues, we should add 1 more to the mix:

(6) Black Swan events -- Japan's nuclear meltdown is just an example of unpredictable events that can only have negative impacts on a wide scale, even if relatively short term in nature. Japan's activity has certainly robbed the US economy of growth. Weather, war and politics can also fit into this category in certain regards at any time (e.g. Arab Spring). The unpredictable is often times most reliable influence.

In sum --- it doesn't appear suprising that the S&P remains where it started for 2011. Again, so long as none of these factors erupt but instead remain simply negative influences -- then there should be no risk of a double dip recession and a stock market meltdown. However, should Greece default or some other new variable enter the game, not only will it have large consequences, but a debt-laden government and exhausted Fed may not have many bullets left to fight back.