By now, I have to sound like chicken little, with caution message. There are some interesting times in 2011 ahead. Some highlights that I see are big drivers.
- Resource prices have run up in 2010, but retail prices have not. This will cause margin compression on companies, affecting their profit reports.
- The government election will bring some significant postering changes. I expect some blow-hard politics in Washington, but my prediction is they do nothing of substance to change the basics. Financial accounting that is dishonest (as per rules existing from 1940s to 2008) avoiding mark to market accounting. Also I doubt they actually reform the financial sector.
But the proposed changes may cause market volatility.
- As I already posted, there are proposals to change the futures market in an attempt to pull in resource prices. Actual change in rules, which I do believe will occur, will result in market shifting. I expect in this case the "inside" will know before we do if the will of the government exists to implement change. They will front run the announcement.
- Europe's problems may be good for US dollar valuation, but can't be good for economic outlooks. Dislocations in bond markets for various countries will cause ripple effects.
- Various US states and cities are now talking bankruptcy in 2011. Any one of these if it gains steam can cause municipal bond issues, which will ripple.
- The market has had a FANTASTIC run from 2009, from SPX 666 to a high of 1276.83, almost 92% market gain in 22 months. Pretty freaking great. We could see 150% gains from bottom to top. But it does smell toppish. However, I have sang this song before. :)
- The US 30 year bond yield is dancing at the higher end, right now about 4.5%, a break above 5% would cause issues.
- China is deliberately popping their own bubble, due to outrageous inflation issues. China now being the #2 economy in the world, deliberately slowing their economy is likely to have ripple effects.
The market could really go a bit higher before turning. I am done with trying to catch tops or bottoms. But it is safe to say, that banking on an extended market run higher, is getting a little long in the tooth.
I am net long in resources. In financial companies some very minor shorts, another great sign that a fall is approaching. :)