Herewith our 6 of the best for 2011...
(1) In order for the major markets to advance further, corporate revenue (top line) growth needs to be seen to be taking over from cost cutting as a source of real earnings recovery and momentum. Much of the growth up till now has been driven by gains in productivity, as companies make more with the same. This is the reason why unemployment statistics in the US and elsewhere remain stubbornly high. Having said that, recent data look reasonably encouraging and supportive of our decision to add to weightings in the US (but not continental Europe). On that basis, we expect equity markets to continue rising, but at a slower pace, with market leadership being taken by the US on a recovery story basis and less so Asia & EM.
(2) Interest rates will remain low in the developed economies but will be rising steadily in the supposedly "emerging" economies as ongoing efforts are made to restrain inflationary pressures and speculative investment activity. Low real returns on cash and bonds will continue providing equity market support, especially after occasional sharp sell-offs.
(3) Nonetheless, key macro indicators will remain contradictory, with debt workouts suppressing demand in the US and Europe and strong domestic demand growth in Asia and EM.
(4) The demise of the USD is overstated, since in the ongoing Ugly contest between the USD, the EUR, GBP and Yen, all the major currencies look as bad as each other. As we have seen in 2009 / 2010 its all going to be very rotational.
(5) For commodities, we expect a still steady rise, although anticipate that Gold and precious metals will be a lot more volatile at the levels upward. As markets lurch between fears of inflation / deflation , USD demise / recovery, and Global growth / recession, there will be sharp swings which from a trading basis (which we don't do) will provide interesting opportunities. Buy and Holders like us, will hang in there.
(6) The big question mark for 2011 hangs over the bond markets: the odds in favour of some sort of Euro member default (although it won't be called that - maybe a "managed rescheduling"?) have to be pretty high in order to prevent a much more serious political collapse. In the US it won't be the Treasury market that causes trouble, but the much more opaque municipal bond market: the financial health of many individual US states looks every bit as bad as many of the much-loathed peripheral Eurozone members. If you start seeing more evidence of a bond buyers strike the risk of contagion into the more liquid government debt markets get much bigger. At the moment, the wonderfully prescient rating agencies seem to regard the municipal bond mess as "not a problem", until of course it is. Please see http://pragcap.com/the-coming-municipal-bond-crisis for further background...
Steve
e-mail: steve.davies@javelinwealth.com
contact: +65 65577185
website: http://www.javelinwealth.com
Javelin Wealth Management supports www.kiva.org, the global microfinance philanthropy initiative, and the Central Asia Institute (see www.ikat.org).
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- Javelin Wealth Management
- is a licensed financial advisory company based in Singapore. Our clients are wealthy individual investors who are looking for: (1) a personalised investment service, (2) a service from a company that is committed to full transparency in everything that it does (3) a long-term relationship with a company that works to provide its clients with the quality of investment advice they have long looked for but have rarely found, and (4) places the client's interest front and center of any recommendation made or service offered. This specifically avoids the graphic conflicts of interest that have undermined many larger wealth management organisations during the course of the last few years. Javelin's team of partners have many years of experience in the investment markets, and now run a series of client portfolios that are valued in excess of US$80m.