Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Investment Markets Outlook 2011

Stock-Markets / Financial Markets 2011 Jan 10, 2011 - 01:54 PM GMT

By: David_Urban

Stock-Markets

Best Financial Markets Analysis ArticleEQUITY MARKETS

After two strong years equity markets are sitting in a slightly overbought status.  Technical indicators are flashing 'pause' and sentiment indicators are in areas which usually precede a correction.  Looking back over some historical indicators there is reason to be bullish for 2011.


We are currently within the sweet spot of the four year Presidential cycle for the equity markets as the 4th Quarter of Year 2 and the first 2 quarters of Year 3 have the best returns.  This means that the current rally should last into April at the very least at which time investors should look to book some profits and take money off the table. 

Overlaid on the Presidential cycle is the decennial cycle in which Years ending in 1 are mostly negative.

What may cause the current rally to run out of steam?  The end of Bernanke's QE2 in the second quarter of 2011.

Valuation metrics, while on the high side are still attractive.  Global multinational firms are showing strong profits on the back of a weaker dollar and increased sales penetration in the BRIC countries.  Both factors should continue to drive profit growth in 2011.

Every 3rd year of the Presidential Cycle since 1939 has been positive which makes it likely that 2011 is an up year as well.

CURRENCY

The US Dollar Index is currently in a trading range with 89 being the top and 70 being the bottom.  More than likely the US Dollar Index will end the year higher and closer to the 89 level although a test of the 70 level is not out of the question. 

Europe will need a weaker Euro in order to help the PIIGS and refinance debt in 2011.  That means a stronger US Dollar since the Euro makes up more than 50% of the US Dollar Index. 

The problem with a weaker Euro is that it feeds the German export engine which pushes up German economic growth numbers which will increase calls for removing excess stimulus.

Germany has been experiencing an export boom and strong growth relative to the rest of Europe in 2010.  France is experiencing strong consumer led growth as well on the backs of low interest rates.  If the Euro were to begin depreciating economic growth in Germany would rise and when combined with the consumption led growth in France would begin to fan the inflationary flames across Europe. 

The Dollar will continue to depreciate against most Asian and other EMEA countries.  Since these countries are not part of the US Dollar Index the depreciation is invisible to those not watching the individual countries.

China will continue to encourage domestic firms to write overseas contracts in the Yuan instead of Dollars.  This is a trend that started about 5 years ago and has been picking up speed.  It is mostly off the radar but is important in that global firms, not just Chinese firms, are feeling more and more comfortable dealing in currencies other than the US Dollar.

HARD COMMODITIES

As we enter 2011 precious metals demand will continue to increase driven by the buildout of EMEA economies. 

The easy money, however, has already been made in this cycle and investors would be well served to play the substitution effect as high commodity prices for precious metals such as Gold, Copper, Tin, and Platinum will force industrial users to switch to alternative and cheaper metals. 

One particular example is Copper whose primary use in electrical wires and residential piping is well known.  At $9,000 it becomes more effective for industrial users to substitute Aluminum in electrical wiring and PVC piping in residential pipes.  Given the high inventories and lagging price for Aluminum versus Copper there is a good chance the Aluminum outperforms Copper in 2011.

This story should play out across the commodity spectrum as the year goes on. 

It is a bit worrisome that so many investors are on one side of a trade, especially with respect to certain hard commodities.  When this happens demand destruction and substitution begins to take effect causing a ripple effect across the commodity spectrum.

Gold and Silver should continue to see a flight from investors worldwide seeking a security marking another year of strong gains after a small correction in January.

Oil will continue to climb, moderately, on the back of a strengthening global economy.

Natural gas prices will be constrained my weather and strong production issues.  While there may be a strong rally to start the year prices should fall back over the summer months.

FIXED INCOME

The fixed income bubble is continuing with the markets moving from consumer debt, whose debt bubble popped in 2008, to sovereign debt and eventually to corporate debt which will lead to a corporate recession preceded by a mergers and acquisition boom in which corporations lever up their balance sheets and put the enormous amounts of cash to work.

We are likely to see a move upward in fixed income yields as long as QE2 is in effect.  Once QE2 ends however, traders will move back into the fixed income space creating a solid rally.

SOFT COMMODITIES

Agriculture will do the best amongst commodities.  By agriculture I mean companies that actually grow and harvest their own crops. 

The strong La Nina is still in effect and should remain so throughout the year. It will begin easing up shortly but return towards the end of the year.

This means a wetter than expected rust belt and drier than expected southeast and southwest in the United States.

In Asia this will likely mean a dryer than normal northern China and a wetter than normal Southeast Asia and Australia. 

The Mount Merapi eruption will not have a major effect on Asian agriculture as the ash that was thrown up into the atmosphere was of a low sulfur content.

Green energy begins to heat up once again as the oil price moves higher. 

By David Urban

http://dcurb.wordpress.com/

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author.  We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. 

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.  This is not intended to be investment advice or a solicitation to purchase any of the securities listed here.  I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

David Urban Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules