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2011: The Year of the Market Timer


Taking a look into the future of stocks, the market, and the economy.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

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With light trading volume and muted action taking us into the end of the year, it's time to start looking forward to 2011. 2010 was certainly an eventful year, one full of natural disasters and oil spills, growing distrust of Wall Street, distaste for government, fervent political and economic discourse, inspiring stories, and shocking revelations of systematic fraud. But any way you slice it, 2010 was a great year for the stock market. What does 2011 have in store?

Market Evaluation

If the past few years are any indication, 2011 will develop its own distinct identity. As our economy entered a painful recession and the housing market faltered, 2007 was the year of the bear. The pain and panic continued in 2008, and Gold became the buying opportunity of a lifetime as a safe haven investment. 2009 was an opportunistic investor's dream. Strong companies traded at a steep discount after the panic selling of the two years prior, and those who were greedy when others were fearful have enjoyed tremendous returns.

The market in 2010 was a drama in two parts. The first half of the year saw a defined trading range as investors evaluated whether the economy could sustain the recovery. In the second half of 2010, unwavering support from the Federal Reserve helped asset prices. And the market, which took off following the infamous Jackson Hole summit, is now trading at multi-year highs.

The Headlines Kept on Coming

Aside from the market and economic headlines, we got a little bit of everything in 2010. We saw devastating earthquakes in Haiti and Chile. The BP plc (BP) oil spill became a national disgrace and tragedy. Wikileaks lifted the lid on embarrassing inner workings of our government and shocking truths about the war on terror. QE2 became the hot dinner table conversation piece, with everyone from foreign officials to Sarah Palin weighing in with strong words. Republicans turned the table on the Democrats in the mid-term elections; politics continued to morph into a destructive game rather than the engine for change we desperately need.

The Tea Party emerged as a voice for frustrated American taxpayers unwilling to sit idly by as special interests run our lives and determine our lot. Pervasive and widespread fraud was exposed in our mortgage and banking systems. 2010 was an altogether tumultuous and exhausting year, but Americans are beginning to adjust to a "new normal" if you will. We now face the reality that we must fight tooth and nail to hold government and corporations accountable. We must change our ways if we are to remain the preeminent world economic superpower. A startling number of eager Americans are still without jobs, a fact that must be addressed if we are to truly drag ourselves out of this rut.

The Flash Crash opened up a whole new Pandora's Box. Technology has evolved much faster than regulatory bodies, and we need to work diligently to find a market structure that works more effectively. High speed traders have come to rule the market, often to the detriment of the retail investor. In order to restore trust and prevent calamity, regulators need to work urgently to correct our flawed market structure.

The foreclosure crisis, fraudclosure, foreclosuregate, or whatever you want to call it continues to be a deeply disturbing story of what companies are willing to do to try to get ahead. Robo-signers, banks foreclosing on homes without a mortgage, and the hundreds of other troubling prongs of this debacle tend to make me pessimistic about people. Many fear it could take a decade to sort out this mess in the courts, and the crisis will continue to prove a thorn in the side of the long-awaited housing and economic recovery.

Finally, the Chilean miners demonstrated the strength of the human spirit to prevail in the face of adversity. We are resilient creatures, and when we work cooperatively, we can overcome most any obstacle in our way. The story of the miners was so captivating because it came in such stark contrast to the polarized reality of today's world and today's America. Hopefully, we can ramp up that spirit in 2011.

The Great Blizzard

It is fitting that 2010 would end with a historic snowstorm here in New York City, and that disgruntled city workers would drag their feet and prove inept at getting the city back operating smoothly. The storm has been a microcosm of the year and the economic crisis as a whole. We watched overnight as clear skies gave way to two feet of snow, only a couple of weeks after Spring-time weather. Just when we thought it couldn't get any worse, the snow kept on coming.

Next thing we knew, you could barely open your front door. We were buried up to our waste in snow. Trains were stuck on the tracks and cars in the street. The heartbeat of the city -- the engines of activity -- were silent, and a bumbling crew of sanitation workers still do not have all the streets cleared four days later. There is outrage, finger pointing, anger, and distress. It has been a big wet, dark, cold, stormy mess. But the sun is starting to peak through.

The forecast calls for weather in the 40's this weekend that could melt much of the snow. Only weeks after it was in the 60s, we are now satisfied and content if the temperature stays above freezing. Americans, only a decade after enjoying low unemployment, historic economic growth, and unrelenting optimism, are now ecstatic to find even part time work. We may just be entering the heart of Winter, but Spring will come. Workers and citizens will be better prepared for the next great blizzard, which will inevitably come at some point.

Mother nature is mercilessly unpredictable; human nature can be equally destructive. Fear and caution rule the day, but they will give way to greed and recklessness of equal proportion. Climate change has led to more extreme weather. Technology and globalization have led to a more fragile and volatile world. In both cases, collectively we must do everything in our power to move forward while minimizing the negative side effects, and as individuals we must prepare to cope with the implications of a "new normal."
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No positions in stocks mentioned.

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