Year 2009 was a tough for money managers, regardless of their methodology or market of choice. Every conceivable trading paradigm was challenged by the collapsed equity market and unprecedented government and central bank intervention. The key factors affecting equity pricing in 2010 will the monetary policy, the looming sovereign debt crisis, bursting market asset bubbles, anti-business policy coming out of Washington DC and the lack of job growth. U.S. have an unprecedented crisis of confidence among taxpayers and investors. Millions of U.S. citizens are protesting against Washington!
The White House has announced federal deficits that are far worse than any prior estimates; $1.6 trillion for 2010 and $1.3 trillion for 2011. We should expect continuing massive deficits. robinson orange jersey 2010 could be the year public debt among US states is finally internalized by equity markets, forcing equity valuations lower as public sector debt swamps more states than just California. A crisis of public debt could expose the central structural problems in the US economy; financing the difference between income and living standards, masking productivity loss with inflation and over-reliance on a credit fueled consumer. Complicating the current unpaid liabilities of the states are their unfunded long-term obligations in the public pension and health systems. These obligations will start to extort a major toll on state budgets in the coming years.
Even if a debt crisis would be postponed beyond 2010, there are still tremendous robinson orange jersey risks for growth. The expiry of Bush tax cuts will reign in private investment. Congress is examining a host of policy initiatives, any one of which could stall growth and add to long term obligations. As private investment gets crowded out and the public sector falters and contracts, the overall effect will be negative for jobs and consumption. Without a new asset bubble to inflate the market, defensive moves by companies to reign in cost structures will no longer be sufficient to manufacture profits. Valuations should begin to move in line with earnings. All of this argues for lower equity markets in 2010 and an expansion of volatility. Most of these externalities will induce a sell-off of the inflated value of stocks.?
Stocks are cheap to cash when the fed funds rate is near zero. Corporate profits will continue to look good, bolstered by low cost structures, not by growth. But in order for stocks to move higher or maintain their 2009 gains throughout 2010, an engine of job growth must emerge. However, the growth scenario is less likely. The midterm elections could change the tone of policy coming out of Washington. If Washington would change the course of policy, it is likely to come at the expense of stimulus for 2010. This would cause the equity market to decline in 2010. In almost every past recession and bear market U.S. corporations has delivered solid values to investors. Price-earnings ratios
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