Strategic ideas 1.4.2011 to 5.10.2011

I am going to keep this page updated, and I think I should be able to keep the historical ideas in a viewable archive.  [Minor Update: I will be adding reasons for each of these views as time permits.]

As I have time, details will be added to each of the forecasts.

Core Observations 1.4.2011 (Same as 12.24.2010, added real estate):

  1. The Euro does not breakup in 2011.  Sovereign debts are purchased by the ECB in quantity and do not cause inflation.   The solution deal for the Euro has already been discussed by 12/20/2010 and is nearly complete.
  2. Treasury Yields continue their trend lower, ending 2011 much lower.
  3. The stock market rallies in 2011.    Low rates plugged into the old fed model mean high P/Es, and high corporate profits keep the boom going.
  4. Japan has a huge rally in 2011
  5. All major stock markets rally – Germany, China
  6. The U.S. experiences a real recovery.  Hours worked creeps up to pre crisis levels, and hiring begins to excede minimum necessary 150,000/month
  7. U.S. Growth allows China to avoid a meltdown.
  8. U.S. and European banks are insolvent.  The recognition of these insolvencies have little real world consequences.  Is anybody still lending against RMBS, anywhere in the world?
  9. U.S. Banks and the robo-signing scandal ends very badly for the banks.  Expect at least 1 full nationalization in 2011.  BoA is the obvious target, but JPM, Citi, and Wells all are suspect.
  10. Bears are caught in a conundrum thanks to the yield curve.  The worse they think it will get, the higher they push up long term yields. But the steeper the yield curve, the more bullish the interest rate environment becomes.
  11. Real estate falls another 20%, with some real chance of a 30% decline.  This decline takes roughly 18-24 months from January 2011.  The Bottom happens in 2012-2013 time frame. [Update 1-12-2011: Reasons for this bearish view on housing here.]
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