A peek at Outlook 2011

2010 has been an year of turbulence and 2011 is no different. Main themes of 2011 are

Equity markets:  10% rising S&P 500 market 
US 10y rates: Rising rates to higher levels but not far from 2010 closing levels
Gold: Gold might see a cap to its further rising
EUR: Euro will be embroiled in core vs peripheral debate

Now my favorite part, volatility markets. Underlying economy is still recovering and turbulent events are anticipated in Europe and China. From this perspective volatility will be slightly higher.

US housing: Forclosures are still happening, Housing starts and new home sales are indicating double dip ahead. Persistent unemployment and dimming of prospects for brighter future is sapping confidence from people. This is not allowing the prices to rise.

EM: Emerging markets are currently battling with inflation, Hot money flows. Inflation rise in emerging markets needs to be treated on a per country basis.  Because, Inflation arises due to various factors, structural problems (institutional), overheating of economies due to unbridiled growth. Ofcourse, most of the policy makers are very much aware of the outright misery caused by Hot money inflows. They are acting on these aspects very well.  Brazil has increased IOF tax to 6 percent. This means higher rates, probably lower equity markets and Stronger currencies.

Gold: Today Gold has achieved the highest currency status driven by fear of  falling dollar. But this has created newer problems in demand side. People from India are slowly staying away from this highly expensive commodity.this structural factor can break the back of Gold price rise.Another factor that can play into this is awareness among investors. 2010 has been an year when investors were scarred by QE and Euro crisis.  Most importantly this reminds me of one thing, In India, in remote villages illiterate people are fooled by quack saints. These impostors take money to pray to rain gods to bring rain into their fields and bring them prosperity. Similarly, in highly educated western world, i see economic bloggers (some impostors) fool the ordinary investors into various investments by telling ghostly stories based on their half knowledge. I strongly beleive this is one of the drivers of the Gold speculation. 2011, gold might see 1500 but might not stay there for long. Gold option trading will be a promising area.

OiL:   OPEC controls the spigots of global oil supply. As long as no geo political shocks due to some terrorism related activity, EM countries should be driving the rise of oil prices.


I am going to write more and more on the macro factors and expressing my trading strategies.