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Trends for Investors To Watch In 2011

Updated on January 3, 2011

Investors Always Need To Do Their Homework

It Doesn't Hurt For Investors To Examine The Trends Going Into The New Year
It Doesn't Hurt For Investors To Examine The Trends Going Into The New Year | Source

No Sure Thing, But Trends Are Important to Investors


It is always extremely hard to predict were the economy, stocks, and other markets are headed. Trying to look forward and handicap what will happen as 2011 moves along is no different. I'm not a believer in any surefire forecasting system that claims to predict what markets will do next. There is no such thing as a sure- thing! This is not to say that investors should just give up and turn a blind eye to what lies ahead. I don't believe that sticking one's head in the sand is ever the best investment strategy. I especially don't think it is advisable in today's market. The economy is still in a very challenged and fragile state. The wounds from the 2008 financial crisis are still exposed and the medical attention (economic policies) that have been applied are highly questionable to say the least. 2011 is likely to be a year filled with more uncertainty than usual and though investors should beware of getting too confident about one particular theme that will drive the market, I do think it is helpful to watch for trends as they develop. I am not an investment advisor, but here is my opinion about trends that investors should stay focused on in 2011. (It will be interesting to see how many of these will be right on or completely off).


The Trends I'm Watching Closely


Stocks Can Still Go Higher, But Look Out - Stocks have gone up and up since March of 2009. They have had some scary corrections, but overall it has been straight up since then. At first glance this is seemingly good for many of the general investing public's portfolios since the average investor is almost always primarily on the long side. Meaning they profit only when stocks go up, since they don't hedge by shorting (profit when stocks drop). In reality the stock comeback may not be as good for the average investor as it appears. The thing that the investing public needs to realize is that much of this rise is due to massive and unprecedented government actions. Some call it sound economic policy, but I think a more accurate term would be market manipulation. Yes markets have risen allot because of it, but the rise has been engineered by government manipulation. 100s of billions worth of bailouts and trillions worth of stimulus and printed money by the Federal Government and Federal Reserve have pushed stocks higher and with more stimulus and new money on the way stock values can continue into 2011. That's right I'm not completely bearish on stocks and I think there is a good chance they will continue their incredible run (especially early in 2011), but I don't think that  investors should get too comfortable either. Even if the trend remains up through all of 2011, stocks are likely to have lots of volatility with a, still fragile financial system, and lots of other risk factors. Also It should be recognized that there are unintended consequences to the government actions that have already been taken and this could end up biting the market at some point. When, nobody knows, but I do think it will happen eventually.


The Bond Market Is Showing Cracks Already And Likely To Breakdown More This Year - Despite the new QE2 program aimed at keeping interest rates low, being voted through by the Federal Reserve towards the end of 2010, the opposite has actually happened. Rates on bonds and other debt instruments like mortgages actually rose in the last months of 2010. This is a likely indication that markets are concerned about the inflationary impacts of all the debt and money continuously being added to the system. There is also concern showing from bond investors about the issuers ability to repay. This is true with many governments, municipalities, mortgage-bond issuers, and corporate borrowers. Many have become incredibly burdened with debt during the credit bubble and they continue to face a cash crunch due to heavy debt loads and shrinking tax revenues from the economic woes. Watch for possible shocks to the stock market and economy as the Bond market continues to wobble and could potentially  crash in 2011!


Municipalities Are Under Water And Could End Up In Crisis - As noted in the above point, municipalities are under great strain and will continue to be in 2011. This includes States, Cities, Counties, School Districts, and others. Many are suffering from a massive cash crunch and face tough choices. So far there seems to be a lack of political willpower when it comes to correcting these budget problems. Many municipalities including economically important states like California, New York, and Illinois are borrowing more and kicking the can further down the road. At some point the market will probably react violently to this apathy if it continues. It will be interesting to see how this plays out in 2011, but watch for major troubles to develop in this part of the financial world!


Housing Will Probably Continue Falling In The Beginning, But Watch For A Reversal To Start In 2011 - Pessimism about housing is still ubiquitous, and there are still many valid reasons for this. Foreclosures are still occurring at a brisk pace, with high unemployment and damaged credit ratings the home-buying populace is still very subdued, and many lenders are still dealing with their own internal problems leaving them hesitant to make new mortgages. There is also the prospect of higher interest rates that I mentioned above. All of this makes housing look like another depressing area of the economy right now. However, I think it may be time to take a contrarian view on this market. I think we will still see home prices decline in the early part of 2011, but there are a number of reasons for why a reversal could begin to materialize this year. So what would catalyst's be for this turnaround? First I would caution that prospective homeowners shouldn't get overly excited even if I'm right on this. Any recovery is likely to be slow and unstable at first anyway. Regardless I think this is a trend that people should keep in mind. Housing prices have gone down substantially since 2007 and like I said I would expect more of the same going into this year. This may sound bearish at first, but it is actually one of the reasons I expect an eventual reversal. Nothing ever goes straight up or straight down. Housing is no different, prices have been dropping steadily for some time now, at some point that has to change. There are also other bullish possibilities that could help to push housing upward. One is that the job market which, though still very rough, has seemed to stabilize at the end of 2010. Look for potential improvement in jobs in 2011 and look for housing to benefit from this. There is also the government "Wildcard". Despite the recent Republican gains, politics is politics, and it wouldn't surprise me to see more government actions to prop housing up. Some or all of these factors working together could start a reversal sometime in 2011, but as with stocks it's not all positive. Housing may recover but it will be at least in part due to manipulation.


The Government Will Continue To Grow And The FED Will Continue To Be Aggressive, But What Will The Consequences Be? -  Those who think the recent Republican victory will flatten the growth of government or maybe even shrink the size of government will unfortunately be very mistaken in my opinion. The same can be said for any hopes of reforming the Federal Reserve system. As the financial crisis began to spread in 2008, the Federal Government took giant steps in order to stabilize troubled financial institutions and prevent an economic collapse. The Federal Reserve mimicked this approach by injecting massive amounts of liquidity into the system as well. The Fed and our Government have continued a much larger role in managing the economy up to this point and I expect this to continue in 2011. I'm quite certain on this one. The question is not a matter of whether I am right, but what the consequences of continuing such  reckless fiscal and monetary policies will be. My opinion is that one unintended consequence will be very high rates of inflation.

Inflation Is Already Being Felt And Is Likely To Surge More In 2011!

Many government economists and main stream media analysts continue to voice their concerns about deflation (falling prices) and are advocating the need for more stimulus and actions such as QE2 (printing money) by the Fed. Normal people noticed something else though. And that's the fact that everyone's cost of living went up not down. You name it healthcare, college tuition, food, gasoline, utilities, gold, and silver all went up in 2010. The government is ignoring these facts up to this point though and continuing to spend and print. This means that inflation is likely to continue and we may even experience dangerously high rates of increase!

Gold, Silver, Copper, and Oil Are All Likely To Have A Good Year In 2011!

Due to the continuation of inflationary pressures mentioned above, metals and oil are likely to surge in price throughout 2011. I've already written about my bullish perspective on Gold & Silver and copper is no different. Oil may even have the best prospects in 2011 because it has been in an uptrend in 2010 due to inflationary policies, but it lagged the performance of the metals. This could mean that 2011 will be oil's year to play catch-up.



Stay Focused In 2011

These are the trends that I'm going to be watching closely in 2011. As always there are probably events that aren't on anyone's radar that could end up influencing the action in 2011. In my opinion though the trends mentioned above are likely to be important things for investors and traders to be watching if they want to protect themselves and be opportunistic as well. So stay focused have a prosperous year in 2011!


I am not an SEC registered investment advisor and this is not a solicitation to buy or sell securities. All readers should do their own homework before making any investment decisions. I may make investments that are related to some of the themes discussed. One should always consult with a lawyer and CPA regarding the legal or tax consequences of any investments you make.


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