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Baseball Season of Frustration 2

06/01/2011

Recent global economic data, combined with a modest capital markets correction, have created an eerily similar environment to 2010's Baseball Season of Frustration. In fact, the softening economic data points from China and the U.S. and euro debt concerns are remarkably identical to one year ago.
 
2010 had a storybook ending for investors. Can we expect a similar ending to this year's sequel, Baseball Season of Frustration 2?
 
Six potential "heroes" and "villains" that could affect the 2011 outcome: 

  • Villain - QE3
    The hero in 2010 was the FOMC's QE2 $600 billion asset purchase plan. The ultimate vote of confidence for the economy would be for the FOMC to stick with its plan to end QE2 on June 30. QE1 and QE2 had credibility with the Street. In my estimation, QE3 would not and would be BEARISH for asset prices.  
  • Hero - Corporations
    Sustained robust earnings could contribute to a second-half surge in the capital markets. The second week of July will be very important. 
  • Hero - China
    I expect the People's Bank of China to end its tightening measures within the next three months. 
  • Villain - D.C. policy makers
    Failing to assuage markets with a proper deficit reduction plan by Labor Day. 
  • Villain - Oil
    A supply disruption from the Middle East or Northern Africa would shock an already fragile global recovery. 
  • Hero - U.S. Labor Market
    A second half U.S. labor market recovery that lowers the unemployment rate below 8%.

 

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