It was a great relief that the Dow pulled out a gain for 2010. In July things looked bleak. A big push in prices during Dec. saved the day.
For 2010, expectations of a drastically improving economy are widespread even though many fundamentals point to a lackluster year at best. Perhaps the biggest drag is the ongoing high unemployment rate along with declining home prices and further de leveraging by consumers.
I look for so-so economic growth prospects for 2011. There seems nothing to be a true spark for accelerating growth. I very much feel entirely new, small businesses focused on technology is the key to turning the US economy around. However, this takes time to happen.
The following quote from Mr. Alan Abelson sums things up nicely:
"Overall, the market was buoyed by great expectations for the economic recovery, which, in case you haven't noticed, have yet to be realized, but at least the threat of a double dip has diminished considerably. Not to be played down, either, is the Fed's pursuit of quantitative easing, a liquefying maneuver the Street, contenting itself with voicing a few stray pious philosophical concerns, quickly glommed onto as bullish."
Abelson, Alan, 2010. Signs of a top? Barrons, Dec. 31.
If equity prices do go up, it will likely be a result of Quantitative Easing II. For some time, my concern has been that the money flowing into the economy seems to be inflating equity prices and not raising GDP. I see this as a dangerous concern in 2011 going forward, especially if there is a slowdown in China or a full blown sovereign debt crisis in Europe.
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