By David Sterman
As you continually assess current events for any impact on your portfolio, you also need to spend time thinking about what events may be on the horizon. And although none of us has a crystal ball, it's important to try to anticipate the direction of economics, sector activity, politics and any other issues that may affect the investment environment.
The list below contains possible scenarios for the next 12 months that could impact your portfolio in a meaningful way.
1. New jobless claims fall below 400,000 in the first quarter, and meaningful job creation begins in earnest in 2011 as companies realize that they've squeezed out all possible productivity enhancements and need to re-build depleted workforces. The unemployment rate is slow to fall, as previously discouraged workers start to look for work again. But investors focus on the monthly jobs creation number instead of the actual unemployment rate.
2. Noting the impressive synergies that Delta (DAL) derived from its merger with Northwest (which were only belatedly appreciated by investors), investors continue to bid up shares of UAL (UAL) after its merger with Continental (CAL). Investors take note of the fairly low price-to-earnings (P/E) ratios in the sector, even as it has rebounded sharply in the past 12 months. P/E ratios move 30% higher in the next year, as investor concerns about any new economic weakness start to abate. Airlines are able to raise prices at a reasonably aggressive pace, though some of those gains are blunted by rising jet fuel prices.
3. Venture capitalists start to get anxious. With pensions and endowments looking to pull some money out of venture capital funds, the venture capitalist firms seek ways to monetize their holdings. As the IPO market remains challenging (many recent IPOs are non-venture-backed China plays), they seek out large public tech companies to buy out their stakes at large discounts to recent financing rounds. This extends the tech M&A frenzy, and these deals help set the stage for further gains in tech stocks in 2011.
4. Britain's financial austerity plans are watered down a bit by Parliament, but still lead to an unexpected shock in the U.K. economy in 2011 as unemployment rises, labor strikes ensue, and the pound starts to lose its safe-haven status. Major British corporate and real estate assets go up for sale, and newly-injected foreign capital sets the stage for a nice rebound -- but not for several years. The weaker British pound also triggers a surge in tourism, one of the country's few bright spots in 2011.
5. States finally stop bleeding, as heavy cost cuts take effect and revenue finally starts to rise at a modest pace. Several states with high debt-levels reach a crisis point in 2011 as federal stimulus support winds down, but most states start to move back toward a balanced budget. Smaller state governments create a local drag on employment in places like Albany, NY, Madison, WI and Sacramento, CA.
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.