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2011 Themes

1. Expectations too high for gdp and profits. Market is priced to perfection with head completely in the sand regarding macro risks. We are operating on assumptions that the entire world is going to do a coordinated triple twisting backflip through a flaming hoop and stick the landing.
2. We may have seen the pinnacle of QE effectiveness on rates, especially out more than a year or two.
3. China inflation and subsequent tightening will be a headwind
4. US State and muni shortfalls and coming austerity are major headwind
5. Europe will remain a low to negative growth basketcase until they decide to haircut the bondholders and realize solvency problems cannot be addressed with liquidity
6. US Federal spending cuts are coming
7. We are reaching the political tipping point/end-game with regard to tolerance for bailouts all over the world. Dec. 15 Irish vote on bailout package will be an important test, but even if it passes, the new government will likely dissolve the package..Default is a possibility.
8. Consumer discretionary spending will decline as more and more people are actually forced to pay for housing as foreclosures and evictions accelerate.
9. Margin pressures will intensify as input cost increases are unable to be passed along to a deleveraging consumer.
10. Housing double-dip will intensify well beyond expectations. Expect further 10-20% price declines nationally.
11. US Stimulus (fiscal and monetary) at current pace is unsustainable.