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Market optimists beware the Spanish bull!

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by Peter Switzer

Ever since I’ve ensconced myself here in New York, the economic omens and the market predictions have continued to reinforce the view that the market is heading up in 2011, provided Spain is not going long on “el toro!”

More on Spain later but the market looking good for 2011 is no surprise to me and Michael Knox, the chief economist at RBS Morgans, Ron Bewley — a regular blogger on this website — and others such as Charlie Aitken of Southern Cross Equities as well as UBS’s George Boubouras all predicted a nice end to the year on the market. They also were bullish on 2011.

Market rise

Neil Hennessy, portfolio manager and chief investment officer of Hennessy Funds here in the US is another bull for 2011.

“If you look at companies, they have tons of cash on their books and companies are no different from individuals,” he told CNBC. “So the more money you have, it’s going to burn a hole in your pocket and you’re going to go on an acquisition binge.”

He also pointed to a argument I have canvassed for a few months, which has been reinforced by others recently, that the stock market tends to rise 18 per cent on average during the third year of a presidential cycle.

He goes for a eight to 12 per cent rise next year because he knows an 18 per cent number on average is just that — an average.

Watch Europe

What will determine the upside next year will be Europe. Overnight ratings agencies raised some questions over Spain and this will be the real big test for markets in 2011.

The Spaniards say they won’t need a bailout from the European Union and if they are right then stocks will have a good year. However, if they go the way of the Greeks and the Irish, then market will be challenged.

We can only hope the country synonymous with bulls are not giving us a lot of bull on their ability to cover their debts!

Good economic news

On the good US economic news front:

Industrial output was up 0.4 per cent in November and that’s the best result since mid-2010 and beat economists expectations.
The Empire State survey of business conditions index was up, indicating the state of New York is on a role.
A survey, according to CNBC showed Americans say they have only finished half of their Christmas shopping, which could be a good indicator for retail.

Finally economists calculate that if the Bush tax cuts are extended, and this has to be decided before the year is out, then US GDP is expected to grow by an extra one per cent.

As I keep arguing, 2011 is all about Europe’s debt weakness versus America’s stronger looking economic growth prospects.

Go America and good luck Europe! And I hope we can trust the Spaniards.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Read more from Ron Bewley

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Published on: Thursday, December 16, 2010