6 THEMES FOR 2011

As the new year rolls in it’s important to organize and plan for the important themes and events that could impact 2011.  Credit Suisse recently detailed their 6 dominant themes for 2011 and how they’re likely to influence markets:

(1) The rise and rise of the emerging market consumer remains the most dominant macro theme – for the third year in a row.

(2) Investors should focus on corporate spend areas in the stock market, one of our key themes since mid-2009. Corporate free cash flow, profitability and investment intentions are all abnormally high, while corporates have seldom been as under-leveraged. We believe corporates will want to focus on non-discretionary or short-cycle areas, i.e. areas where there is a relatively quick pay-back.

(3) Plays on abnormally low real interest rates: we believe that the monetary authorities in the developed world will keep real rates artificially low to facilitate the deleveraging of $6.3tn of G4 excess leverage. If real yields rise too far and threaten the economic recovery (which they would if QE2 ended, in our judgement) or if the fiscal authorities over-tightened, we believe QE would be renewed in the US – and via a weaker dollar would force other developed market central banks to respond.

(4) M&A is set to increase sharply

(5) Investors will pay more of a premium for both growth and pricing power. Growth will be at premium because the discount rate is likely to remain abnormally low (increasing the value of long duration earnings), while it is hard to see how this will be a normal recovery, with $6.3trn of excess leverage in the developed world, making growth more valuable. Companies with pricing power deserve a premium, given excess capacity of around 4% of GDP in the developed world on our estimates, increasing Chinese competition and rising input costs.

(6) Investors should avoid companies exposed to increased competition from Chinese companies.

Source: Credit Suisse

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. TPC,
    You have been advocating that QE2 is not adding money to the system. Which is a gray area IMHO. M0 is what is modified by QE2 and QE2 is adding money to M0. At some point M0 will trickle down to M1 and which will be inflationary.
    In short, all types of QE’s are inflationary and eventually add to the total circulation of money in one form or another.

    jason

  2. “Corporate free cash flow, profitability and investment intentions are all abnormally high, ***while corporates have seldom been as under-leveraged.**”

    on a pure debt outstanding basis, corporations have never been MORE leveraged.

  3. Please read up on MMT, because the quantity theory of money is a myth.

    And for what its worth, M1 better increase if M0 does just out of simple math (M1=M0+Checking Account Deposits). If it doesn’t then we know the wheels have really come off the bus.

  4. TPC,

    I see that yours and Richard Koo’s explanation for the current plight in the US and Japan is that they are in a balance sheet recession. One of the factors is a decline in asset values, hence causing much of the private sector’s balance sheet to be in or near bankruptcy levels.

    I can imagine that for individuals, the decline in housing/RE prices will explain much of their asset value declines. But I cant imagine this affecting companies who do not deal with the FIRE industries. Could you tell me what part of their assets declined? Thanks!

  5. Depends on the type of company. For the banks it was every product in their book. If not for govt intervention it’s likely that most corp balance sheets would have continued to shrink over time.

  6. I have visted many blogs but did not satisfy with content creation and information. but i have impressed yor presentation and find all the relevant information thanks yor support.

  7. Doesnt news like this make you irritated? The lack of understanding by the people that run the British economy are costing the livelihood of the people they were elected to protect. To make things worse, such reports are nearly always headlined, further reinforcing this misconception.

    ‘Public borrowing hits record high in November’
    http://uk.reuters.com/article/idUKTRE6BK1K720101221