1. No V-shaped bounce for the economy.
Optimists will be disappointed when the economy grows at a sluggish rate. Real rates, after stripping out QE2, will likely be sub 1.8 percent in 2011. It might look like the economy is doing well given the massive money infusion from the government and the Federal Reserve, but absent that we still have an economy struggling under trillions of dollars of debt.
2. No double dip for the economy.
There won't be another dip down for the economy because there is too much money infused into the financial system. Real estate will stagnate but not collapse significantly further. Unemployment will likely not get worse given the motivation of Washington D.C. to stimulate hiring in the year before a presidential election. Political survival will motivate politicians to make sure they do all they can to avoid a double dip. And we know Ben Bernanke’s position on government intervention to stimulate economic growth; he’s on a path of easing that won't stop soon. $600 billion is just the start.
3. Emerging markets will continue to do well
Yes, it's popular to say emerging markets are in a bubble but we believe that the level of growth—particularly in Asia—is so superior to that of Western economies, flows of money will continue to move in this direction. The hot-money issue is a concern but it doesn't overwhelm the reality that the next 20 years will be emerging markets' time to rise. Emerging markets and companies that have a strong presence in these economies will do well. Satellite economies benefiting from China growth will be the brightest opportunities.
4. Consumers will return to spending.
Yes, consumers will be more frugal, but the negative pundits will be shocked that people actually do buy presents this holiday season. Sales will not only be better than last year but even mildly reminiscent of previous years. Still, sales will not rebound enough to avoid a sluggish economic growth pattern for 2011 but this holiday season will cause many to wonder about the sanity of the American public as consumption returns. Never underestimate the motivation of the American public to spend.
5. Inflation will remain low in 2011.
It's popular to say that inflation will re-emerge with a vengeance. That may be true in the future but economic conditions, and a 9.5 percent unemployment rate, will keep inflation in check. There's simply too much leverage that needs to be unwound here and across the globe.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at firstname.lastname@example.org.