1) US GDP growth will remain modestly positive as the economy benefits from an extension of the payroll tax cuts and various other election year fiscal stimulus measures designed to spur employment and economic growth.
2) At least one rating agency will downgrade US debt. Election year campaign promises will reduce the odds that anything will get done to address the growth in entitlement spending. The rating agencies will respond in kind, but the reaction will be muted as the US remains the only safe haven. Treasury yields will remain very low.
3) US financial marketswill continue to be the beneficiary of turmoil in Europe and slowing growth in China and other developing countries. US Treasurieswill remain well bid, but the major beneficiary will be high-quality, large cap blue chip US multinationals with strong balance sheets and above-average dividend yields. In a continuation of a trend established over the past few months, blue chips will outperform handily. The "risk-on" trade will be off.
4) Unless there is a disruption in the Middle East, the
5) The European Union will be held together by a thread as officials continue putting fingers in the dike. There will be an agreement on closer fiscal oversight by a centralized European authority. However, the bazooka of Eurobonds and/or massive ECB buying of sovereign debt will remain elusive. Private holders of Greek bonds will agree to a haircut of greater than 50%. A European Bank will fail.