Predictions 2011: John Carney On Wall Street

1.Put-backs are going to be a very big deal.

Although the market became aware of mortgage repurchase risk in a serious way in the fall of 2010, it has yet to come to grips with the potentially huge liabilities that are still invisible on banks' balance sheets. This complacency is likely to come to a crashing end in 2011.

2. Jamie Dimon will retire as CEO of JP Morgan Chase.

Next year, Jamie Dimon will reach his 55th birthday. Why would he retire at this point? Because his job is over. Under his leadership, JPMorgan Chase has emerged as the most successful of the countrys biggest banks. Almost alone among his peers, Dimon made it through the financial crisis better off than he entered it. Dimon may stay on as chairman of the board, however.

3.Europes sovereign debt crisis will continue.

European leaders always think that if they stop the contagion by bailing out one country, they won't have to bail out the others. Of course, this is nonsense. SavingIreland doesnt make Portugal any less financially fraughtit makes it more. Why would the Portuguese pay higher interests rate while Ireland's fall after a bailout?

4.The bubble in emerging markets will become obvious.

The view that almost everything in Brazil and China, in particular, is overpriced will become widespread. The Chinese government, which believes it can effectively manage the economy, will only make things worse. I dont know if the bubbles will burst in 2011 but they will become far more recognizable.

5. The municipal debt situation will become a crisis.

The debt of cities and towns across America will start to default if not bailed out by the states. The states will not be able to afford bailouts with aid from the federal government. The federal government will find its spending constrained by deficit fears. The answer may be a municipal easing program from the Federal Reserve, which has now become the God from the financial rescue machine.