Campbell: What to Watch in 2011

Here are some thoughts on what might be the notable themes for 2011:

Solvency fears of European peripheral will intensify for Portugal and Spain. Each will require outside financial assistance to avoid insolvency. The paradox here is that even though policy makers will be aware of such scenarios for months before each situation reaches a climax, the policy makers will be unable to prevent what will come to be perceived as economic eventualities.

Steepening yield curvesfor the sovereign credits of the U.S. and Germany will reflect the expectation of continued recoveries for these economies. The shape of these two sovereign curves will reflect both increases in economic activity and greater fears of future inflation in each economy.

The shape of the U.S. Treasury curvewill steepen, reflecting both an increase in economic activity and greater associated fears of future inflation.

The Federal Reserve’s QEII programwill increasingly be viewed as successful as the economy’s rate of growth increases. The Fed does not implement additional quantitative easing but does not completely rule out further stimulus measures either.

In spite of the deteriorating financial position of the U.S. government, U.S. Treasurieswill again continue to be viewed as the asset class of choice when trading patterns exhibit notable flights to safe assets.

The SPX gains high-single digits to low double digits, driven by three variables: the economic data; corporate results; and a level of government involvement in the private sector that is a welcome change from that experienced in 2008 through 2010.

As with the last two years, successful managers will prepare in advance for “left tail” scenarios on the geopolitical, financial, and economic fronts and “right tail” scenarios on the latter two.

Merger activity will increase in 2011, especially in the form of strategic transactions and cross border transactions. Industry consolidation will appear increasingly attractive because of the economies of scale afforded to companies confronting rising input costs or industry/government regulations that adversely impact operating margins. Acquisitions by financial buyers will include PE firms teaming together to undertake change in control transactions.


Residential real estatewill continue to reflect moderate to weak demand as job growth remains less than might be expected coming out of a typically deep recession, unemployment remains over 8.5% at year-end 2011, and the number of unemployed remains staggering. Also driving the tepid demand for homes is the level of mortgage rates.

The bankrupting character of states' and municipalities' financial commitments, including both pension and health care obligations, increasingly force administrators and policy makers to evaluate trade-offs amongst various alternatives and for various constituencies. Will lawmakers require bailouts by taxpayers of defined benefit plans and other pension plans where the problem was not the mathematics ( meaning fraud) but the application of math to situations that were structurally flawed, unsustainable and, ultimately, unfair.

Disapproval ratingsof elected officials in Washington will continue to be high as major progress in job creation remains modest by historical standards and the financial condition of the federal government continues to deteriorate.

Charles A. Campbell, Senior Sales Trader, MILLER TABAK & CO

Formal Disclosure: I, Charles A. Campbell, hereby certify that all of the views I will express in our scheduled Public Appearance accurately reflect my personal views about the topic(s). I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific views contained in this Public Appearance.

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