11 Big Ideas for 2011

2011 will be the year inflation—as well as our confidence and ability to prosper—comes back, says MoneyShow chairman and founder Charles Githler.

A profitable year awaits the prepared as markets continue to adjust to reflation and an improving economic outlook, according to the views of MoneyShow.com’s leading experts, who also warn that more frequent corrections are likely during the second half as markets sense potential overheating.

Here are their detailed predictions for 2011:

No. 1: Inflation returns

Sam StovallEven this anemic, half-speed economic recovery, forecast by Standard & Poor’s chief investment strategist Sam Stovall and others, will decisively terminate the 28-year era of declining inflation and interest rates in the United States this year. However, despite three years of warnings, many investors and traders will be caught by surprise.

As economic recovery finally catches a foothold in the developed world, global money supply growth will strengthen the case for an out-on-a-limb prediction of a decade-long commodities bull market made in 2009 at The World MoneyShow Hong Kong by keynote speaker Jim Rogers, who co-founded the Quantum Fund with billionaire George Soros.

Interest rates will rise—perhaps dramatically—strengthening the dollar against most currencies. While no one can rule out a 1970s-style price spike, long-range forecasts predict an average annual increase of 2.5% for the Consumer Price Index (CPI) over the next ten years. This would impact market psychology significantly, because investors are now accustomed to the steady decline of inflation that we experienced in the US during the past 30 years, which culminated in actual deflation, a rate of -0.3%, in 2009.

MoneyShow.com’s senior markets editor Jim Jubak doesn’t mind so much. Read his “Ten Reasons to Love Rising Prices.”

No. 2: The Stock Markets Boom
As fear of another economic downturn subsides and corporate earnings surprise to the upside, stock markets will move higher. Standard & Poor’s analysts forecast earnings per share growth will exceed 25% in Canada, Mexico, and South Africa.

In the US, Standard & Poor’s predicts operating earnings will approach $95 on their 500 index, compared with $84 in 2010. Even if the price-to-earnings multiple remains at 15 times earnings, the S&P 500 will rise to 1,425, which would equate to a 20% total return, including dividends. Bullish enough?

Blackstone’s Byron Wein also predicts that the S&P 500 "rises close to its old high of 1,500, as individual investors return to equities for the first time since the financial crises." (However, among Wein’s other “Ten Surprises for 2011” is that, at some point after June, the economy and stock market at least temporarily will become victims of their own success, with rising interest rates finally cooling the big rally and frenzied M&A activity.)

Another MoneyShow.com expert, senior editor Igor Greenwald, points out that if the market trades at its 2005 multiple of 16.5 times earnings this year, that would take it up to 1,520. (See “Mr. Market’s Not Done With You.”)

Standard & Poor’s sector expert Stovall advises continuing to "overweight" positions in materials, industrials, and technology.



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