Contrarian Investor UK predicts the FTSE 100 will end 2011 at 6550 and the Dow Jones Industrials will hit 13,000.
But I believe its going to be a very volatile year, suiting a trading style rather than buy and hold. On the plus side, continued ultra low interest rates and quantitative easing will continue to drive the U.S. earnings and hence the market in 2011. It is unlikely that the Federal Reserve will begin to tighten monetary policy by raising interest rates too aggressively during 2011 despite signs of rising inflation notably in commodities. One day the U.S. government may be forced to take action against its ballooning budget deficit and rising national debt, but this isn't on the agenda in 2011 or even 2012 with the next presidential election due in 2012. Although the U.K. government has decided to take action to reduce spending and raise taxes, across the Atlantic this is an alien concept for now given this strategy would be likely to be politically unpopular with mainstream America.
The weak U.S. dollar has helped drive impressive growth in gold, silver, oil, and industrial metals as well as agricultural products e.g. cotton during 2010. It is unlikely that the dollar will reverse its trend in 2011 but continued high demand from Asia (notably China) may begin to wain.
There is likely to be notable sell-offs during 2011 precipitated by several possible scenarios:
1. worries about euro zone debt (particularly Portugal and Spain). The U.S. budget deficit and lack of action to tackle it.
2. Chinese inflation and an increase in interest rates
3. A stagnant or declining property market, plus rising defaults
4. Poor unemployment numbers in the euro zone and U.S.
Therefore I will not be over committing myself too early in 2011. I will keep cash on the sidelines to take advantage of falls in the more speculative stocks on my watch list rather than piling in during January when sentiment is too positive. I would rather buy on a sell-off then when the market is red-hot and universally bullish. These are:
1. Xcite Energy (XEL) - North Sea oil (already hold)
2. Bowleven (BLVN) - Cameroon oil explorer
2. Nautical Petroleum (NPE) - North Sea oil
3. Coal of Africa (CZA) - South African coal miner
4. Angel Mining (ANGM) - Greenland Gold and Zinc (already hold)
5. Ithaca Energy (IAE) - North Sea oil
In addition to these AIM plays, I am also interested in Aviva, Shell, Reynolds, BAT, Imperial Tobacco as dividend stocks.
