The job report on Friday was so horrendous that Dow Jones Industrials fell by over 150 points at some point. But one should not under-estimate the ability and determination of the US government to prevent a blow-out this year and in 2012. Inflation is still low, which allows the Fed leg room to boost monetary policies. If economic data continues to be bad, I wouldn't be surprised if QE3 is announced. Some form of QE Light version will push commodities through the roof, gold above USD1600/oz.
The 2nd quarter earnings will be a very big indication of where the global recovery is headed. Honestly, I have an inkling of where it will be going. The European economy is stalling to a halt. The PIIGS nations may pull the EU into -1 to 1% growth for 2011. The US is in a better state, although likely to grow at 1 - 2%. Japan is heading towards 2 - 3% in the 2nd half of 2011 because of rebuilding efforts post earthquake. China is looking shaky because they have to slow down infrastructure spending which is leading to over capacity and rampant corruption. India and the rest of emerging Asia is chugging along.
The developed economies, which account for 60% of the world economy (US, EU and Japan), is expected to hit around 0.5% growth. The other 40% is moving at 5%. Overall, the global economy is expected to hit 2.3%. It's close to a dead stall, but not yet.
We should survive this correction and see higher stock and commodity prices by end of 2011. By mid 2012, it may be a peak followed by long periods of range trading as the US tries to build that "feel good factor" before the Presidential Elections in Nov 2012. I believe the downtrend may begin as early as Aug 2012 but it will give us lots of time to exit. By Dec 2012, it will be a big plunge. By mid 2013, we may have hit the bottom.
Remember, bulls climb stairs, bears jump out the window.
