Two economists look to the year ahead in the markets

What can we expect from the markets in 2011? Here, we look at two economists' opposing views on what the year has in store.

What lies ahead for markets in 2011? Two high-profile economists summed up the themes to watch just before the New Year. In the bearish corner is Gluskin Sheff's David Rosenberg. The markets may have had a good 2010, thanks to a "push in the back" from "aggressive" US monetary and fiscal policy. But watch out. Investors today are more bullish than at any point "since 2007 just ahead of the market slide".

The problem with stocks right now is that dividend yields are too low. The S&P 500 yield stands at 2%, while a ten-year Treasury bond yields 3.3%. So stocks are not giving investors much reward for the risk they are taking. "The market is too optimistic in the sense that investors are willing to forgo yield because they assume that they will get the return via the capital gain The last time S&P yields were around this level was in the summer of 2000, and we know what happened shortly after that." And don't rely on the emerging markets in Asia to bail out the world economy. Their policy-makers are starting to get seriously worried about inflation. That means they will put on the brakes and rein in demand in 2011.

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