Six reasons to be cheerful in 2011

I am relatively optimistic for the first part of 2011, so here are six reasons why you shouldn't worry. For now.

Yesterday I posted a list of reasons why we should worry about the markets this year. But regular readers will know that despite the 14 points it ran to, I am actually relatively optimistic for the first part of the year. So here is a list of the reasons why you shouldn't worry. For now.

1. Liquidity. The Fed is persisting with quantitative easing and the more money that enters the asset markets, the higher they are likely to go. This is the big one and the reason I am not immediately bearish this year.

2. Recovery. There isn't any real historical correlation between economic growth and stock market returns, but it is nonetheless nice to see that most statistics suggest that economic recovery in the US is still underway. UK and German numbers look good too. Earnings growth helps.

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3. Inflation. Markets like inflation at 2-4%. High enough to force people out of cash. Not high enough to scare them.

4. Delusion. Or if you prefer, confidence. There is a lot of it about and it is a great short-term support to markets.

5. Momentum. When things go up, both retail and institutional investors tend to buy more of them. On that basis, we might be on the cusp of moving from the acceptance to the exuberance part of a bull market cycle. This is the one I go for most after no.1.

6. Bonds. It is still possible, just, to make a case for equities being cheap relative to bonds.

All other ideas welcome.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.