Six reasons to be cheerful in 2011

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.

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.