Will the Economic Recovery continue its course in 2011?

No wonder profits across the board are signaling green and the recovery expectations are trickling higher on hopes that companies sitting cash reserves will spend on new initiatives, which will boost employment in 2011. But, we should not be be fooled by profit growth which is giving every possible reason to investors to cheer about as there has been a very little change in the dreadful situation being faced by the American people.

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Currently, cash holdings are stepping higher and at the end of third quarter they were elevated at 7.3 percent. Such high cash reserves clearly indicate presence of fear and uncertainty, but eventually this cash will hit the real ground.

Fixing the Corporate Incentive Bug

One concerning fact is the reward program for key corporate executives. Despite market wide acceptance that higher incentives were one of the key reasons that made executives take tremendous risks, leading us all into severe recessionary phase, still there is no way out to curb such practices. Without a strict and swift change in regulation of incentives for corporate executives, companies will remain vulnerable to similar shockers.

Reshaping America’s Economy

After the battering of US economy the regulators played a proactive part in reshaping the scenario and their efforts, which have faced extreme criticism have somewhat panned out good for a stable recovery. No doubt, the pace of recovery has been much slower than expected, but still some green is better than all red.

Industries seem to be shaping up well but employment situation is in bad shape, and currency is continuing to put pressure. We cannot be sure about how the economy will perform in 2011, but analysts believe that the markets will continue to head higher.

Investment Theme for 2011 and Beyond: Investing Globally

The Fiscal situation in US is at an alarming point and the economic growth is subdued. Now investors are in turmoil whether they should stay put with their holding in America or its time they maximize exposure in international markets.

Investing in America is not an easier play anymore, and this is a place for value investors, who have the patience and risk acceptance to hold on to beaten down assets. But for someone with a shorter view and higher return expectations, emerging markets are the only heavens right now. Moreover, when restricting to US stocks, one must be aware that he is betting on an over invested asset class.

Federal Reserve is confident that the economy will continue to recover in 2011, but the pace will not be enough to bring down unemployment rates. Moreover, housing market is not showing recovery as expected after hefty stimulating efforts by the Fed and low inflation rates are raising concerns for future. Meanwhile, investors should take some international exposure through funds especially those focusing on India and china.

Bullish Voices for 2011

Goldman Sachs, in its latest release made forecasts for next few years. The best part of their numbers was that they expect America to grow at 2.7 percent in terms of organic growth. This is incredible, as these numbers do not include growth driven by government stimulus and inventory rebuilding. Between, it is the first time that estimation from Goldman in last five years overpasses consensus at Wall Street.

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