2010 market volatility and then some

If you look at 2009 when pessimism reached it's ultra low point and crunched equity markets in March 2009, no one could have imagined what monetary expansion (money printing) and fiscal economic stimulus would do to stocks. We saw the massive rebound from lows as trading ranges tightened and volatility all but diminished. Some commentators and traders made some great calls but could not factor when a correction would occur, as we heard that a correction was due in September, October and end year (2009). This didn't happen. What continued to persist was the absolute flooding of the global economy of liquidity (cash); never in history has this occurred in a synchronized way. Everything (markets) then narrowed: bid/ask spreads, credit default spreads, loan spreads, interest rates etc. A another example of how money expansion into the markets successfully trumped volatility.

Of course government and central banks have kinda ignored creeping inflation, but when you see the US dollar slide down over the year and oil, gold and other commodities rise you know that inflation is beginning to beckon - which is all but an inevitability.

Dubai and Greece where clear warnings (possibility of countries defaulting on debt) of a major downside from governments creating huge account deficits from their stimulus programs. The private sector has suffered immensely after the global economy collapsed with banks still stingy about issuing out credit to business and a massively oversupplied bond market mixed with huge amount of goverment debt will saturate bond markets in 2010. So businesses trying to raise capital in 2010 could be a thwart process. Quality issues and value of bonds will come into question from not only a benign economic recovery, but also at some point governments ending stimulus programs and central banks raising interest rates. The bond markets will be 'junk' overload.

Then you have China: protectionism, overcapacity, inflation, credit crisis, lending risks and so on.

The global economy will be in a grip of goverments desperately trying to restructure stimulus programs (so they won't go bankrupt), central banks slowly issuing inflation concerns. 2010 will be a volatile for markets after 2009's liquidity based rallies. Volatility could be turned up a notch higher if a war breaks out somewhere, first guess and most obvious - the Middle East.