Geopolitical Risk Is On The Rise

"There's already political contagion from Tunisia to Egypt...geopolitical risk is on the rise. It has a negative effect on growth or rising inflation. All this is not good." - in CNBC

Related: United States Oil Fund LP (ETF) (NYSE:USO), Market Vectors Egypt Index ETF (NYSE:EGPT), PowerShares DB Agriculture Fund (NYSE:DBA), SPDR S&P 500 ETF (Public, NYSE:SPY), iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)

A G-Zero World

"A world where countries see global problems as a Zero Sum Game is a G-Zero World rather than a G20 World" - in Twitter

Some Upside Risks To Global Growth And Several Downside Risks

I was a speaker in the Davos initial panel on the global economic outlook: some upside risks to global growth and several downside risks

Downside risks for growth: sovereign risk; Eurozone crisis; inflationary rise in commodity prices; US risks (housing, labor market, budget deficit)

Positives for growth: global recovery; profitable corporations; strong emerging markets; less tail risk of double dip; asset reflation/risk on

in Twitter

Related: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM) , Market Vector Russia ETF Trust (NYSE:RSX) , iShares MSCI Japan Index (ETF) (Public, NYSE:EWJ) , SPDR S&P 500 ETF (NYSE:SPY), iShares MSCI Brazil Index (ETF) (NYSE:EWZ), ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), Lennar Corporation (NYSE:LEN) , D.R. Horton, Inc. (NYSE:DHI) , PulteGroup, Inc. (NYSE:PHM) , Toll Brothers, Inc. (NYSE:TOL) , Bank of America Corporation (NYSE:BAC) , Citigroup Inc. (NYSE:C) , Wells Fargo & Company (NYSE:WFC) , Morgan Stanley (NYSE:MS), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks, Inc. (NYSE:STI), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

A World Without Global Leadership And International Cooperation

"It is not a G7 world; it is not a G20 world; it is a G0 world without global leadership and international cooperation" - Nouriel Roubini in Twitter

The United Kingdom Is Already Double Dipping

"United Kingdom already double dipping while inflation is rising: a whiff of stagflation with fiscal and monetary policies not helping growth recovery." - in Twitter

India May Grow Faster Than China

"In the next few years, it is possible that the growth of India might surpass that of China, with India maintaining a close to double-digit growth, while China might slow down to eight per cent or so" - in www.sify.com

Related: WisdomTree India Earnings Fund (ETF) (NYSE:EPI), iPath MSCI India Index ETN (NYSE:INP), iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI)

How Could China Maintain Its 8 Percent Plus Growth?

"How has China been able to maintain its high—8 percent–plus—growth despite the collapse of its net exports? It did not do it by reducing its saving and consuming more; rather, it has boosted further fixed investment in real estate (commercial and residential), in infrastructure (roads, airports, bullet trains), and in manufacturing capacity, which already suffers from a glut. Fixed investment in China is now close to 50 percent of GDP.

But no country can be so productive that it can take, every year, half its GDP and reinvest it into more capital stock without eventually ending up with a huge excess capacity and a mountain of bad loans. Thus, China needs to radically change its growth model from net exports and investment to reduced saving and more consumption." - in Newsweek

A Likely Double Dip In The Housing Market

"The U.S. faces a likely double dip in the housing market, weak job creation and gaping budgetary holes at the state and local levels this year. Credit growth on both sides of the Atlantic will be restrained as many financial institutions maintain a risk-averse stance." - in Bloomberg

Growth In Advanced & Emerging Economies

"Global growth this year will be shaped by “an anemic, below trend, U-shaped recovery in advanced economies” and a “V-shaped recovery” in emerging countries due to their stronger macroeconomic, financial and policy fundamentals. That means about a 4 percent global expansion, with advanced economies growing by about 2 percent and emerging-market countries by about 6 percent." - in Bloomberg.com

Related: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM) , Market Vector Russia ETF Trust (NYSE:RSX) , iShares MSCI Japan Index (ETF) (Public, NYSE:EWJ) , SPDR S&P 500 ETF (NYSE:SPY)

The Risks Of Financial Contagion In Europe

“One of the most important risks is financial contagion in Europe if the euro zone’s problems spread, as seems likely, to Portugal, Spain and Belgium.” - in Bloomberg

China Needs To Radically Change Its Broken Growth Model.

"Clearly China needs to radically change its broken growth model in the direction of reduced exports, investment and savings, and increased consumption. But there are structural—and cultural—reasons why the Chinese save so much and consume so little. Radical policy reforms may take more than a generation to rebalance the Chinese economy toward a more sustainable growth model." - in www.newsweek.com

Emerging Markets Outlook

"In China and other emerging-market economies, delays in policy tightening could fuel a rise in inflation that forces a tougher clampdown later, with China, in particular, risking a hard landing. There is also a risk that capital inflows to emerging markets will be mismanaged, thus fueling credit and asset bubbles." - in Project Syndicate

Related ETFs: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), iShares MSCI Brazil Index (ETF) (NYSE:EWZ)

There Are Upside And Downside Risks To The Global Economic Outlook

"The outlook for the global economy in 2011 is, partly, for a persistence of the trends established in 2010. These are: an anemic, below-trend, U-shaped recovery in advanced economies, as firms and households continue to repair their balance sheets; a stronger, V-shaped recovery in emerging-market countries, owing to stronger macroeconomic, financial, and policy fundamentals. That adds up to close to 4% annual growth for the global economy, with advanced economies growing at around 2% and emerging-market countries growing at about 6%.

But there are downside and upside risks to this scenario. On the downside, one of the most important risks is further financial contagion in Europe if the eurozone’s problems spread – as seems likely – to Portugal, Spain, and Belgium. Given the current level of official resources at the disposal of the International Monetary Fund and the European Union, Spain now seems too big to fail yet too big to be bailed out." - in project syndicate

Europe Needs Growth To Prevent A Disorderly Collapse Of The Euro Area

Europe needs growth to prevent a disorderly collapse of the euro area. The stringent cost-cutting measures that the EU and the International Monetary Fund are imposing on countries such as Greece and Ireland are, in principle, the right way to get a handle on their debt. However, these measures also strangle an economy. Higher taxes mean people have less money to spend. If the government cuts spending it cannot make investments to stimulate growth. This creates huge difficulties for the governments concerned: If people cannot see the light at the end of the tunnel they will start to withdraw their support for reforms. In the interests of Europe as a whole, Germany should do all it can to bolster growth -- at home and in Europe. Germany should, therefore, postpone its austerity strategy. - In Der Spiegel

Belgium Is Effectively On The Way To Political Break-up

"Belgium is effectively on the way to political break-up. Will the political chaos lead to financial turmoil & banking/sovereign debt stress?" - in Twitter

Related: iShares MSCI Belgium Investable Mkt(ETF) (Public, NYSE:EWK)

Neither Of The Two Biggest Players In The Euro Zone Is Pursuing Policies Consistent With Restoring Sustained Growth In The Euro Zone’s Periphery

In the periphery of the eurozone, the problem is the opposite: bond vigilantes are demanding that Greece, Ireland, Portugal, Spain, and Italy front-load fiscal consolidation or watch their borrowing costs go through the roof, risking them their market access and triggering a public-debt crisis. Markets don’t care that front-loaded fiscal consolidation is exacerbating recession and thus making the goal of reducing debt and deficits as a share of GDP near-impossible to achieve.

To avoid a persistent and destructive recession, the fiscal and structural reforms imposed by the bond vigilantes should be accompanied by other euro-zone policies that restore growth and prevent vicious debt dynamics. The European Central Bank should ease monetary policy in order to weaken the value of the euro and bootstrap the periphery’s growth. And Germany should cut taxes temporarily – rather than raising taxes, as planned – in order to increase disposable income and stimulate German demand for the periphery’s goods and services.

Alas, neither of the two biggest players in the euro zone is pursuing policies consistent with restoring sustained growth in the euro zone’s periphery. The ECB’s monetary policy is too tight; and Germany is front-loading fiscal austerity. Thus, the periphery is destined to a destructive deflationary and recessionary adjustment that will exacerbate the risks of recession, insolvency, eventual defaults and, possibly, exit from the euro.

Related: Telefonica S.A. (ADR) (NYSE:TEF), iShares MSCI Spain Index (ETF) (NYSE:EWP), Banco Santander, S.A. (ADR) (NYSE:STD), Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), Bank of Ireland (ADR) (NYSE:IRE) , Allied Irish Banks, plc. (ADR) (NYSE:AIB), National Bank of Greece (ADR) (NYSE:NBG), Portugal Telecom, SGPS (ADR) (NYSE:PT) , Banco Comercial Portugues SA (ELI:BCP)

In The US We Have The Worst Of All Possible Worlds

In the US, we have the worst of all possible worlds. On one hand, stimulus had become a dirty word – even within the Obama administration – well before the Republicans’ mid-term election victory ruled out another round altogether. On the other hand, medium-term consolidation will be all but impossible in America’s current atmosphere of hyper-partisanship, with Republicans blocking any tax increase and Democrats resisting reforms of entitlement spending. Nor is there any pressure from bond markets to concentrate the minds of policymakers.

Related: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT)

In Most Advanced Economies, Deficits Need To Be Reduced To Avoid A Fiscal Train Wreck Down The Line

"The fiscal stimulus that most advanced economies and emerging markets implemented during the 2008-2009 global recession – together with monetary easing and the backstopping of the financial system – prevented the Great Recession from turning into another Great Depression in 2010. At a time when every component of private demand was collapsing, the boost from higher government spending and lower taxes stopped the global economy’s free-fall and created the basis for recovery.

Unfortunately, stimulus spending and the related bailout of the financial system, together with the recession’s effect on revenues, contributed to fiscal deficits on the order of 10% of GDP in most advanced economies. According to the International Monetary Fund and others, these economies’ ratio of public debt to GDP will surpass 110% by 2015, compared to 70% before the crisis. Aging populations in most advanced economies imply additional public debt in the long term, owing to non-fully-funded pension schemes and rising health-care costs.

Thus, in most advanced economies, deficits need to be reduced to avoid a fiscal train wreck down the line. But much research, including a recent study by the IMF, suggests that raising taxes and reducing government spending has a negative short-term effect on aggregate demand, thereby reinforcing deflationary and recessionary trends – and undermining fiscal consolidation." - in Project Syndicate

La Tribune: "How Roubini Sees 2011"

"How Roubini sees 2011," leads La Tribune, featuring an interview with the illustrious American economist who predicted the subprime crisis. Nouriel Roubini forecasts that the new year will be marked by slower growth in industrialised countries, mounting inflation in emerging countries and, above all, greater monetary instability, which could prompt “the weakest members to leave the eurozone”. The economist stresses the need to persist in carrying through the “painful but necessary” austerity plans and reforms to cope with the sovereign debt problem, whether in Greece, Ireland, Spain or Portugal (the so-called "PIGS").