“By mid-year, the U.S. Fed is expected to lead a coordinated round of monetary tightening among major central banks, which will allow the U.S. dollar to recover lost ground and rebuild its tarnished image. The higher U.S. interest rates rise in 2010, the higher the U.S. dollar is likely to gain against the major currencies,” said Michael Woolfolk, senior currency strategist at BNY Mellon.

The outlook for earnings in 2010 is brighter as well. Robert Buckland, chief global equity strategist at Citi, expects a 10% increase in major global stock market indexes.

Perhaps one of the more interesting or controversial statements from the presentation was that of Bob Mc Teer, fellow of macroeconomics at the National Center of Policy Analysis. McTeer said, “Congressional and administration pandering to this new populist fervor from the right has contributed to public underestimation of the success of Fed’s lending and the Treasury’s TARP program, and an overestimation of their costs to taxpayers. Instead, the Fed lending and the Treasury’s support of banks have been successful and are likely to have zero cost to taxpayers.” 

Are we headed for an economic recovery in 2010? And if so, how stable will it be? Leave your thoughts in the comments section below.

Case in point is this morning’s rally in equities; the Dow Jones Industrial Average is up about 200 points as of mid-morning. In fact it was up by more than 100 points on the first five-minute bar of the day, which would suggest overnight news moving the market.

The early wire stories attributed the move to a drop in crude oil. However, crude oil was actually rallying in the pre open hours and at the time equity markets were spiking higher.

While there has been a connection between oil and equities and equities may have been catching up with overnight action the correlation has not been constant as equities fell yesterday despite sharply lower oil prices. There are literally dozens of fundamental factors (as well as technical factors) that can affect price and just because the one you are subscribing to appears to have caused a move doesn’t mean it wasn’t simply a coincidence.

This is important as many investors may predict a move in one market based on fundamental evidence in another and take a position in that second market only to find that correlation doesn’t apply.

When I worked on the floor, I heard on dozens of occasions a customer say something like this: “this market dropped that means this other market should have done this, but it didn’t.”

The customer usually felt something funny was going rather than question his initial assumption. It may have worked for him in the past or he may have just been lucky.

Cause and effect in markets is difficult to project and when you apply dubious correlations, it can come back to hurt you, so be careful of what you listen to.