What's next for the markets & economy?

Now what for the markets...

With the culmination of the election cycle, the markets now have certainty and not uncertainty which they dislike. Therefore, the markets are going to begin the big task of trying to figure out what the new US government is going to do that will impact their ability to make money.

This means that anything dealing with taxes, fiscal policy, government hand-outs, market regulation, bail-outs, etc. Speaking of unemployment, expect it to rise to over 7.5% in the coming months as the recession deepens.

Trying to guess the manner in which the markets will move depending on the news item is a losing proposition since many times its counter-intuitive. Just watch the major indices and how they accept the policies being bantered about in the next few weeks and months before the Jan. 20th inaugural.

In the short term, history says that the markets rally after a big event like this and this rally could take the SP 500 up to the 1075-1090 level before topping out and heading back down as the earnings of the SP 500 begin to falter.

We are not out of woods yet since now its back to financial basics of earnings, employment, value of the dollar, trade imbalances, and government action.

2009 could be a very bad year for the market given historical action especially if government action reduces employment, raises taxes, and drives capital overseas.

The first indication of coming problems will be another rate cut by the Fed.

The 2nd indication will more foreclosures and increased bail-out demands.

The 3rd indication will be huge consumer credit default that is coming and banks trying to work out debt forgiveness on this monster.