Hester Capital Management

The major debate in the financial markets today revolves around whether or not the U.S. is going to experience a double-dip recession. We do not expect a recession, but if that does happen it should be a shallow one. We remain cautiously optimistic that the politicians in the US and Europe will eventually do the right thing as the consequences of not acting in a prudent and responsible manner are not pretty. We anticipate that markets will continue to be volatile until Europe finds resolution for its problems and until politicians across the globe learn to compromise across party lines.

The unwinding of the economic malaise will take years, and it will be a painful - but necessary-process. There is much fear and anxiety reflected in the financial markets. Many of the world economies are in a state of disequilibrium, with too much debt, facing high unemployment and sluggish growth. Policy options are limited, and politicians lack the courage to act. But out of such times come opportunities. We live in a world of instant news and an acute short-term focus. One of the keys to investment prosperity is to manage money with a long-term perspective while balancing risk and return.

The global financial markets in 2011 are likely to reflect many of the characteristics of the rabbits personality: quick to react, avoiding conflicts, erratic, resilient yet determined. The year started on a fast note. The S&P 500 jumped out to a 3.3% gain before selling off late in January over concerns regarding political instability in the Middle East. Global tensions, sovereign debt, state and federal finance, the economy and earnings may affect financial markets this year. One can expect a year of volatility, but a market that will display resiliency in the face of these uncertainties.