A Change Is Gonna Come - 12/31/09

I was born by the river in a little tent
Oh and just like the river I've been running ever since
It's been a long, a long time coming
But I know a change gonna come, oh yes it will.

-- Sam Cooke, A Change Is Gonna Come

I don't think the meek will inherit the earth ... but a change is gonna come in 2010. And that change could affect the domestic economy and the U.S. stock market more significantly than many presume.

I continue to believe an important theme (and headwind to the markets) for 2010 will be the policies that emanate out of a tidal wave of populism. (And thanks to Uncle Vinnie Farrell for the shout-out on this theme earlier today.)

The best investors are like socialites. They always know where the next party is going to be held. They arrive early and make sure that they depart well before the end, leaving the mob to swill the last tasteless dregs.

-- The Economist, 1986

Few talking heads are addressing this undercurrent -- instead they are almost universally and not surprisingly myopically focused on the latest economic releases. This focus, as I have written, has resulted in a clustered consensus forecast for economic growth, corporate profit growth, interest rates and for S&P Index targets.

Memo to the consensus: Dudes, we already know that the shorter-term domestic economic prospects are bright, but the market looks out further than our noses. The market typically ignores the obvious and the consensus by smelling out change, quarters in advance. Properly evaluating those changes and structuring portfolios accordingly can yield superior investment returns.

As I underscored on "Squawk Box," there is an angry subtext -- the average American resents some of our largest institutions (especially of a financial kind), our politicians (Republicans and Democrats alike) and the wealthy.

Indeed, the attitude toward big business and the wealthy has rarely been this bad. (Populism threats are woven into many of my Surprises for 2010.) (And thanks to Jim "El Capitan" Cramer for the nice shout-out to my variant surprises earlier today.)

When the policies of populism (higher taxes and more costly regulation) are mixed with a number of other nontraditional headwinds (municipalities' disarray, a still-wounded lending mechanism, etc.), the trajectory of economic growth will almost certainly be stunted. I believe these influences and policies will be reflected, contrary to consensus, in a weakening economy by the second half of 2010.

These two factors -- public policy that grows from populism, and nontraditional headwinds -- form a potentially toxic cocktail, especially within the context of the size of the market rally of the last eight months and under the possible setting in which higher interest rates begin to offer competition to stocks.

Coincidently, on CNBC now, Arianna Huffington and my buddy/friend/pal are going back and forth on this subject -- with Huffington getting Frank Capra (Its A Wonderful Life) on Larry as she encourages consumers to move their deposits out of the large, money-center banks and into the local banks (like Bailey Savings and Loan!).

Watch for more of this -- and watch for less patience on the part of the electorate as the schism between haves and have-nots widens.

There been times that I thought I couldn't last for long
But now I think I'm able to carry on
It's been a long, a long time coming
But I know a change gonna come, oh yes it will.

-- Sam Cooke, A Change Is Gonna Come