So what is the outlook for equities in 2010? Well I think we can be confident that a new cyclical bull market is under way. I say cyclical but definitely not secular. We certainly remain in that secular bear market. That's confirmed by the fact that the commodity super0cycle is underway and historically whenever commodities have been in a super-cycle, equities have been in a secular bear market. But standing back from that, looking at the next two, three or four years, the cyclical bull market is under way and that is confirmed by what we see in the macro, in the underlying shifts in the macro data and most particularly what we see in the corporate sector. The corporate sector has finished retrenching, cashflow is positive, costs are below revenues and as such, it's very strong and it's about to engage with easing credit conditions on a new investment spending round and acceleration. That coupled with the demise of the need to cut costs, the demise of the need to cut labour means a new economic cycle is under way. With a new cycle in the economy we have a new cyclical bull market which should persist for at least two to four years, or maybe even longer.

Clearly, risks remain. Not least some of the risks that are articulated about China and its excessive over-investment. Many people discuss the idea of a Chinese housing bubble and the fact that the authorities in the West may withdraw the stimulus too quickly. Clearly those risks remain. However, it's worth stating that when the corporate sector is strong, the economy is considerably less vulnerable to shocks than when the corporate sector is over-stretched.

When the corporate sector is strong it has no need to cut costs and therefore, it's much stronger in response to those shocks that hit the economy. Consequently, it's another reason for being confident that this cyclical economic recovery is going to persist and with that this cyclical bull market is going to persist. Despite that confidence about a new cyclical bull market being underway, there's no reason to rush into equities today. Indeed, if we look at stylised cyclical bull markets, they have three typical phases.

Phase one, the very strong initial rally out of the recession, out of the bear market. That averages 60 per cent and accounts for 40 per cent of the entire points gain of the whole bull market that we see over the course of the cycle.

Phase two, which we think we're now entering is a phase of consolidation when you consolidate those gains from the initial rally. That can last as much as six months to 12 months. That's the sort of behaviour we saw in 2004, 1994, 1984 as we came out of those recessions. That phase is started once the markets begin to anticipate interest rate hikes from the Federal Reserve. That was the case in those prior years and indeed we think that's where may well be where we are today. Better jobs data, good economic data, strength in the corporate sector all suggest we're starting to get to the phase of pricing in rate hikes down the line and all confirm the fact that we are probably moving into this consolidation phase two for equities.

Then post phase two, as we get towards the end of next year, phase three begins; the continuation of the gains in equities over the course of the cycle.

So given we think we're moving into phase two, given we think a number of our indicators are quite toppy, equity advisory optimism on sell, market still overextended, we don't encourage investors to rush into equities. Look for weakness as a time to purchase and look for 2010 to be a year that's primarily a year of consolidation. A trader's market, or a market that investors should dip their toes into on weakness of note.

There's much chatter in markets about the dollar's reserve currency status. Where the dollar is heading is critical to global investors and it's clear, if we look at the history and we look at the analysis of reserve currencies, that there are seven conditions that determine whether or not a reserve currency status is declining. Kindleberger lays them out in his seminal work World Economic Primacy. Those seven conditions include things like over-indebtedness, currency debasement, military over-stretch, energy dependency and so on and so forth and it's clear if we look at America today, they tick at least six of those seven conditional boxes as we stand at the moment. Most particularly we see on the indebtedness front this enormous build up of indebtedness in America over the last 30 years. Going back to 1970 at the end of Bretton Woods, American indebtedness was a little more than 160 per cent of GDP. Rolling forward to today we see growing indebtedness still through this recession and a total level of debt that's up at 370 per cent of GDP - a dramatic increase. Far above levels seen throughout history and typical and conditional of what you see when a reserve currency status is beginning to decline. On top of that explicit debt, there's all this implicit outstanding likely future liabilities that America holds in terms of social security and Medicaid which take that 370 per cent of GDP all the way to 650 per cent of GDP, clearly a big burden for reserve currency to bear and clearly the beginning of the demise of the dollar as a reserve currency.

But for now though there is no one to replace the dollar. The euro and the yen represent aging economies with shrinking shares of world GDP. This is not the way you become a reserve currency of the global economy. China is the only alternative that makes any sense but today China is not big enough. Today China does not have current account, capital account convertibility. They do not have deep liquid financial markets and they are not in a position to take over that status as the world's reserve currency and indeed, if you look at the policy actions of the Chinese policymakers, that is not their intention. They prefer directing lending within their economy. They prefer ensuring growth is high and what's key if you're Chinese is ensuring social stability and with that therefore, economic growth to deliver that stability. So consequently, whilst the dollar's reserve currency status is declining, there's no obvious currency to take it over today. Not this year, not next year and probably not in the next decade. So whilst we favour the dollar going down, it will retain its reserve currency status at least for now.

That was the Longview. You can download this programme from the iTunes store, from Cantos' website, or from our website longvieweconomics.com. Do get in touch if you have any questions through the website. We hope you enjoyed watching. We look forward to seeing you in the New Year and wish you a Happy Christmas. Goodbye.