This is part of my interview by Amber Hestla for Technically Speaking newsletter produced by the Market Technicians Association, Inc.

There are several key things to watch in 2011:

• Municipal Bonds — The fear of large municipalities filing for bankruptcy nationwide will continue to cause high levels of price volatility in municipal bonds. History shows us that during the widespread municipal defaults of the 1931-33, municipal bond yields increased 48%.
• Housing — Real estate’s falling prices continue to be the elephant in the room in relation to the overall strength of this economic recovery. History tells us that there will not be a long running bull market in stocks until real estate prices have stabilized.
• Global Inflation — The fear of the government’s monetary stimulus programs creating conditions for future inflation should cause higher price volatility for bonds with maturities exceeding 15 years. Investors should continue to limit fixed-income investments to 10 years and under.

WI’s investment strategy continues to be:

• Common Stocks — WHEN to buy and sell is as important as WHAT to buy and sell during these types of market conditions. I believe profitable navigation of these market conditions is possible by using higher levels of investment rotation, a willingness to hold high levels of cash after significant market advances and/or strategically using some hedging during volatile downturns.
• Corporate Bonds — Short to medium term bonds in stable companies are currently yielding 5% – 7% annually. Cautious investors should consider investing a higher portion of their portfolios in the more predictable returns generated by corporate bonds rather than the ongoing volatility of a sideways moving stock market.
• Preferred Stocks — We expect preferred stocks to maintain attractive yields, and can be a good addition for up to a 25% allocation in an income portfolio.