The twin conditioners of macro regimes - growth and liquidity - are hard to predict, now more than ever. Differences in underlying fundamentals mean no two cycles are the same. The world is faced with two massive and contradictory forces: the Great Deleveraging of consumer and financial system balance sheets; and the Great Reflation effort of the monetary and fiscal authorities. Where these tectonic plates collide we expect much higher volatility of inflation, akin to the pre-Bretton Woods era, but with much greater amplitude. Given the wider range of possible inflation outcomes today, growth expectations, liquidity and therefore equity markets tend to be conditioned principally by inflation expectations, perhaps more so now than over the past few decades.

With the above in mind, we believe there are three possible scenarios for the next 12 months.

The first is that GDP growth in the US - the consensus forecast for 2010 is 2.6 per cent - surprises on the upside.

There are three possible catalysts. One, the inventory contribution to growth could be significantly higher than expected, following the biggest inventory deletion in 50 years. While inventories could continue falling for another two quarters, the pace of the decline may well slow, boosting growth. More importantly, once inventories arrest their decline, the rebuild could be faster than predicted.

Two, capital spending could surprise positively. US business investment plunged 24 per cent peak to trough in this recession. Financial markets accordingly believe the output gap has become very wide, and that more capacity will not be forthcoming until companies return to trend production. We think that's wrong, primarily because it underestimates the rate at which capacity can be permanently removed from the system. Moreover, the level of capacity utilisation does not drive capex: the change in the level of utilisation does. And utilisation is rising.

Three, consumer spending could surprise on the upside. US unemployment is forecast to peak at 10.5 per cent or 11 per cent by Q2. It is assumed consumers will continue to curb spending in accordance with this lack of job (and therefore income) growth. But are cupboards that bare? Asset price gains boosted the net financial wealth of US consumers by $2,000bn in the last quarter. If asset prices continue to rise, the wealth effect will turn positive. And the labour market could also turn into a plus: profit growth is strong and labour productivity growth cannot continue at near double-digit rates. Companies will have to start hiring sooner rather than later.

Should most of the above occur in 2010, GDP growth should be stronger than expected - perhaps as high as 4 per cent. This will be supportive of asset prices over the next three to six months, or at least until the US Federal Reserve removes the stimulus. That would trigger a fairly minor correction and a rotation into defensives, similar to 1994 and 2004.

David Fuller's view I also commend the rest of this article to subscribers. The second possible scenario described by Ben Funnell is similar to Jeff Fisher's analysis posted on this site yesterday. Funnell rates it as a 20% possibility. I am inclined to agree with this 1-in-5 risk assessment, at least for the next few years, but find it impossible to be entirely objective given that Funnnell's first and third scenarios are infinitely preferable for most of us. Those who reach a more pessimistic conclusion can site the example of Japan's ongoing deflation.