Few economic trends have been more consequential since, and O'Neill deserves plenty of credit for spotting it early on. Investors following his advice would have made handsome profits even as the developed world struggled. Indeed, O'Neill's recommendation is often seen as the call of the decade.
So, what economy is he predicting will shine in the coming year? The U.S.
In a note to clients earlier this week, O'Neill wrote that he recently found himself "dubbing 2011 as the likely 'year of the USA' following a spate of stronger-than-expected economic data.
Even Employment Could Pick Up
O'Neill anticipates strong stock market gains of 20% in the year ahead. And while the jobs picture has continued to struggle even as the market surprised to the upside, that could change as well. "The growth is likely to be strong and robust enough to lead to declining unemployment which, if correct, should mean that the worst of the social consequences of the credit crisis should start to ease," he wrote.
Bonds would get hit as yields rise in anticipation of growth, and the dollar could rally substantially, he predicted.
Of course, the U.S. economy continues to face problems like indebted consumers, low personal savings rates and big current account deficits. But 2011 "will be the beginning of a new phase in which the U.S. has strong GDP growth," O'Neill wrote, led by exports an investments.
From "New Normal" to "Normal"
Bearish holdouts for much of the year, economists at Goldman Sachs recently threw in the towel and are now forecasting strong growth for the U.S. in the years ahead. While government statistics released Wednesday revised third-quarter growth up to an annualized 2.6% from the initial 2.5% estimate, Goldman now predicts a growth rate of 3.4% for 2011 and 3.8% for 2012.
During 2010, however, many in the U.S. worried about the prospects of a double-dip recession, while many emerging market juggernauts found themselves coping with strong growth. China and India raised interests rates to keep inflation in check, even as the Fed embarked on a second round of quantitative easing to try stimulating the economy and to avoid deflation.
But brightening sentiment could change investor preferences and give stocks a boost. "All of this will result in a mood that the U.S. is returning to 'normal,' which will have predictable consequences for financial markets," O'Neill wrote.
O'Neill's predictions may seem farfetched to U.S. investors mired in years of pessimism following the financial crisis. But they should recall that his prescient call on the BRIC economies at a time when most investors were still focused on the aftermath of the dot-com bubble's bursting seemed even less likely. You may not want to ignore him again.