2008-12-16 09:38:15
Are You Bullish or Bearish for 2009?
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After a historically disastrous 2008, I am finding that many people that I talk to are pretty divided on what 2009 has in store for the markets. The short-term direction of both the stock market and housing market have been pretty popular topics at Christmas parties across the country (and globe, for that matter).
Stock market pundits, analysts and casual investors seem to be pretty divided as to how the markets will perform in 2009. There are certainly more bears than bulls, but I am surprised at just how many bulls there are. Wishful thinking? Or will they end up being right?
Bears can make very strong arguments that are pretty hard to argue against.
They'll point out that the employment situation is increasingly dire in the United States. Companies are laying people off in droves, and every day there is another major company that is announcing that they are axing thousands of jobs.
Without a stabilized job market, bears argue, you will never have increased consumer confidence. Homes won't be bought, new card won't be purchased and consumers will continue to cut back on their spending.
They point out that many major economies (Russia, etc) are in major danger of completely falling off of a cliff, if they aren't there already. Many countries will need further assistance from the IMF to avoid defaulting on their debt.
They point out that the situation with the "Big Three" still isn't resolved, and even if it is resolved, the automakers will very likely need more money in the near future anyways. If any of these three companies ends up going bankrupt, they argue, the resulting wave of layoffs will be disastrous for an already fragile US economy.
They point out that the spiraling costs of battling the economic crisis will certainly come back to bite the United States down the road.
They point out that the consumer isn't spending (even they are presented with outrageous deals), and retails are being forced to slash the price of their goods and services in order to lure customers into their stores. This is resulting in significantly reduced margins for retailers, and will very likely result in the bankruptcy of a number of well-known retailers.
They point out that the real estate market is showing no real signs of turning around, and home values are still dropping.
They point out that there are significantly less sources of credit available, meaning that citizens are finding it harder to purchase homes, buy cars or start businesses.
They point out that the Madoff scandal will increase the outflow of capital from hedge funds, leading to further weakness as funds unload equity positions to meet redemption demands.
They point out that there will be more MAJOR hedge funds to fail in 2009 (hard to argue that).
Major economies such as China, the UK and Russia are all suffering tremendously.
The bear case goes on and on.
Historically speaking, there is really no precedent for the markets bouncing back from taking such a drubbing.
That being said, the bulls argue, there is really no precedent for the world collectively doing so much to stabilize and re-invigorate the global economy.
They argue that this ISN'T the Great Depression II, and that all of these intervention efforts will eventually pay off.
They argue that President Obama will inject about a trillion dollars worth of stimulus into the economy, and that this will have a tremendously positive impact.
They argue that Obama will not let the "Big Three" automakers fail, and will do everything within his power to make sure that they don't.
They argue that the employment situation will begin to stabilize once Obama unleashes his vast public works program.
They argue that the MOUNTAINS of cash on the sidelines will eventually find its way back into the markets (stock market and real estate market).
They argue that lower commodities prices will put more money into the pockets of American citizens.
They argue that while Americans are certainly looking for deals, they are still spending, as evidenced by the 2008 "Black Friday" spending numbers.
They argue that the precipitous decline in US asset values has made investing in the United States much more appetizing to foreign capital.
Really, this is just a taste of some of the bull and bear arguments. I could go on for three or four pages listing some of the arguments that I have heard over the past few weeks, just talking to regular people.
What's your take? More of the same in 2009, or will the markets finally start to see some sunlight?
Filed under: The Economic Meltdown
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