Saturday, December 11, 2010
Short post due to a jam packed weekend.
As we are starting to see 2011 predictions come out they seem to be awfully bullish. After going up 25% in 2009 and what might be 11% in 2010 against a lousy fundamental background where just about every positive number coming through can be attributed at least in part to some sort of desperate action by the Fed or the government I'm not sure where the bullishness comes from.
Given the totality of the situation I can't construct a bullish fundamental case for the US. Don't confuse that with the fact that the market can go up a lot at any time for no reason at all. There was a reason in 2009 as previous to that there had been a truly violent decline and truly violent declines usually retrace some portion of what was lost and do so quickly--I've made this point before, the market action through all of this has not been something new. The market got scared, dropped a lot and retraced a large portion. This is very normal market behavior.
If you want to tell us that the things causing the market action are not normal, then you are making a different point. It might be a true point (I believe it is) but it is a different point.
In terms of trying to figure out what the market might do in 2011, I obviously don't know but it is a good bet that it will not be down a lot. This opinion should not be taken a a bullish argument for domestic equities as down a little is plausible but the opinion that down a lot is unlikely is more about how markets tend to work than anything else.
At 1240 the S&P 500 is at a level that was first reached in January 1999. We are talking about a 12 year, extremely bumpy ride to nowhere. Markets correct not only in price but also time. There is an argument to be made that much of the crisis started being priced in a long time ago--the market is a forward looking indicator at times. Additionally after dropping 50% recently (this after marginally making a new high from 2000) the market is still down 23% from that high.
Again this is not a bullish argument just a consistent belief that while the details have been different the market reactions have not been.
The picture is the square and courthouse in downtown Prescott last night at Acker Music Night a long time tradition on the second Friday in December.