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Up, up, up: Beware, because no one sees a bear in 2007

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  • Up, up, up: Beware, because no one sees a bear in 2007

    Up, up, up: Beware, because no one sees a bear in 2007
    January 3, 2006 (Adam Shell - USA TODAY)

    Contrarians rejoice. Groupthink is back on Wall Street.

    Ten out of 10 stock market gurus interviewed by USA TODAY say stocks will post gains for a fifth-consecutive year in 2007.

    The expected gains range from 15% to 1%, and average out to 8.1%.

    There wasn't a single bear. No real pessimists. No one calling for a loss.

    Not a single prognosticator warning of an impending slump.

    If bulls are right, investors who follow the herd will be rewarded.

    But from a contrarian standpoint, that glass-is-half-full optimism could spell trouble.

    AntiSpin: Shell goes on to quote the Grateful Dead song, Uncle John's Band, "When life looks like Easy Street, there is danger at your door." The reason for sensing danger is that an apparently risk-free market encourages continued complacency and high risk investing behavior.

    Despite the cheery outward opinions, the action in the markets yesterday shows the mood on Wall Street. The DOW was up over 108 points in early trading on evidence of a slowing economy and falling oil prices. These indicators told the street that the Fed is likely to cut rates soon to counter the slowdown. But the market fell fast after Fed minutes issued later in the day revealed the Fed is worried that the collapsing housing market may do more than simply slow the economy, the economy may go into recession. The prospect of recession sent the market down 140 points to -32 before recovering to a small 11 point gain.

    Ever wonder why the street likes a slowdown but is less enthusiastic about recession? Isn't the difference simply a matter of degree?

    An economic slowdown implies declining revenues and profits that can recover quickly whereas recession is a self-reinforcing negative economic event that produces bankruptcies and defaults. The street, not knowing when or where a recession might end, tends to bet on the worst case scenario once the consensus builds that a recession is in the offing. Seesaw trading days such as we saw yesterday are likely to be the norm until we see a major market correction sometime this year.
    Last edited by EJ; January 04, 2007, 09:46 AM.

  • #2
    Re: Up, up, up: Beware, because no one sees a bear in 2007

    Being a lover of stocks, I feel obligated to comment on this.

    I feel the markets are pretty much fully priced at this point. Neither under nor overvalued. Maybe slightly overvalued, if anything.

    The above article is a bit of an argument that might mean we may have a repeat of 1999.

    My own personal feeling for this calendar year, 2007, is that the markets in general will fluctuate but end up pretty much near flat, or possibly mixed for the year.

    That is a best guess, however.

    An "exogenous" event that keeps getting talked about here may send the markets reeling downward, and continued inflation and credit expansion might lead to a rhyme of 1999.

    The reason I say this is that, there is so much cash out there, it has to go somewhere. "Sitting on cash" is a dirty sentence right now. Already this year the M&A's are starting.

    The downside risk, however, is not a repeat of 1999... but rather, a repeat of 1929.