— by special guest Robert Appel, BA, BBL, LLB
Newer readers have expressed surprise that we are not more “bullish” on the long-term prospects for the economy and the stock market.
First, we prefer the word “aggressive” to “bullish.” While other commentators were arguing about whether November was “the” bottom for the stock market — and waiting for the other shoe to drop — we jumped in and picked multiple stock winners that did very well. More importantly, however:
For a true bull market to develop, a number of factors must be in place…
1. The economy must be sound. This is not currently the case. The economy is damaged and, especially in the U.S., the crude attempt to substitute the services of “middlemen” for actual production likely knocked the U.S. back a decade at least.
2. The country behind the economy must be sound. This is not
currently true either. Whether you love or hate the new “Prez,” his identification of deep structural problems in the educational and medical infrastructure of the U.S. is correct, we think. Also the cities themselves are in trouble. In fact, the entire State of California is in trouble.
3. The average guy must have an expectation of a better tomorrow. We often overlook that the bond market is bigger than the stock market and, for about a century (until this decade), the stock market responded to the average guy, primarily. This is no longer true. The average guy left the market in 2001 and essentially never returned. The average guy had a long-term outlook. The pros who push this market around each and every day have the collective attention span of a bumblebee. The average guy is no longer a big part of the stock market.
4. Uncertainty must be reduced, or at least reducing. Again, this not the case right now. If anything, we are entering the biggest period of uncertainty in recent history. What do you do with rates when they are already at less than one percent? What do you when the stimulus runs out? What manufacturing sector, if any, will thrive in the newly re-imagined U.S.? Will terrorists or natural disasters hit us in the months or years to come? (2010 begins the strongest cycle of sunspot activity in recorded history — there is no precedent for what the effects may be…)
By now you get the picture. It is difficult to be more bullish on the economy and stock market given the points above. If we take into consideration the increasing level of debt in the U.S., the picture is even more sober. The average Joe could have made a lot of money in the stock market since March of this year. But he was too afraid to get back in.