Will 2009 Be A Good Year For Stocks?
Prof. Jeremy Siegel, author of the excellent book The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New
All of this means that, although the first quarter of 2009 will see negative growth, GDP should stabilize in the second quarter, earlier than most economists now anticipate. In real terms, housing prices have already retraced most of their gains from 2000, and by midyear prices should stabilize in this low-interest-rate environment. Year-over-year inflation should sink to zero, especially in the first half of 2009.
This year, as the economic slide abates and investors realize a catastrophe has been avoided, stock prices should enjoy a 20 percent or higher return. All equity sectors should recover.
The financial stocks will still be burdened by bad loans and government obligations. Nevertheless, new lending will prove extremely profitable to the banks whose cost of funds is now essentially zero. The Fed might find that it will be forced to raise rates during the summer, earlier than planned. And I believe long-term Treasuries are in a giant bubble and their prices will fall to earth once the economy improves.
All of this doesn’t mean there are no risks to stocks. The Fed must do more to encourage banks to lend to credit-worthy, non-delinquent customers. And the Obama administration must carefully structure its recovery plan so as not to bail out those that have been profligate and penalize those who have been thrifty.
Still, just as 2008 disappointed us on the downside, 2009 might surprise with better numbers than most are expecting.
Of course, just like everyone else, he didn’t exactly predict the worst bear market since the Great Depression! In fact, he thought the market would be led higher by financial stocks.
One of the few people who got it write was Nassim Nicholas Taleb or NNT for short. NNT was an options trader who achieved public fame after his awesome 2001 book Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
Also check out this great NYT article on how misunderstanding of risk management tools caused the financial mess.
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January 7th, 2009 at 9:30 am
It’s nice to hear some good news for once. I did see this panel of economists that were addressing the congress and they said that the recession should end roughly around the third quarter of 2009. They said that is only if we do a bail out. Well, we are, so they may be on track.
I will believe it if I see it. There is so much nonsense thrown around the media that it is hard to trust anything.
January 8th, 2009 at 4:56 pm
It’s a good bet that the recession will end someday. By historical accounts, the stock market will head north about six months before then. So, it’s likely the stock market indices on December 31, 2009 will be higher than those on January 1, 2009 unless recession is still going strong mid 2010 or the end were to be so late and recovery so anemic that the indices haven’t climbed out of the hole. At this time, I won’t completely discount either scenario. I acknowledge that the conventional wisdom right now is that the recession will end by the third quarter of 09.
The Newshour interview was very interesting, but whereas turbulence can cause chaos easier in an unregulated complex system like the atmosphere, it may not have the same log-term effect in economic systems, however complex, because of the massive power of governments to regulate.
January 9th, 2009 at 11:02 am
Nice post. Thanks for the introduction to Nassim Nicholas Taleb. I’m fascinated by the the effect and perception of normal variation on real life, so I’ll definitely read more of his writings.
January 9th, 2009 at 11:33 am
I also think stock will do well this year. But to me stocks have always do well because I focus on trading penny stock and usually make a gain of about 20-60% weekly. I invested in DORB this week at .09 and it’s already hit a high this week at .18.