Stock rebound despite the US economy.

[GREENBACK]

I was listening to a radio show last weekend (mutual fund show w/ Adam Bold). He has been suggesting for some time on his show that despite our weak economy which will likely be weak for some time, the stock market will probably recover quite well this year or early 2010. I listen to his show a fair amount of the time and he seems to know what he's talking about but I might be wrong.

I know the economy and the market pretty well follow one another and have to wonder why he would say this with a fair amount of certainty. At least a few Other financial advisors and fund managers seem to believe this. I know nobody can predict this stuff, especially right now, but what do these guys know that gives them this point of view? Thru Dec. 08 and most of January I was becoming confident but I'm not all that certain we'll see a big recovery soon. Does it have to do with what occurs around the world? That's all I can figure.

[sweeps]

There is talk now about a "fear bubble". People have gone way to the deep end as far as pessimism is concerned. It's getting to the point now when anyone says the market is going to bounce back, he gets a "yeah, right, whatever". (So I'm not even going to try. )

But one thing that I've been thinking about is volatility. We enjoyed relatively low volatility for most of the last century. Starting in the late 90s, market volatility (not just stocks, but housing, bonds, precious metals) became crazy high. I wonder if this is because (a) "common folk" are now heavily invested in the markets, (b) we all have the ability to see events happen in realtime and (c) we can communicate with thousands of people instantaneously over the Internet perpetuating either irrational exuberance or irrational fear. I have a feeling the days of steady upward movement are gone.

I am a stock bull and think stocks will continue moving upward, but I don't see it as a smooth ride anymore.

[GREENBACK]

Sweeps
I appreciate that perspective and believe it makes sense.

[maat55]

I'm guessing it wasn't Glenn Beck.

[GREENBACK]

I watched a you tube video with Glenn Beck a little while ago That was sent to me in a email and he definitely doesn't seem to have this belief. Funny you mentioned that Maat.

[GREENBACK]

Here's the video. Interesting thought.

YouTube - FOXNews 2009 -- US Crash

[buzz]

I'm 50. I think there is a very good chance I will not see economic prosperity for the rest of my life.

[jIM_Ohio]

There is talk now about a "fear bubble". People have gone way to the deep end as far as pessimism is concerned. It's getting to the point now when anyone says the market is going to bounce back, he gets a "yeah, right, whatever". (So I'm not even going to try. )

But one thing that I've been thinking about is volatility. We enjoyed relatively low volatility for most of the last century. Starting in the late 90s, market volatility (not just stocks, but housing, bonds, precious metals) became crazy high. I wonder if this is because (a) "common folk" are now heavily invested in the markets, (b) we all have the ability to see events happen in realtime and (c) we can communicate with thousands of people instantaneously over the Internet perpetuating either irrational exuberance or irrational fear. I have a feeling the days of steady upward movement are gone.

I am a stock bull and think stocks will continue moving upward, but I don't see it as a smooth ride anymore.

Sweeps- you left out 1 more factor-
people now notice volatility more than in the past.

People really don't understand "market risk", IMO.

To get a 10% annual return you have to accept +24% and -4% an equal number of times (std deviation of an 80-20 portfolio is 14 I believe). That is volatility of ANNUAL returns. Day to day, week to week and month to month will always be more volatile (the longer the time period the less volatile things get).

I don't think the market "ever" went straight up or straight down even before the internet- to suggest the internet is the cause of the volatility... is short sighted.

If I had to add my interpretation of the volatility it is leverage, automated buy/sells and complex financial instruments (like options and derivatives) which usually trigger buy/sells at given points.

[sweeps]

Jim, I do agree with you that volatility is good... Higher volatility results in higher returns in the long run, due to an increased risk premium.

[Scanner]

Sweeps,

I think the private investor is a blip compared to the huge institutions that move in and out of the market. If anything, it's the private investor like you and I that stabilze and often "rescue" the market when others, especially traders that are taking profits.

[GREENBACK]

I'm 50. I think there is a very good chance I will not see economic prosperity for the rest of my life.

It's easy to be discouraged right now but most recoveries happen at a break neck pace if history is right. We can go back to where we were in a short time. As stated in my OP there are some who think we'll rebound in a year or so. They may be off on that but regardless markets have always bounced back strongly and resoundingly when they do finally come around. This is when everyone we'll be glad they stayed the course. I think it will certainly be well within your lifetime and I hope within your early 50's.

[buzz]

It's easy to be discouraged right now but most recoveries happen at a break neck pace if history is right. We can go back to where we were in a short time. As stated in my OP there are some who think we'll rebound in a year or so. They may be off on that but regardless markets have always bounced back strongly and resoundingly when they do finally come around. This is when everyone we'll be glad they stayed the course. I think it will certainly be well within your lifetime and I hope within your early 50's.

I am certainly hoping for a turnaround, but there are so many long-term factors working against us.

- Skyrocketing national debt (and foreign investors becoming leery of US investment)

- High personal debt

- High inflation in the near future

- High taxes in the near future

- Toxic bank assets still rising

- The economic trend is not only still heading downward, but accelerating downward.

- Our domestic manufacturing base has been decimated over the last 15 years

- Poor quality leadership in virtually every sector

- A divided society with an angry, militant faction that hates freedom and capitalism, and a majority I can only describe as silly and foolish

- Control of crude oil supplies is increasingly threatened by lunatics

I could go on and on, but I have a strong hunch that the era of political and economic freedom in the West is screeching to a rapid halt. The inmates are in charge of the asylum and our enemies are watching. We may be at an historical turning point.

[GREENBACK]

Can't argue your points there. Maybe in two years we'll have a different congress and gridlock in Washington. That should smooth things out.