Bull/Bear Debate - Where's the Market Going?

I was talking with Jason Rogers from the site and we were debating which way the market will go. I believe for a variety of reasons it's going lower, despite the rally of the past week. Why do I believe that?

This is no ordinary recession. The financial sector has been eviscerated, the automakers are bankrupt, the newspapers are following, and many of the retailers will follow them after the Holidays. The worst is yet to come and market hasn't priced it all in yet.
The recession is starting to look like Japan's Lost Decade. In Japan, it took the Nikkei 13 years (from 1990 to 2003) to bottom out and by that time it had lost 80% of its value.
Even if the bloodletting stops, there is no catalyst to make the market go higher. How could the Dow even possibly go back to 12,000, a time when homeprices were rising, banks were solvent, people were flush with debt cash, and all was good? It's unrealistic to think we can just blink our eyes and the events of the past year will just disappear.
Stocks are out of favor. A whole group of investors have been soured on the market permanently. I know several retirees who told me they sold at a loss and will not be putting their money back into stocks - no matter what. Now think about all of the baby boomers nearing retirement and think about them all pulling their money out of stock mutual funds. Do you think they are going to start investing again in the market? Are you a baby boomer? Will you keep your money in stocks and mutual funds now?

So, what do you think?

Comments

ktexas

December 09, 2008

There seems to be lot of assumptions that the stock market will have high returns over the long term. Not only has this bet been made by most people with 401(K)'s, it has been made by pension funds, insurance companies and university endowment funds. Seems like a long-term bear market is going to be very difficult on the economy.

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AronLiv

December 09, 2008

We'll see a V shaped recovery in Apple. It is a once in a lifetime company. The rest of tech should be fine over the long term as the US economy is now a tech-driven one. Other industries may struggle for a while.

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JRodgers

December 09, 2008

Sam, Our views are not entirely dissimilar. I agree that this is not an ordinary recession, but think we may get a Christmas rally in here which will put us up around 10,000 on the Dow. I also bet is that we go back to 8,000 within the next few months. Add a political testing (like a terrorist event) that Joe Biden is hoping for and we will see much lower new lows in 2009. But, you and I may differ on our long-term view of the market. I don't see us becoming the next Japan. I see firming in 2010 and 2011, and believe that we will be back to October 2007 levels by mid 2011. Tend to agree to some extent with AronLiv, and agree as well with ktexas that people should not rely on the long term proposition of the market (and I would further that they absolutely should not rely on the long-term proposition of their own company stock).

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Sam Cass

December 09, 2008

"We'll see a V shaped recovery in Apple." That's ridiculous. If the market goes down, Apple is going with it. After all, Apple has gotten killed in one of its most successful quarters in its history. I already see the market crowded with other iPhone clones. The average consumer won't know the difference. That's why Apple is exploring dropping the price to $99 and cutting its margins.

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Victoria

December 15, 2008

What concerns me is that economists put 2009 S&P earnings at $60, whereas the firms that track Wall Street analysts still have projected 2009 S&P earnings at $74-76. These firms then go on CNBC and say that the market has value at 12x coming year earnings. It does have value there, but they are looking at the wrong earnings. Therefore we are going to go back to retest the 740 level on the S&P. I doubt we will go much below 720, but 880 is still too high.

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