Markets Start 2009 with a Rally, and Everyone on CNBC Says to BUY

The only problem is that hope is a lousy strategy for investing, and we are in the middle of a deep and profound recession.

Virtually everybody on CNBC today said to start the New Year by buying stocks.  It was euphoria, just like 2007 never happened.

Market psychology is an extraordinary thing, and it has driven the market to its highest level since Obama's election today.  There are a lot of good reasons to feel good about 2009, and most of them relate to Obama.  While stocks are cheap by some metrics (not by all) and the market has begun to shake off some bad economic news, there is no real reason to get excited about this economy yet.  And, history has taught us that no matter who the leader is and how much stimulus goes into the market, the banking system doesn't implode just before the stock market bounces back.  Virtually any economist will tell you to be cautious here. 

There are two reasons why everyone is trying to convince you that it is save to get back in the water.  First, it is inherently easier to be optimistic than pessimistic.  But, the second reason is that these folks get paid to invest your money and that of your 401(k) or pension funds.  If they go on TV and tell you to stay away, you probably aren't going to be dishing out too much money to them, and there is always more money to be put to work with new managers at the beginning of January than at any other time.

For many years in the 1970's money managers in the US were routinely enthusiastic about the market at the beginning of the year.  And, each you since 1990, Japanese fund managers have gone on TV and said that "this will be the year that the economy recovers".

There will always be massive rallies in bear markets, and during those periods it feels pretty silly to be sitting in cash.  But, if you need your money in the near term or are prepared to wait until there are better opportunities, you're best bet is probably to sit off to the sidelines.  There will be times to invest in the market again, but unless you are quick and agile, every rally over the next few months is likely to be a suckers rally. 

 

 

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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