January 5th, 2009
10:22 AM GMT
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Unless you were invested in government bonds or cash, 2008 was a brutal year.
Given the severity of the equity downturn in 2008, a case can be made for a rebound in 2009.
Given the severity of the equity downturn in 2008, a case can be made for a rebound in 2009.

The MSCI world index of 23 developed countries fell a record 42 percent. Emerging markets fared even worse, falling 54 percent in dollar terms.

So what happens in 2009? I think many of the same problems plaguing the global economy in 2008 will persist through 2009, including tight credit conditions.

Banks on their own won't loosen the lending spigot unless forced by governments. Consumers are feeling the pinch, although a sharp fall in petrol prices is giving some relief.

Analysts were too optimistic about earnings in 2008 and may be too optimistic about what happens this year, especially if credit remains tight.

In the U.S., profits at Standard & Poor 500 companies are expected to fall 11 percent in the first quarter, 6.2 percent in the second quarter and then rise in the second half of the year, helped by a rebounding financial sector, according to data compiled by Bloomberg.

For the full year, profits should rise by 4.5 percent.

The worst performing group will be the energy industry where earnings are expected to fall 29 percent. Retailers will also be hard hit, earnings are expected to be down 20 percent.

In Europe, profits are expected to decline for the full year, but by less than one percent, compared to a fall of 17 percent this past year. Asian companies heavily dependent on exports will also be hard hit.

As one analyst put it: "No-one will be immune from this downturn. It's time to see who's losing least, not who's winning most."

Given the severity of the equity downturn in 2008, a case can be made for a rebound in 2009. Markets have already rallied sharply. The MSCI world index of 23 developed countries is up 23 percent from its November low.

Investors are betting low interest rates, and government stimulus will revive economies. Other factors include valuations.

I concede those with a long-term view are likely to make money but will have to stomach the volatility that's still likely to persist.

As you know I've been bearish for some time. For now I continue to remain out of the market, not so much out of conviction, like last year, but more out of where my comfort zone lies.

Tell me what you think. Do you think this is a good time to get back into the market? Do you think markets will be higher or lower by year end?



soundoff (24 Responses)
  1. Fulvio

    Instead of higher or lower I believe more real avoiding the running up and down of the last years.

    January 5, 2009 at 12:44 pm |
  2. Richard H. Nlebesi

    There will be some recovery in the second half of the year. There is no room for a further decline in stock prices. A combination of the stimulus (bailouts) and low global interest rates, supported by a reasonable and manageable rise in oil prices would likely stimulate the stock markets. An overall average appreciation of 9.7 percent is possible by year end.

    My person views
    Richard H. Nlebesi; Gaborone, Botswana

    January 5, 2009 at 2:36 pm |
  3. earle,florida

    I agree that the US markets should show some resilience by late Q3/09, and probably last until Q3/2010! The effects of the stimulus program,and other social programs will stall ,created by no-oversite/corruption,which in my opinion, will be the ceasing up of the financial institutions again. All the low-lying fruit has been pick-clean long ago, with just crumbs left for those who dare venture into this, "Bear Trap"? The largest source of revenue in this country comes from the "Tourism Industry",which is virtually non-existence today! People will save more in desparation (roof over head/food on table,etc.) and consumption will eventually come to a stand-still once the "Hoop-La" wears-off. Yes, the train has left the station,but in the wrong direction? It's being towed to the "Scrape-Metal Smelting Yard"! This is how I perceive the recovery in the US,which I believe we're in the," early innings of a baseball game" with years of austerity to follow,...

    January 5, 2009 at 4:34 pm |
  4. Nam(South Korea)

    2009 is a good time.

    I think 2008 financial crisis almost over.

    New dawn of 2009 has already begun.

    I'm optimistic.

    The market will be higher by year end.

    January 5, 2009 at 6:03 pm |
  5. David

    I would fair with the side that it is better to be safe than sorry. Keeping a " safe haven " of money in investments that are less likely to be destroyed by the next wave of this mess will prove to be the correct move (and there is still more of this mess to be revealed). Analyst are fine since they provide many differnt opinions but none have been through this in the past. In the past few weeks I have read analyst that predict a recovery in 09 to ones that believe the "New Depression" is soon to be.

    The reality of this situation is that you have to be smart about what you do and only risk an amount that you can afford to loose. And, provide for you family.

    January 6, 2009 at 12:58 am |
  6. gatkin09

    Todd,

    I think if you believe in the long term growth of the global economy then now (and even last year) were good times to pick up some battered blue chips stocks. It is not a question of where the market will end in 2009, it is where it will be in 2010-2011. If you feel there will be a recovery then you might as well start getting back into the market, remember you only make a loss (or profit) when you sell, so if you can handle looking at an unhealthy stock portfolio for a while then now is a great opportunity.

    You might have bearish for a while but you went bearish too soon and missed some profits and you will become bullish again once the market has already rallied...so it sort of all evens out in the end.

    Cheers,

    Greg Atkinson
    Shareswatch.com.au Blog

    January 6, 2009 at 3:13 am |
  7. Andrew

    I wonder how policies of the Federal Reserve will effect the performance of the Stock market. The amount of liquidity being created in the market will need to go somewhere once it filters down and hits the pockets of the consumer. However, the inflationary effect of this liquidity will cause problems. (www.jwsgoldsilver.com)

    January 6, 2009 at 4:31 am |
  8. Ratfink RSA

    There's never been a better time to get back into the markets if you have a five year plus time frame. Downside is limited and few investors ever time a market entry perfectly. Where else can you put your money now anyway, with interest rates where they are, other than property? (Looking at that too!). Returns in 2009 may be pedestrian, but the longer you plan to be in the markets, the more attractive they are looking right now. BTW I spent 2008 100% in cash, but am now 40% invested in equities.

    January 6, 2009 at 4:35 am |
  9. Michael C. McHugh

    From my historical point of view, the best time to invest in anything was in 1932-33, at the bottom of the Great Depression. Joe Kennedy, father of JFK, actually made a pile short selling, then put his profits into real estate and other investments. Back then, you just had to have the money to invest (How many people did in 1932?) and the patience to hang on for many years before the Depression ended–basically with the start of the Second World War.

    Of course, even Old Man Kennedy was very pessimistic about the condition of the world at that time, no matter how much money he made. He worried that his children might not have any future, for example.

    My guess is that our era is going to be more like the 1930s or the 1890s than any other era I can think of. We would already be in a huge depression if governments had not stepped in very aggressively to prop up the system. I think all markets will be down for quite a while, certainly longer than a year, and then there are also all these unexpected, unpleasant things that can happen in the world during times like these: more terrorism, more Hitlert types coming to power, more failed states. This is one of the factors that prolonged the 1930s Depression, fear about the future of the world, lack of confidence that there would even be much of a future, at least in the democratic countries.

    January 6, 2009 at 8:49 am |
  10. James Simpson

    What is more worrying is this: Where is the new model for economies? The financial institutions sit on their hands without any suggestion of the way forward. Where is the creativity and verve that will bring new ideas to a table still surrounded, for the most part, by the people who got the world into this mess? This has been going on for nearly a year now and not a single idea has been put forward regarding a 'big plan' for our future.

    January 6, 2009 at 11:03 am |
  11. Edgar Mitchell

    The time to get back in the market was in November, but there still may be a little gas left in the tank, before the "Tank"....

    I went to 50% cash in January 2007 in all my RRSP and Trading accounts. I hung on to only a few spec plays in PMs ( SVM, FAN, etc.) Uranium (HAT) and Biotech (BNC) and really got killed on those.

    However, during the carnage during the past 2 months, I have 5X – 10X my positions in all of them, and am now doing exceptionally well.

    In my Company Retirement and Savings account, I went to 100% cash in Jan 2008, and then went back into 100% Fidelity International Fund in November, missing the low by one Day. In those accounts I was actually up in 2008 by 12%+. (total Company sponsored funds $120K)

    So overall, I have escaped unscathed and am now up substantually Year over Year.

    However, my time in the market is likely to be short lived. I intend to take advantage of this bounce, and by end Q1 I will again likely be in 100% cash. I feel that there is a great possibility of a a DOW <5000 by year end.

    As I see it, there are two possibilities; 1) There is so much pessimism that the lows have been put in, and this is the Depression that never was. Once Main Street starts talking like the sky is falling, it is likely sunny skies, and Commodities and the World Markets will climb from their lows, though not in a straight line. or 2) The worst is yet to come, with many more shoes to drop, including many more Banks, Commercial Real Estate, Local Governments, and many Hedge Funds. This is a trading rally that could see a 50% increase from the lows (already halfway there) and that once this Obama rally ends in the next couple months, it will be steadily down from there, culminating in a significant low in the Fall of 2009, which could see the Dow below 5000 and the Dow/Gold ratio will be less than 2/1 (take your pick on the numbers; 5000/2500, 3000/3000, etc.) If that doesn't happen this year, and the PPT may be able to delay it, but surely within the next 3 years, that will happen.

    I have tight trailing stops, and will get out as I determine which of those scenarios is likely to unfold.

    By the way, the best 3 buys in the Canadian market right now, are V.HAT, T.BNC, and V.NAV (lots of political risk with the last one) I don't deal in the US Markets at all other than in the Fidelity International Fund.

    January 6, 2009 at 3:15 pm |
  12. Christian

    The World has come to a hault Glabally. It will equally recover globally. After the storm from up above has passed, it is us, all normal citizens, who fear the daily effects of a global recession. But it is also us, the normal citiezens of the entire World, who will get bored of pessimism and generate a steady recovery which we have never seen before. Remember falks, this is the first GLOBAL recession. Something new. But let's not underestimate the capacity of billions of people to make the machine keep on running.

    Only my humble opinion, but after having travelled and worked in over 60 countries.

    January 6, 2009 at 6:00 pm |
  13. Hag

    The price of food went up when the price of gas/diesel shot up 2$/gal in a month. Now the gas/diesel is down to "normal" prices (for now), why didnt the price of food come down with it?? Is this what they mean by price gouging?
    Make no mistake, when gas shoots back up, for whatever reason, food will go up again too!

    January 6, 2009 at 6:15 pm |
  14. margiesmith

    I hope that things are on the rebound, but I don't see it any time soon.
    I work for Goody's Family Clothing (or did) we will start liquidation Friday. Another corp of 55+ years gone. Partly the recession partly upper management.

    January 7, 2009 at 12:00 am |
  15. Abhishek Kumar

    2009 will see a change in the domination of global economy by the G7 to a larger group of Nations. 2009 will also see the beginning of the end of the global economic powerhouse, Japan, as Japan becomes less competitive in this global village due to thier ignorance in adopting English which is making them not synch with the whats going on. By 2015 Japan will be a laggard.

    January 7, 2009 at 5:20 am |
  16. Tom

    The disturbing thing about this whole situation is that it appears that the only way out of this mess is to reset our financial system. The global power mongers are salivating at the chance to replace the US dollar with the "Amero" and if the only thing left to do is hyper-inflate the dollar- guess what comes next.

    January 7, 2009 at 5:41 pm |
  17. L K CHEO

    2008 financial storm is over as most think so. I believe the bottom is not here yet. Maybe few months or next 1 to 2 years' time. Property prices will bottom around 3 years' time. It will take at least 10 years or more for the property market to recover. Whoever think that the stock market will recover its 2007 high will be sadly mistaken. The stock can only recover at most 20%. Whoever buys has to keep long time. Is this the way to grow rich. NO is the answer.
    2009 there is plenty of liquid, who can get it? Unless it is spent on infrastructure, public works etc where the moneys filter down to the people, then the economy will be saved or stimulated. Can that be done. Once Obama comes Jan 20, the market will start to go down.
    There will be nothing more to expect. Market is about expectations.
    Can commodities etc push up inflation? Everybody is poor so I believe 2009 is just average. It is just a technical recovery.
    all the best. I am keeping cash to buy cheap cheap stock, if there ia any. If no, then I keep cash.

    January 7, 2009 at 5:49 pm |
  18. Ron

    2009,2010,2011,2012 and then some, our economies and our standard of living will spiral downward into the dirt!!! THE UNITED STATES OF AMERICAS ONLY CHANCE OF SURVIVAL IS A COMPLETE WITHDRAWL FROM THE WORLD TRADE ORGANIZATION. but as usual so a few billionares and their freinds in washington can make more billions, we middleclass working(or used to be) american manufacturers, and all the people employed directly and indirectly by manufacturers will dry up as will whats left of our economy. THE U.S.A. MUST EXIT THE W.T.O.

    January 7, 2009 at 6:23 pm |
  19. A.M. Deist

    The greatest threat to our stock market is a significant number of baby boomers getting ready to retire who might feel their security is threatened by keeping their money at risk. If they start withdrawing their investments, the markets may drop another 50 percent or more. Capitalism is driving our middle class into a lower class, and the only winners in our society are the aristocrats.

    January 9, 2009 at 1:54 am |
  20. LOUISW

    Dear Pressident

    I wateched your comming to being the first black American president of the UNITED STATES OF AMERICA , right from the day you started your campaing as a democrat candidate for the presidency of the UNITED STATES OF AMERICA, you have today become the president .
    but only after PRESIDENT BUSH ensured the safety of AMERICA , after 9/11 . I am an INDIAN and a witness to the constant terror attacks that we have suffered where when a bomb blasted on a busy mumbai train where poor people traveled to make their ends meet or the 5 star hotels where the best brains met to make this country a emergiging force in the ecomonic world . ,and for no fault of theirs they see their loved ones blown to shreds . and constantly live under the fear of being bombed.THIS IS A NIGHT MARE Today i dont know that my daughter will return safe from school .if such a threat is on your childeren . what will be your answer to the the terrorist I want to touch your heart and see what will be your actions..I see all this hype but and the news channels playing to the viewers, but my last words is LETS HAVE PEACE WITH SECURITY. HOW DOES THIS FEEL WHEN YOU ARE TRAVELLING IN A TRAIN AND YOU SEE YOUR FRIENDS HEAD DISSAPPEAR AND HIS BODY IN YTOUR HAND IN YOUR HANDAS.THE TERROR OF THIS DAY IS NOT THE TERROR OF THOSE DAYS .

    January 20, 2009 at 6:57 pm |
  21. Gilles Daoust

    It is more a question than a comment. Every country in the world at the moment is injecting huge amounts of money to support their own economy. Where does that money come from? They cannot borrow from other countries because they are all broke anyway. Do they take it from their own reserves, do they print money...?

    Thanks

    January 29, 2009 at 3:25 pm |
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