January 5th, 2009
10:22 AM GMT
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.
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?
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