Here We Are Again

Well, here we are again: on one side, a rapidly growing contingent of optimists; on the other, a shrinking cadre of pessimists. According to USA Today's Adam Shell, writing in "As Bull Market Turns 1, Is it Time to Party, or Worry?" below are just a few of the reasons why now is the time to buy stocks.

•Major roadblocks still absent. Two of the biggest rally killers — interest rate hikes by the Federal Reserve and a big spike in inflation — "simply are not present yet," says James Paulsen, chief investment strategist at Wells Capital Management.

Many investors are worried that the Fed's so-called exit strategy, in which the U.S. central bank drains cheap money from the financial system and boosts borrowing costs in an effort to stave off inflation, will put what Bernanke dubs the nascent economic recovery in jeopardy. But Paulsen argues that even if the Fed starts to raise short-term interest rates, currently near 0%, it won't spell the end of the stock rally. The rally is not at risk, he argues, until sometime after the Fed begins to raise rates.

•Investor fear still present. Typically, stock rallies run into trouble when investors get too optimistic, too complacent and too convinced that profiting in the stock market is a sure thing. But despite the big gains in the first year of the bull, sentiment is anything but ebullient.

And from a contrarian standpoint, that is bullish.

Not only are stocks climbing the "Wall of Worry," they are also dealing with more daunting "Cliffs of Concern," says Citi's Levkovich.

"There is all this stuff to worry about," Levkovich says. "Debt problems in Greece. China tightening its monetary policy (or its property bubble bursting). Commercial real estate woes. What about the banking sector? What about jobs? What about underfunded pension plans? It goes on and on.

"I am not saying these problems are not out there, or that they are irrelevant," Levkovich says. "We do have reason to worry."

But investors must recognize, Levkovich adds, that all these risks get priced into the market. More important, investors must realize that if any better- than-expected news surfaces, the markets have room to go higher.

•Earnings power is underappreciated. Optimists such as Federated's Auth are betting that the economic recovery will be stronger and last longer than the current consensus opinion on Wall Street. Most economists are calling for a subpar recovery due to banks cutting back on credit and the ongoing process of individuals paying down debt after years of spending beyond their means.

If Auth is right, and manufacturing is in the early stages of recovery, and job growth is about to turn positive and U.S. companies with major foreign operations continue to reap big profits in faster- growing emerging markets, corporate profitability should be better than analysts are now predicting.

Profits will also benefit from the fact that most companies prepared for a depression that never happened by cutting costs and headcounts. So when sales pick up, the profits will pile up more quickly on the bottom line.

"We have earnings rebounding substantially in the next couple of years," Auth says.

How big a rebound? Analysts' consensus estimate for 2010 earnings for S&P 500 companies is roughly $76 per share,and Auth is estimating closer to $85 to $90, which puts the current market price-to-earnings ratio at around 12.7, which is below the long-term average of 15.

•Cash on sidelines still piling up. "We still have a ton of sidelined cash, or dry powder, sitting on the sidelines," says Paulsen. By his estimates households have upwards of $7 trillion sitting in cash or cash equivalents. Because most of Americans have bought into the "new normal" thesis of less spending, less risk-taking and lower returns, Paulsen says there could be a lot of "potential converts" who might have to switch to a more aggressive strategy and buy stocks if the recovery is better than economists think.

Ever since the financial crisis began, money flows into domestic stock funds have been woefully small, as investors have flocked to the perceived safety of bond funds.

That trend continued in the week ended Feb. 24, the most recent data available, as domestic stock funds had inflows of just $151 million, vs. nearly $8 billion going into bond funds, according to the Investment Company Institute.

Some would disagree with the bullish case, of course, including yours truly:

But bears such as Michael Panzner, who writes the blog Financial Armageddon, say bulls are "blind to the worsening economic reality all around them," and in danger of getting hurt again by falling asset prices.

Headwinds are plentiful, Panzner says.

There has been little improvement in bank lending or credit availability, he says. The "long-term unemployment situation is getting worse" and economic data, which had been pointing up, have flattened out recently, suggesting a growing risk of a double dip, or economic relapse, he says.

The banking system also remains weak, as is the financial position of sovereign states such as Greece as well as states such as California.

He predicts a not-too-pretty fallout.

"In my view, the effect will be, at the least, a retest of what we saw last March," Panzner says. "At worst, much lower lows. It may not happen in 2010. However, it could be over the next couple of years."

Who do you believe?

(To read the rest of the article, click here.)

Comments

[Whenitcountsnow]

In Every Season, the decay of mans social order brings new meaning to why God is in charge; Now and Forever, over what will be mans desire to bring the full hit of inviting the ultimate Armageddon(s)...

http://www.youtube.com/watch?v=_VhNaELV0C0

From: Whenitcountsnow Far-fetched James Gornick | March 09, 2010 |

http://www.youtube.com/watch?v=DfS4vXSS-IQ

This Video is dedicated to all those breaking free of the binds that keep them oppressed. Captive in financial and moral loss of ethics and "Sins".

Those who have wanted God to Answer their prayers. It is in the power of lifting up your every prayer that God pours down His Mercy and sends His Loving Will...

The miracles of Healing, and your concerns are made whole within the risen Christ that had been sent as a ransom for all from the time of Easter and the revealing of "I am" to the Living and the Dead spanning from all ages.

God will always reign over all that would do evil and cause harm to the least of his flock. This is even more prevalent today as seen by so many having disregard for Ethics and Morals to keep within a social order.

The World is, and will always remain; subject to God's ultimate Will.

Choose Eternal Life through becoming alive again within the risen Christ today.

Let the music Video's with the voices of Michael W. Smith, Mercy-Me, Chris Tomlin, Casting Crowns, and the heavenly voice of Angelina of EWTN bring you to a place where you can meet with God and become close again in prayer. It is a great place for you to lift up your voices in songs and praise.

It is in Thanking & Praising The Father, Son and The Holy Spirit that you can only receive all the heavenly blessings from above.

The modern Saints, such as Padre Pio, Blessed Mother Teresa give us hope as did the words of John Paul the II, and all those who take up the call to proclaim his kingdom in Heaven and on the New Earth to come.

May God Bless all of you who come to view and hear Gods call through this video to welcome you home where you have always been welcome since God held you in the palm of his hand...

May your every Easter last for your lifetime to bring you home again some day with our Risen Lord...

Far-fetched, Not Anymore!

James Gornick

[roger]

Optimist: get over it, Game Over

[Luke]

i read today that job openings are up. this must be statistical noise. all i am hearing or seeing is the same ad posted multiple times in various resources and repeatedly appearing over and over and over. too many still getting laid off. so many just giving up. especially among those over age 50---they are toast for getting rehired at their old pay. they are the new minimum wage generation.

[NowWhat]

I keep seeing the same lame jobs I saw 6 months ago and was declined from a well known company because I am not a minority or woman. I am about to go out on my own and start a business, this is going to be scary with the current state of the economy...at least age is on my side.

[CrisisMaven]

It is not so much a case of bulls or bears but rather "now you see and now you don't". There are three mindsets actually: contrarians, bulls and bears. Bulls are praying and investing that things may go up, bears try to short things and catch the right downtrend to surf, however, both often miss the greater pricture: that since 1971 and Nixon's "closing of the gold window" the world has indeed been on a downward slide ALL ALONG. Nominal moentary measures (such as bubbling stock or house prices for example) may signal a bull market to the bulls and a wait loop for the bears while the ensuing crash may be what the bear has waited for – still, these market timers get it wrong more often than they get it right. But there is one incontrovertible historical trend: the total debasement of all modern currencies. The crises that are triggered by these are then "fought" with the very tools that created them: further monetary expansion! Never has the monetary base been shrunk deliberately in the past decades, no, in fact every contraction was used as an excuse for further expansion! This process is ever more acceleratedly coming to an end by virtue of being unsustainable which will eventually lead to the total destruction of the currencies and their nation states (http://crisismaven.wordpress.com/2010/02/08/bloom-of-doom-v-we-have-control-of-the-ship-we-have-a-plan/).

[roger]

Everybody is focus t on the money, WRONG!
The wealth of nations is in production, production
for the renewal of life and a surplus reserve for
export,IE: profits,and it looks like our smart economist
have never noticed the change in the game of exports
the weak backward nations have become formidable competitors
and are now the new masters.

[Steve]

Excellent column on the rot in the US jobs situation. From Canada's Globe & Mail newspaper.

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/beneath-the-us-jobs-data-signs-of-rot/article1495775/