Are people overly pessimistic about the stock market?

Question

Look I know its bad, but is it that bad? I have heard theories like the DOW with fall 3000 points by mid 09 and the stock market won't bottom out till '10. If thats really the case our economy as a whole will probably collapse. I try not to be optimistic or pessimistic. It is best to be realistic. My gut tells me now is about the best time to buy because we will soon begin a recovery. The economy still isn't technically in a recession by some definitions, and I believe the biggest problem we will face the rest of this year is out of control inflation. Once the housing market recovers and the fed raises interest rates, we should be fine.

Answer 1

Count me as one of the pessimistic ones.

I do not expect recovery until 2nd half 2009.  I think things will be bad till then, maybe even longer.

But i do not think the DOW will go to 7000 like you have heard.  The lowest would be like 9,000 and even that would be unusual.  My guess is the bottom at about 10,400.

Check the leading indicators of the economy;  when they turn up, that will be a good sign.

Answer 2

If there was any validity to stock market theories, we'd all be wealthy.  Either invest low risk in the long haul or play the market intelligently.  Lots of info out there.  If people put 1/2 the time learning about the market that they put into playing video games, they'd be doing much better.  Depends on your priorities I guess.

Answer 3

Steven,

    Before you buy a big house or throw your money into the market, you might want to read this:

http://www.gather.com/viewArticle.jsp?ar...

   I counted at least 2000 stores closing or already closed this year from more than a dozen retailers, and I didn't finish the list.    

  Given:   The average household income is a bit under 50k.    72% of the households in the country make less than 75k per year.   That's about 3/4 of the population that aren't exactly rich and are feeling the crunch and are going to feel it worse.   Gas is now about 4 bucks a gallon, higher in some places.   Knowing how much most of America is earning, and realizing that most do not have more than a few hundred bucks per month excess cash (if that),  what occurs when their gas bill triples compared to the budget they've set up for their standard of living and job they've had for the last several years?  

   Suddenly - all of their extra cash goes into the gas pump.  Not only that - but that discretionary income - the money being spent on ipods, new cars, clothes that aren't needed badly, and so on - doesn't exist anymore.  They had to spend it on gas.  The cost of electricity and natural gas has gone up dramatically as well in the last couple of years (from 10 or 11 cents a kwh to about 16 cents).  This means the cost of home ownership is up a hundred or two, not to mention the impact of gas on trucking food around, which you'll see at the grocery store.

   How many households out of that 72% have 500 bucks (guess-timated) after taxes to throw at their new cost of living?

   What happens to all the stores and businesses that are no longer making as much money?  They get lean. They scale back.  Hence the list at the link I pasted in.   Those stores represent jobs.   Those are the big chains.  Imagine what is happening to the small businesses - the mom-and-pop businesses that don't make national listings.  

   No - it's not over in my opinion.  The writing is on the wall and we are seeing the tip of the financial iceberg and this country is the Titanic if the government doesn't see what is happening and get it turned around in time.    

-Kevin

Thank you for the comments.  For the record, I'd rather not be a pessimist.  I've invested off and on, mostly on, for the last 20 years, and 2000 ate my lunch.  Alot of the folks that got out in time fled to property - hence the housing boom.  Also, the low interest rates that tried to prop up the market made people look at cheap mortgages and tons of people were motivated to trade  houses.  Alot of them got ARMs.  Now that's deflating and alot of folks are screwed.  Thank God I didn't get one of those.  Sooner or later the bump in the rug is going to pop out of an edge ;) .  I'm not saying you should buy guns and gold and cigarettes to trade for food,  but I'd steer clear of retail and high visibility stuff.  If it were me, I'd go for things like unusual metals,  engineering companies, drilling and pump supply companies,  stuff like that.  I'd also consider some international companies that might do better against a weak dollar than a company like GM or Phillip-Morris.

Answer 4

Just like at the casino, you gotta have losers to have winners.