Comfortably In the Middle
 I’d like to take this opportunity to wish you and yours a prosperous and stress-free New Year. I hope that regardless of the market’s mood in 2010, your assets are positioned in a manner consistent with your time horizon and your temperament. I hope that if Gold goes to $1,500+ an ounce and the Dow dips back into the quadruple digits, as the gentleman on CNBC just predicted, you’ll not find yourself at the coin shop hocking your fine jewelry. Or if, as the other gentleman on CNBC just envisaged, the Dow ascends to the teen-thousands , that you’ll not find yourself fretting over its next peak. In essence, my New Year’s wish for you is that you accept the inherent volatility of the financial markets, and that your exposure to that which is not guaranteed is suitable to your circumstance and your psyche.
As predictions go, we of course hope the latter of the two aforementioned gentlemen has it right. But let’s hope as well that there’s enough uncertainty next year to inspire the former to maintain his resolve. For as I’ve suggested here on countless occasions, and as the late Sir John Templeton once asserted; “bull markets are born on pessimism and grow on skepticism”. And as someone else (not sure who) once said; “bull markets always climb a wall of worry”.
So in the face of a dramatically upward-sloping yield curve (a very bullish sign for the economy), of trillions earning zero in money market accounts, and of a treasury bond bubble ready to pop on the next sign the economy is growing, my New Year’s wish for the bulls is that the bears continue to predict doom and gloom as far as the eye can see.
Now I’m not suggesting that the doom-seers are wrong – that a bear market can’t occur with liquidity high and interest rates low – I’m merely suggesting that the market performs best when many fear the worst.
So with that in mind, let’s take a look at a few of the hurdles facing us in 2010 and see if they’re indeed high enough to keep me optimistic:
• For starters, the senate just passed its version of healthcare reform – once it settles terms with the house, we’ll have us a program. Interestingly, healthcare stocks haven’t cratered on the news – it appears as though the latest versions would be less ominous to the industry than originally feared. Nonetheless, I’m not nearly convinced that we’re out of the woods just yet.
• Next there’ll be new regs out the whazoo. The government, bowing to public opinion, is looking to save us from evil Wall Street by limiting its ability to take risk. The so-called consumer protection act, in my humble opinion, is a profound waste of time and taxpayer money. While it’s important that we prosecute criminals and allow miscalculaters of risk to suffer their consequences, the last thing in the world we need is Washington (the home of all those financial geniuses) dictating to Wall Street.
• Thinking about little else than the coming mid-term elections, politicians will be desperate to keep the economy moving and to manufacture jobs any way they can. Therefore absolutely nothing by way of spending is off the table for next year. Don’t be surprised if you hear that yet another stimulus package is in the works, particularly if the economy hits a speed bump going into the first half. And while all this spending will indeed keep the woe-mongers woeing, it’s highly unlikely that we’ll suffer the consequences in 2010. But believe you me, if the fed doesn’t ultimately succeed in reigning in the excesses, we will have hell (inflation, etc.) to pay in the years to come.
Of course that’s just the short list (we’ll get more into the Fed’s challenges in commentaries to come), but you get the point.
So while there’s cause for optimism going forward, there’s plenty of room for doubt as well. And in my estimation, in the middle (betwixt the two extremes), is quite the comfortable place to be, right about now.
Have a great week!
Marty
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