As January comes to a close, the big believers of the January Effect ("So goes January, so goes the remainder of the year") are obviously not celebrat...
As January comes to a close,
the big believers of the January Effect ("So goes January, so goes the remainder of the year") are obviously not celebrating. The Dow Jones Industrial Average started 2009 at about the 8,800 level. It's finishing the month around the 8,000 to 8,200 level, depending on how it closes today.
I've never been a big believer in the January Effect, as it does not offer me any sound rational. But I'm a big believer in logic...and a big believer in contrarian investing. As the month comes to a close, I wanted to share these important points about the remainder of 2009 with my beloved readers:
- There is more negativity about the economy amongst consumers, analysts and investors existing today than I have ever seen in my almost 30-year investing career. In the past, history has shown that the "herd" crowd is always wrong.
- Stock prices have fallen very fast. Maybe too fast. Call it the Internet revolution, call it globalization, call it whatever you want. This baby came down faster than a house of cards. In October 2007, the Dow Jones traded over 14,000, a record high. By November 2008, it had retraced almost 50% of that advance. Greed turned to fear.
- The housing market is close to a bottom. We need to be cautious in that real estate moves much slower in price than stocks. While the real estate market may be hitting a bottom, it could take another five years before we see any life (in respect to prices) for housing.
- There is a tremendous amount of cash on the sidelines (billions) just taking a "wait and see" position. When investment and portfolio managers feel the economy has bottomed, we will see a tremendous inflow of funds into stocks. Will this happen in the next couple of months? This year? I honestly don't know about the timing. But I see it coming.
- In the history of the U.S. Federal Reserve and of the U.S. Government, monetary policy has never been so generous.
Are you sensing some good old-fashioned stock market bullishness developing on my part? I may be blushing, but you are right. Sure the stock market could test the 2008 lows, as we know anything is possible. However, I'm not as negative on the economy as the remainder of analysts out there. Pending a catastrophe, the stock market, as a leading indicator, has already discounted the worse for the economy.
There are some great stock buying opportunities developing in this sea of fear. I've been bullish on the gold stocks and they have been the best performers over the past three to six months. Many other companies, which are already cash-rich and profitable, have cut their workforces and are re-making themselves as even moreefficient. I am watching these stocks for my readers.
Profit Confidential
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