Stock Market Outlook 2010

Hello! I'm Dan O'Connor, and this is my annual stock market outlook for the year 2010. Before we talk about 2010, I’d like to mention my track record for last year, 2009, relative to my predictions. I predicted a banner year for the market and I think my predictions were borne out.

Of course, I take my own advice and diversify my portfolio, so I couldn't tell you exactly how the market as a whole did without looking it up. But I'm sure you know, it was a very good year, starting with March, 2009. My return for the 12 month period beginning with the date my last article was written, which was on or about March 18, 2009, was 41.83%. That means if I put $10,000 into a passbook savings account at that particular return. I would have $14,183 in that account today. And that's basically how I did last year in the securities markets.

A number of things stand out in my mind regarding my predictions of last year relative to the outcome, as well as the response I got to last year’s article. To make a long story short, my article was slammed about is rudely and thoroughly as one might do to a genuine piece of trash. While most of the individuals providing comments did not identify themselves, the tenor of their remarks as well as the substance leads me to believe that they were so-called "professionals," in the investment industry. Being the sensitive person that I am I wondered at the time, if it might have been possible that I was missing some major market component that would make my work worthy of the response I got from these individuals.

My working hypothesis, even at the time though, was that an ongoing territorial war, so to speak, with professional investment advisors is continuing. Their idea, as I understand it, is that individuals without their own particular set of sales "credentials," are subject to certain implicit limitations in their eyes. As an attorney I am licensed to give investment advice incidental to my law practice, but I do not have, nor desire to have investment “sales” credentials.

The working hypothesis of those who do seems to be that we attorneys and CPA’s have no business making stock market predictions, acting like we know anything whatsoever about the markets, or—here’s the big one--implying that individual investors should take primary responsibility for their own investments. By the latter I've never meant that individuals should not seek professional investment advice, but, rather, that they should know enough about the market themselves to have a general idea as to whether or not they're on the right track, and that the final investment decision should always lie with the client.

A lot of emotion gets wrapped up into these things, but the nice thing about investing is that in the final analysis it's all measurable in terms of quantifiable results. My answer to these folks at this point is, "my clients, and I got a 41.83% return on our investments. What did individuals taking your advice get?"

The other thing I get out of the results is that it's not possible to make the highest possible return in the stock market when everyone else is agreeing with your analysis and conclusions. When things are going well and everyone is making money it seems as though everyone is an expert. The problem with that is that most individuals and advisers don’t know when it’s time to move from a long (bullish) position to a short (bearish) one. That's when most investors get clobbered, and as so many of my clients put it in September of 2008, "Dan, you're one of the few investment advisors that anyone can reach these days."

To make any of the "really big," money, the kind of money that Warren Buffet made by investing in Goldman Sachs, or that he will make by investing in the Burlington Northern Railway, comes from having the courage and insight to see a real bargain and not be afraid to take advantage of that opportunity. That’s what happened to me and my portfolio in the twelve month period just ended.

So, what do I see on tap for the year 2010? In short, I see another great year for the stock market, that is, barring one or more of the following, or something comparable: a major terrorist attack on the US or a major ally, war between Iran and the United States or Israel, or a major national disaster of epic proportions -- that type of thing. Otherwise I'm confident that the market may sputter at times, but it will continue to grow. What I accurately described to my wife last year as the, "chance of a lifetime," is now over. But I'm predicting steady, sustainable returns.

This is based largely on current U.S. and worldwide monetary policy, which is doing its best to infuse large amounts of capital into the system at still near historically low interest rates and worldwide fiscal policy of governments spending well in excess of revenues, particularly on targeted projects with improving the employment outlook are concerned. In China, where the fiscal stimulus efforts have been significantly greater than in the U.S., as a percentage of their GDP, a robust recovery is already underway. By comparison ours is anemic, although by our standards, Europe’s is anemic and that is a major reason why they are having a more difficult time with their recovery than ours.

There is some chance of a "double dip," recession, I. E., A partial recovery, that gets drug down into the mire before sufficient energy is generated to continue its trek upward. Since this would be largely a psychological phenomenon, based upon a lack of consumer confidence, I doubt the politicians will allow this to happen. People point to high, continuing unemployment as a sign of continuing economic woes. However, per Wells Fargo economists, whose symposium I recently attended, and others, “This recovery is on track with the same trajectory as a classic [predictable] one.”

Before workers are hired back, the demand for more goods and services is first met by improved technology and other efficiencies that one finds during stressful times, then overtime hours and, finally, as a last resort, hiring new workers. By the time we get to this latter stage most of the economic recovery will have already taken place.

And what about the recent rise in rates the Federal Reserve Bank charges member banks? I think that was mostly a shot across their bow, saying, “You’d better start lending with the money we loan you, rather than borrowing from us at zero percent and then loaning the money back to us (us being the government) at 3.8% in US Treasuries for a tidy profit at taxpayer expense.

I would be surprised if returns do not exceed ten or fifteen percent in 2010. I’m expecting a robust future for the market in the near to mid-term, just not the gangbusters results we had last year.

And, remember, you may well have heard it here first on danoconnor.com

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