Tuesday, January 6, 2009

Reflections of 2008 - The Year From Hell

I cannot think of a better way to start the new year than to forget about the last year. It seems that every headline from 2008 had the following words included; Doom, Collapse, Depression, Unprecedented etc. The main purpose behind this blog was to try to put a slightly more positive spin on the news - in other words, the glass was half full. That being said, we need to remind ourselves that as the picture above says, "we ain't outta dem woods yet".

Here is a quote from an investor blog that I found to be perfect.

The record fast emotional flip-flop from greed driven excess to fear fuelled panic has caused equity prices to collapse. With the investing herd heading to the exit at the same time, the market environment has transitioned to a seller’s nightmare and a value buyer’s dream. While it is impossible to predict when investor emotions will settle, we are confident that the economic cycle will continue to swing both ways and that there will be an economic recovery. The stock market will likely have a powerful recovery once investors realize that there is reason to be optimistic.

Wow. Talk about optimism in the face of danger. The funny thing is I couldn't agree more. If ever there was a time to want to "move on", this is it. So where do we go next?

Not knowing the future, I decided to consult my favourite fortune teller and see what their predictions were for 2009. Unfortunately the "economic situation led to an unfortunate confluence of events" that they didn't foresee and they are out of business, Needing something to start the year with, I decided to take a stab and see how wrong I could be. Here goes nothing;

  1. North American (and global) stock markets will be noticeably higher at the close of 2009. Predictions for the TSX are from 11,000 up to 12,500 for a high point. Even reaching 11,000 points would be a 20% increase for the year. Now how could this happen you may ask. If you read my blog a couple months ago, this is happening just as predicted. If you wonder at my sanity in predicting this, you won't believe my next statement.

  2. Canadian markets will lead global recovery. This statement is based upon several facts - a resource based economy and eventually those needs will increase. China is expecting 7-8% growth in GDP and they continue to need our resources. Our banking system remains strong and while the housing market has been negatively impacted, Canada's market is far stronger than the US and several European countries.

  3. The current bull market we are experiencing, and have been for about one month will result in the usual short term profit taking, but markets will continue to climb. For anyone who didn't know, the past 22 years have consistently proven that stock markets love the month of December and 2008 was no different. Stock markets are up 20% from their lows of 2008 - the definition of a bull market. Even technical analysts are saying that the bottom has been reached and now we need to find a new "higher bottom". The chart below shows the TSX over the past three months. The brown and yellow lines represent average stock market closes over the previous 20 (brown) and 50 (yellow) day averages. Once the market breaks through the 50 day average, that signifies through technical analysis that we are entering/or are in a bull market.

There will likely be some down times in the future as well - just remember one simple fact. The media does not like positive stories. Nothing sells like a scandal. Whether in print, on TV, the radio or on the Internet, bad sells and good gets ignored. I just wish the general media would tell the "whole truth" instead of "nothing but the truth".

Oh yeah. The Toronto Maple Leafs will not win the Stanley Cup. Sorry Darrell B. And all the other "Leaf" fans out there. Well at least I will get one out of four correct.

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