Subject: DowJones-MarketWatch.com placement
From: "Merilee:::Kern Communications" <[email-masked]>
To: "Brent Wilsey" <[email-masked]>, <[email-masked]>
Date: Tue, 13 Jan 2009 10:24:31 -0800

http://www.marketwatch.com/news/story/dont-conned-thinking-there-recovery/story.aspx?guid=%7BDD152E8A-13D9-4CBE-B444-7BE9F3148685%7D

PAUL B. FARRELL
Doomsayers warn: 'No recovery before 2010'
Wall Street's praying for new bull, but wishful thinking not enough for '09
By Paul B. Farrell, MarketWatch
Last update: 7:19 p.m. EST Jan. 12, 2009
Comments: 340
ARROYO GRANDE, Calif. (MarketWatch) -- Dateline: 1720. Breaking news. One day, at the peak of its speculative frenzy, as the "South Sea Bubble" swept through Europe faster than the plague, an "unknown adventurer" in Britain ran this advertisement: "A company for carrying on an undertaking of great advantage, but nobody to know what it is." 
The scam was originally reported in Charles Mackay's 1841 classic, "Extraordinary Popular Delusions and the Madness of Crowds," and updated by Forbes columnist and economist Gary Shilling in his annual "2009 Investment Outlook: 12 Strategies," to illustrate how little has changed between 1720 and today. 

Investors never learn. And Wall Street knows it. That crafty 1720 ancestor of today's Wall Street investment bankers and Bernie Madoffs devised what we'd call an "IPO:" He "opened his office to crowds of investors at 9 a.m. the next morning ... closed at 3 p.m. after taking in a fortune ... then left that evening for the Continent ... never to be heard from again." 
Warning folks: Wall Street's happy-talking bulls are now hyping economic recovery and a new bull this year. That's a slower, but equally lethal 2009 version of that famous 1720 trick. 
So first let's review Shilling's forecasts for 2009. He was amazingly accurate with his 2008 investment strategies. Expect the same in 2009 as he's part of a growing chorus of experts who believe "the worst global financial crisis and deepest worldwide recession since the 1930s will continue throughout 2009." His 12 strategies, with my notes: 
  1.. Sell home-builder stocks and bonds. 
  2.. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday. (Yes, another 20% drop is coming.) 
  3.. Sell some housing-related stocks. 
  4.. Sell some consumer discretionary spending companies. 
  5.. Sell most commercial real estate. 
  6.. Sell some commodities. (But proceed "carefully:" Selling "some" securities, or buying, or actively trading in today's volatile markets demands a level of skill sets, savvy and sophistication most investors lack.) 
  7.. Sell emerging-market equities. 
  8.. Sell emerging-market debt. 
  9.. Sell stocks in general. (Shilling's forecast of a "severe recession suggests that corporate profits, as defined by the Commerce Department, will fall 48% from their peak in the third quarter 2007 to the fourth quarter 2009, and drop 32% from 2008 to 2009. This forecast implies much weaker S&P 500 earnings than projected by Wall Street analysts and strategies" whom he says "tend to be overly optimistic, especially in recessions when analysts don't want to offend managements of the companies they follow with low numbers.") 
  10.. Sell consumer lenders' equities. 
  11.. Buy the dollar. 
  12.. Buy, carefully, high-grade bonds. 
No recovery in 2009? Not till 2010, or later? Shilling's not alone. But in the eyes of the Wall Street happy-talkers, he's just another dark-side bear vying for the title "Dr. Doom" in 2009. 
Shilling offers 10 "sells" and two cautious "buys." The dollar's one: "The buck tends to have five-to-seven year moves, and the current one appears to have just started. With a global recession, the dollar is the safe haven, the best of the bad lot." 
And as for bonds: While "the 27-year rally in Treasury bonds is over," the yields on "high-quality municipals, compared to super-safe Treasurys, make them interesting. The risk is that as the financial crisis continues, those spreads could get even bigger. And ratings may be cut as the recession strains state and local finances." 
Another alternative: "Yields on investment-grade corporate bonds are very attractive relative to record low Treasury yields." So "buy high-grade corporate and municipal bonds, but carefully." 
Will new bull be leading indicator of economic recovery?
Shilling is one of America's top economists. Sixteen months before the 2007 meltdown he warned Forbes readers: "The current housing weakness will develop into a full-scale rout ... a bubble ... the house-price collapse will induce a painful recession that will send U.S. stocks into a tailspin." But the bigger question now: When will it end? 
"If policymakers succeed in containing the mortgage mess and bailing out financial crises related to consumer borrowing, commercial real estate and junk securities -- and other potential financial problems -- then the recession may well end in early 2010 as massive fiscal stimulus begins to take hold ... if not, the slump probably will extend well into 2010 and perhaps beyond, and might as well be given the label that such a long downturn deserves: a depression." 
Contrast that with Wall Street strategists who make their living selling securities that generate big commissions and fees. They don't like the conservative forecasters. So it's no surprise that another regular on the Forbes investment team, Bob Froehlich, author of "A Bull for All Seasons" and chief investment strategist with Deutsche Bank's retail funds, recently dismissed Shilling as a "perma-bear" whose forecasts are "dead wrong." 
But a year ago Froehlich predicted the market would stay above 14,000 in 2008. And later Deutsche Bank's stock tanked from a high around $128 to a low about $22. 
Yes, money managers are optimistic ... but 30% returns!?
The main reason Wall Streeters expect a new bull market in 2009 is the growing belief that the markets hit bottom back in November. Last week a Wall Street Journal article reported that "Suddenly, a Market Turnaround: Dow Is Up Nearly 20% From a Low, Other Markets More; Is It a Tease?" 
That same day, in comes a "decidedly optimistic, opportunistic approach to the economic downturn and the effect it has had on the financial markets." The source: Brent Wilsey, president of Wilsey Asset Management. His "9 Reasons 2009 can Deliver a 30% Return for Investors" got my attention as I read Shilling's 42-page "Outlook for 2009." Wilsey's reasoning begins with the key assumption that we've hit bottom: The "market is forward thinking and can be ahead of the game by six months." 
The contrast with Shilling offers an interesting counterpoint as you examine your own investment strategies for 2009. Assuming the market did bottom a few months ago, he predicts "the market could begin a strong rally in April. And even if the economy isn't going to improve until later in February 2010" he again extrapolates back six months predicting the "market could begin a strong rally in August" of 2009. 
Then a huge leap of faith: "With companies trading at today's levels it's more important to be invested than to try and time the bottom." Bottom line: Start buying stocks now. Now? But first, examine the nine upbeat assumptions driving his 30% forecast, edited for comparison: 
  1.. $12 trillion cash on the sidelines: Just 10% would be a $1.2 trillion investment. 
  2.. Low interest rates: Cheap money usually has a positive effect on the economy. 
  3.. Low stock valuations: Forward earnings P/E ratios on many companies are under 10. 
  4.. Low consumer confidence: Low confidence often signals a rebound in a year. 
  5.. Banking fundamentals improving: The banks are working through this mess. 
  6.. Low gas prices: Add another $300 billion to $500 billion back into the economy. 
  7.. Increased labor productivity: Companies become cost effective, boost stocks. 
  8.. New president: Typically boosts confidence, optimism and spending. 
  9.. Federal money: And President-elect Barack Obama's ready to pump $1.2 trillion into the economy. 
OK folks, the ball's in your court. Two opposing forecasts. But now you alone must decide on the direction of the market, economy and your investment strategy, facing so many "ifs," so many unpredictables. 
Stop and ask yourself: Maybe you should ignore all predictions, especially any made by the Wall Street voices that got us in this mess in the first place. Maybe you should just wait, patiently, pray ... and do nothing.