Stock Market Bottom is Near or has Already Happened

For openers, let me say that I don't have any special skill in predicting market bottoms. If I did, I would be would make stock trading my day job:-) However, I am a student of the market, and enjoy trying to guess the short term direction.

For reference, I base my assessment on interactions, content and perspectives from people with whom I have contact, e.g. family, friends, neighbors, colleagues, and personal finance bloggers, most of whom are not in the financial business.

Here's what I have been seeing and hearing:

Negative sentiment is high. There were massive redemptions of mutual funds and hedge funds in late 2008. It seems people are afraid of investing in the stock market, expecting further market declines in 2009. Most people are not interested in putting new funds in equities. For an example of the how negative it is, see the comments in this article, 2009: A Much Better Year, by Jeremy Siegel.

Bloggers, with the exception of stock related blogs, seem neutral to negative on the stock market and the economy, versus being neutral to positive in 2008. Many investors I know lost 30-50% in the stock market last year and are concerned about losing more money in 2008. Personally, I am still reluctant to add any new money to the stock market, although I plan to keep current funds invested.

Lack of positive sentiment. Personal finance bloggers used to regularly the benefits of investing in index funds, dollar cost averaging, and 10% annual returns in the stock market. Bloggers would routinely write about buying on the dips, being invested in the long term, and the risk of missing the 10 best days in the stock market.

I see much fewer articles, other than from stock related blogs, on putting funds in the stock market, whether it is long or short term. People talk more of the risk of being invested during severe downturns, than the risk of not being invested during a sharp rise.

More people proud to be in "safe" investments. When everybody was making money on tech stocks, it seemed the Nasdaq peaked soon afterwards. Now government bonds and CDs are the hot investments due to a flight to safety.

Finally, the Fed has been lowering interest rates since August, 2007. Historically interest rates changes can take a couple years to have impact. Eventually, there will be tremendous liquidity in the economy, as soon as banks have confidence to lend again. Unfortunately, I also believe there will be unintended consequences, such as the formation of a new bubble.

While I still believe the market will be choppy, I predict there will an overall uptrend, with several good rallies, in 2009. I'm not ready to be "all in" yet, but I will start trickling in money that we cashed out of the market in late December, 2008 over the next few months. In the past, I wrote I would not add new money until a Dow 4000 or 12000 occurred. At this time, I am tightening the criteria for new money to a Dow 6000 or 10000, since I believe a bottom is near.

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This is not financial or investing advice. Please consult a professional advisor.

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