Market Bulls Gaining a More Audible Voice

The market lost over 6% of its value during the first half of 2010, and the “I told you so” bears have been roaring, especially since the incredibly volatile month of May. The European debt crisis as well as the American budget deficit has given the bears fodder without much in the way of resistance, and it is easy to make the bear argument when every week it seems the market has a day where is gets absolutely crushed. The seven day losing streak from June 24 to July 2 had the bears dancing on the grave of the 2010 edition of Mr. Market.The arguments made by the bears have validity; if Europe is unable to stabilize their financial situation, if China stunts their economic growth for fear of a popped bubble, if the United States cannot rein its over 9% unemployment rate, the market’s reaction will most likely be one of depressed mood. Fear causes money to withdraw from the market, and all the above factors are anxiety provoking.It’s is admittedly easy for the bulls to emerge from under their desks after the market jump of 5.3% the week of July 6-9, which marked the best weekly return in a year. But there have been a few lone wolves who have been predicting resurgence with reasons to support their argument which are hard to counter. Notable experts such as James Paulson, Doug Kass, and James Altucher are not only bullish about the future, but are in fact positive about the last two quarters of this year.Atlucher’s optimism is more centered around America in general rather than the stock market specifically. Although it is difficult to tell someone who has been unable to find employment over the past year that things are better, he correctly asserts that the stimulus package has accomplished much in the way that is was supposed to, most notably in its effect of stabilizing our banking system.Paulson and Kass also cite the economic growth of the United States and the improved health of corporations. This has led to an underlying base of strong fundamentals that are being concealed as the above stated fear factors dominate headlines and resonate in the psyche of investors.Paulson and Kass have the bears on this one. The markets composite price to earnings ratio of 11 is not only far lower than the historical average of 15, but in times of low interest rates, this P/E ratio is absurd. When the market creates a big wave and either takes share prices up for the surf or dunks them underwater, this is referred to as a “correction”. It seems that if some global financial stabilization coupled with some more encouraging news on the home front occurs, that fundamentals would then dictate market direction. A return of optimism, or at least a calmer collective nerve could trigger a prosperous correction upward.Who will end up saying “I told you so” at the conclusion of 2010? We will have to wait for that answer, but I do believe that even if the bears resume dancing, that the contentions of Atlucher, Paulson, and Kass will be ultimately proven correct, perhaps just in the context of a longer time frame.