2009 - Year of Bull?

As we wrapping up the disappointing 2008, we all look forward to 2009. In Chinese Zodiac, 2009 is the year of Ox / Bull. People certainly hope that the new year will bring good luck to the financial market. For the Chinese, 2009 lived up to its name so far. The Shanghai Composite Index went from 1880 on January 5 to 2224 as of February 10, a 18% increase.

Unfortunately, this is not the case for the rest of the world. January marked the worst month ever in US stock market. The Dow Jones Industrial Average finished January down 8.84% and closed at 8000 points. The employers stepped up the pace of slashing jobs. The unemployment rate reached 7.6% excluding the discouraged workers and workers work part time because they couldn't find full time positions. 626,000 people filed jobless claims to collect government unemployment benefit, along with 4.788 million others.

A bank rescue plan scheduled to be announced by Treasure Secretary was delayed until Tuesday. Investors probably don't regard that as a sign of confidence. Two versions of stimulas package was floating around in congress and senate. Everybody agrees that something needs to be done. Nobody agrees on what needs to be done. Perhaps nobody knows what should be done. Experience tells me that a decision made in a panic mode is ususally not a good one. TARP (Troubled Asset Relief Program) is a good example.

Economists have gave up hope that the economy will show signs of recovery in the second half of the year. They now say we won't see those signs until 2010. It's only one year, but for people who are in misery that seems like a lifetime away. Many public companies have stopped giving guidance on earnings, fearing that they will disapoint the analyst one more time and their stock price will get punished. Frankly I don't understand this arrangement. Clearly the Wall Street analysts made some mistakes forecasting the companies' earnings, but somehow the companies are punished for not meeting their expectations. Why can't those people just admit they made a mistake and the companies can be more honest.

Does this mean there is no hope for 2009? Not really. I discovered that the market has a way of price in the bad news ahead of time. All the information I mentioned above are not news any more because they are priced in the financial market. Any news that is less bad or somewhat good will bring cheers to the market.

Right now the corporates have most finished their job of delivering bad news, it is the government's turn to do so. To be perfectly clear, I am not a fan of Keynesian Economics. In my view, the government can't solve all the problems. Most likely, they create more problems than they can solve. Politicians are not best suited for solving economic problems, they do have great potential of making things worse.

Here is my point, the worst is yet to come. Many people will panic after they realize that Uncle Sam is incapable of delivering us out of current financial crisis. They then get realistic and creative. The solutions will be found by the people. People will get their confidence back and the economy will start to grow again. The key to recovery relies on people that trust themselves instead of putting their hopes in the government.

When will the turning point occur? To be honest, I don't know. One sign I know is when people start to realize they are the ones that can solve the problem, not the government. To be specific, when the unemployed decided not to take the government check or the government running out of the checks.