Farrell likes stocks, but sees a correction soon
The handout for Vince Farrell’s breakfast talk this morning looked rather bearish. It started with a recent graph of the S&P 500, highlighting two major bottoms in November and March. Succeeding pages showed previous bear markets — 2001-03, 1981-82 and 1973-74 — and each featured three downward plunges.
The implication is that one more scary stretch lies ahead. However, Farrell, the chief investment officer at Soleil Securities in New York, is actually bullish on the stock market right now. At this morning’s Midwest BankCentre breakfast, he said:
We’ve seen the bottom. We’ve seen the worst, and we’ve survived it. I think you’ll have another downward probe, because we always do, but not to that level (of March). … In the very near term I’m cautious, but I’m optimistic that we have put in place the seeds for a recovery.
This recession, Farrell pointed out, will probably feature at least four straight quarters of shrinking gross national domestic product. That string started in last year’s third quarter and will continue through this year’s second quarter. The last two times we had three straight quarters of shrinking GDP were in 1953-54 and 1974-75. Both times, Farrell said, the stock market began climbing well before the economy recovered. If you bought the Standard & Poor’s 500 index after the first quarter of negative GDP, in fact, the following year would have recorded a 37.6 percent gain in the 1953-54 instance and a 32.3 percent gain after 1974-75. The lesson:
The market is an incredibly powerful discounting mechanism and will figure out things before they turn. … Even though we’re going to have a negative economy, the market has figured it out in the past. There was a lot of room to make money even though bad news continued to unfold.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I hope those people that pulled their money out last year make sure to get back in before the rise starts…
“The market has figured it out in the past” What does that really mean? So much double talk.Please take the rest of my money- cash your commision check and pour whats left down the drain.
If it’s so hard to understand, why did you bother investing your money in the first place? Put it under your mattress, wait until retirement, and then hope like hell Social Security isn’t a huge trainwreck yet.
The market goes down and it goes up. It is a long term investment tool. The overall trend of the market is what’s important.
To add to what to Tim says, the only thing about the stock market that has a high probability is that it will deliver positive total returns over the long term — meaning at least 10 years.
And then there is the alternative of TIPS, which are guaranteed by the U.S. government to deliver a stated return in excess of inflation over the term of the particular issue. That’s a damned site better “bet” than putting money under the mattress or in a bank checking or savings account, or even a money market fund.
I think that Social Security is every bit as safe as any U.S. government guaranteed bond, but people don’t have a choice as to whether or not to invest in that (and for the vast majority of people, that’s in their best interest).