Hope is a decision.
The evangelical minister Jim Wallis likes to invoke that phrase, and while he links it to faith and God, it works as just as well---perhaps even better--for capitalism and the markets.
Hope is the elusive elixir of business.
Yet these days it seems all but impossible to hold on to hope, given $29 trillion in lost wealth from the worldwide stock selloff, a plunge of almost $4 trllion in the value of the nation’s homes, and a startling $53 trillion decline in the value of oil reserves since crude hit a high of $145 a barrel last summer.
The lack of hope continues to hurt us—it is why banks remain fearful of loaning to each other (let alone to businesses and consumers), and why more than $8 trillion in cash languishes in U.S. money-market funds and checking and savings accounts.
And all of that is why it is high time for investors to grow some courage, shake off the terrifying events of the past year and decide to get some hope.
This is an unpopular view as we wallow in despair and cynicism, angry at Wall Street and regulators alike.
When any soul is daring (or naïve) enough to argue we’re gonna be okay, bitter bloggers and self-promoting short-sellers unleash a barrage of invective and vitriol.
(To find plenty of both, go to Google and type in my name and the word “idiot”: 4,520 entries.) They have it right: I was way too optimistic in the financial collapse.
So what—herewith, ten reasons for hope in 2009:
Even if you view the election as an abomination, most folks like this guy.
A new national giddiness could greet a new President who is articulate, thoughtful and hopeful himself—traits not readily apparent in his predecessor.
--We’re sick and tired of being sick and tired.
At some point even fraidycat banks will need to earn a profit by lending again.
Same goes for investors now idling away in cash.
--Housing is on the mend.
Rising mortgage defaults frighten Wall Street, yet the main growth in defaults now lies with homeowners who already are 90 days late, rather than with newcomers who just fell 30 days behind.
The worst may be over.
Plus, of 125 million U.S. households, 40 million have no mortgage at all, and 40 million more were bought before 2000, so they still are up 35% or more.
--Unemployment will get better—eventually.
Government stimulus is on the way.
Also, the scary numbers are inflated.
Yes we lost 524,000 jobs in December, the worst mark in three decades.
But the number would have to be closer to one million to match the job losses in 1980, because of population growth.
--Tech will revive itself.
Soon, corporate customers must spend anew on tech hardware and software to maintain their business, offer new services and keep up with rivals.
Every year companies collectively store one full exabyte of new data (an exabyte is one billion gigabytes); all that stuff has to go somewhere.
--History is on our side.
In 12 previous bear markets since World War II, the Dow rose by 39% within two years of hitting bottom, Birinyi Associates says.
The biggest gains came in the first year, with the Dow up an average of 29% every three months, says CNBC stats wizard Giovanny Moreano.
Now even Goldman Sachs, which reaped billions preaching the fear of collapse and selling credit default swaps to profit from same, says the S&P could rise 22% this year.
--This rebound could come even faster.
The markets’ plunge shocked Wall Street veterans for how suddenly everything fell apart, stoked by the Internet, 24/7 coverage, global interconnectedness and automated trading.
Now those same factors could fuel a faster rebound, as Zachary Karabell of River Twice Research argues.
Since market lows on Nov. 20, the Dow, Nasdaq and S&P 500 rose 20% or more in 31 trading days.
--The credit markets are healing.
Last week a key indicator showed signs of new life.
The two-year interest rate swap spread fell to a rate not seen since August 2007, before the credit cataclysm began.
“This is important because swap spreads tend to lead other areas of credit as well as other risk assets,” notes Michael Darda of MKM Partners.
--The fear index is easing.
The VIX, as this volatility metric is known, is still high at the $45 range but is down 43% in eight weeks.
--Traders have begun buying stocks on bad news.
The bleak headlines last week on layoffs, downcast warnings from Intel and Time Warner and a further dive in home prices caused less damage than the fallout from less alarming news in recent months.
Okay, so despite all of this, the markets could continue to kick us around, dash our dreams and make fools of us.
But that is short-term pain in a long journey of growth.
That, at least, is my best hope of all.
- More from Dennis Kneale
- His Predictions for 2009 (one is already coming true)