| Bottoming Out? |
Jaunary 2003
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Reasons to be Cheerful in 2003
The mood of investors as 2003 begins appears to be as black as their balance sheets are red. For the third year in a row, the DJIA closed lower, and the other major stock indices followed suit. Bottom-fishing is, of course, one of the more effective ways of losing money short of outright burning it. Yet, there are reasons to think better prospects, if not prices, lie ahead.
For those with an historical bent, consider that there has only been one period in US financial history when there were four consecutive down years -- the period form 1929-1933. Needless to say, the situation is far from that severe.
Of course, arguing from history doesn't make for a bull-market. A more solid observation is the fact that the third quarter GDP, the last quarter for which data are available, grew 4%. That is well above historical trends, and it's very hard to see how prices can continue falling as the economy grows.
Finally, there is capital spending. The last great burst of corporate investment was in preparation for the Y2K non-event. Three years is a long time for business to make do with capital equipment. The consumer has kept things afloat so far, but when business buys things, the economy will start firing on all cylinders. It may not happen this year, but the equipment in use is aging.
It's not enough good news to start buying up everything. But things are rarely as bad (or as good) as Wall Street thinks.