My Outlook For 2013

Heading into 2013 it is possible to make both a convincing bull and bear case. When I have felt strongly about the direction of the market I have not been afraid to communicate it here. This is not one of those times.

The bear case is that the current bull market is almost four years old, which is already longer than the average bull market. Taxes will be going up and its likely that there will be some spending cuts. This will create a fiscal drag on an economy that is already in slow growth mode. We are seeing slow growth around the world as well which increases the chance of an economic accident.

The bull case is that we have still not seen the euphoria phase of this bull market. Valuations remain reasonable and market participants stock allocations are on the conservative side. Corporate borrowing rates are at record lows yet we have not yet seen companies take full advantage of these rates. The level of cash M&A, LBOs and share repurchases have been on the low side considering where rates are. A buyout boom fueled by low rates is a real possibility. The fuel is there. Somebody just needs to light a match.

If the economy manages to stumble along investors are likely to be rewarded with a fifth year of this bull market. However, there are many risks out there that can tip us into a recession. My plan is to stick with companies that are less dependent on a strong economy, buy fear and sell euphoria.

Tsachy Mishal on January 1, 2013 at 1:38 pm | Filed Under Uncategorized

Brent Barber

Many people count the downturn in 1990 as a bear market. The decline in 2011 was of similar magnitude and the case can certainly be argued it qualifies as a bear market as the S&P 500 was down over 20% intraday.

Regardless if it is an official bear or not, a lot of exuberance was squeezed out of the market in that downturn, so your argument that we are due for a bear because we have had a 4 year bull market is probably not as applicable as a more “normal” 4 year bull and you could make the argument that we are only 14 months into the bull market which started in 2011 which would line up better with market sentiment in my opinion.
jewelin

You’ve posted five times in 6 weeks Tsachy, I hope everything is ok.
- http://www.capitalobserver.com/ Tsachy Mishal
  
  I have a new post up. I hope to post more in the future. Just have not had many strong feelings recently.
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