Why I Am Bullish Now? - A Stock Trader's Perspective

On Wall Street, what everyone knows is not worth knowing. You don't always have to zig when everyone zags but you must take a critical look at where the crowd stands if you want to get ahead of it.

I was recently talking to a fellow trader who countered my growing optimism with a long litany of grave concerns: the real estate bubble, layoffs, mounting debt, global recession... I simply asked him where he thought the market should be to price in the worst case scenario. He shut up. He did not know. And that's where I think we are: the majority is convinced that things are BAD but few know what the price tag for the worst case scenario should be.

The thing about the market is that it does not have to wait for something bad to happen - it can act in anticipation. Since the market usually looks 3 - 6 months ahead, could it have already priced in the worst case scenario? If so, where is it likely to go from here?

The market has been in a steady decline since September 2007. It took another deep and sudden dive this past September. Back in September 2007 most investors still thought we were OK and real estate was not a bubble. When would YOU have been better off knowing that things were bad - now or in September 2007?
If you had been convinced back in September 2007 that things were going bad and acted, at the very least you would have protected yourself against the losses by going into cash and at the most made a bundle by going short. You don't have to be prescient to make the right moves; you just need to take a critical look at where we are:

1. The market has priced in the leftwing Obama presidency. What if this guy does not redistribute wealth and turns out to be a decent president? The market will be pleasantly surprised.
2. The real estate bubble has burst and real estate is likely to be moribund for a while. No surprises here. But where is real estate investors' money going to go?
3. The financial institutions are shell shocked and not lending. Then what? They can't just sit on their hands forever.
4. Israel and Iran may be on the brink of war. The Russian bear is rearing its ugly head. Al Qaida is far from dead. How much worse can it get?
5. Consumers are pinched. They are not spending. Just buying groceries and paying bills. But most are still employed. How long can spending be held down? Americans are optimists. We want to get ahead and enjoy life NOW. We can only live off of our closets and garages for so long. Then what?
6. High oil prices were killing the economy. Turns out all we had to do was elect Democrats to burst the bubble. What if they actually do something? Will oil go back to $200 and gas to $5 (as was predicted in July?)
7. Lower taxes create jobs. Higher taxes kill them. Fine. Then if the 2003 - 2007 expansion was the result of lower taxes, how come the world economy collapsed as soon as the US real estate bubble burst? Could it be that the expansion was the result of the real estate bubble (reckless lending and borrowing), that lower taxes only contributed to speculation in commodities and that the Bush tax cut went to pay for gas? How is that not wealth redistribution? What do I care how the money I don't get to keep is spent - higher gas or food stamps? Could it be that higher taxes and curbs on reckless speculation will actually encourage capital to try harder to find sources of returns? Like, maybe, technology and innovation? Just a thought.
8. Layoffs. My God, people are losing jobs! How many times have you called a business and had to deal with a complete moron? Maybe it's time for businesses to get rid of this dead wood and make the rest work harder so they actually appreciate what they've got? Maybe getting rid of a moron improves the bottom line? Perhaps it will even spur innovation by those who prefer to work smarter, not harder?
9. Bear markets last on average for 24 months. Given that we are in the 14th month of the decline, and how far and how fast we've come down, what is more likely ahead: upside or more downside? If you think downside, ask yourself where you thought the market was headed in September of last year?

You may have noticed that very little of my optimism has to do with actually solving any of the above problems. I am simply pointing out that they ARE KNOWN and may have already been priced in. So any UNEXPECTED (unpredicted?) positive development may actually be a net positive.

As a stock trader, I go by what charts tell me. The market's decline has been unprecedented. It may be overdone. Most stock charts are broken. Then what? Some companies will disappear or merge, the rest will eventually turn around. Since they all belong to different industries, they did not all go into a decline at the same time. Now they are not likely to break out all at the same time. A long stream of breakouts that I can ride a few at a time in a new bull market - ah! - music to a trader's ears.

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