We all know the reasons to be bullish on stocks now: corporate earnings for the third quarter would surprise on the upside; a cloud of investor pessimism still prevails over the market; and stocks are simply attractive compared to U.S. Treasuries that offer little to no return and that may be our next bubble to burst.
Michel Lombardi is bearish on stocks further out in 2011:
"I have great concern towards the U.S. dollar, am concerned about its possible collapse (which would push domestic interest rates up,
sending the stock market down), and see the weight of the U.S.
housing market putting additional pressure on the economy.
The National Bureau of Economic Research said earlier this week
that the worst U.S. recession since the Great Depression ended in
June of 2009. I agree with this. But the U.S. economy is still so
fragile, so very delicate; we could lapse back into recession if the
cards are not played right.
The U.S. brought interest rates down in 2004 to their lowest level in
46 years. And what did Americans do with their access to easy
money? They borrowed and borrowed some more, investing the
borrowed money into real estate. Looking ahead, perhaps the Fed's
actions (of bringing interest rates so low as to entice consumers to
borrow more than they can afford) will one day be regarded as one
of the most costly errors committed by it or any other banking
system in the last 75 years."
On US banks, he has this to say "I don't have any specific statistics to quote, but I believe that U.S. banks have plenty more bad housing loans on their books to eventually deal with and clear out. The banks have been taking
homes back (foreclosing) so much that they have actually slowed
down the foreclosure process, because they do not know what to do
with all the homes they have already repossessed."
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