There is enough pent up demand and general "buzz" in investment circles at the moment to prompt speculation about a rally in equities at some time in 2009. This stems from historic trend analysis which indicates that stockmarkets tend to begin recovering in advance of any upturn in recession-hit economies. As always, by the time the mainstream has noticed what is going on, a bull run is already under way, and some of the best opportunities have been snapped up.
The market-based potential hinges on asset prices that have plummeted to levels that belie their underlying values. In addition to the effect of indiscriminate pricing-in of risk, shares have been dumped wholesale on thoroughly shell-shocked marketplaces. This can laso be attributed funds clawing back cash to meet a wave of redemptions, and de-leveraging activity. Add to this the pensions industry, joining in the rush to shed equities to shore up key ratios, and the forces at work conspire to create market conditions bordering on surreal. In effect, the supposed efficient market model is no no longer functioning correctly.
If the analysis is correct, the effects of the government's monetary and fiscal stimuli, the bail-outs and the guarantees, will take longer to work through; with a lead time until they appreciably start to take hold at between six to nine months.
That takes us past the mid-point into autumn of this year, and to a scenario for investors to consider now. Nobody can reliably call the bottom of the markets, but the state they're in today is the worst for decades, and there is a distinct possibility that there is not much left to rip out of current prices.
The active stock-pickers are circling, and fortune could favour the brave.
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