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June 23, 2011, 12:01 a.m. EDT
By Jeff Reeves
ROCKVILLE, Md. (MarketWatch) "â? I am not really an optimist by nature. In fact, I'm really kind of a grouch.
Despite this glass-half-empty mentality, I remain mostly upbeat about the market and the economy in general. Employment has been steadily improving lately, with 1 million jobs created in the last six months. A wide array of blue chips, from McDonald's to Apple to Caterpillar now trade above prerecession levels. Heck, even gas prices have rolled back about 40 cents from their May peak.
Greg Zuckerman explains why a contrarian group of investors believe that the outlook on China's economy is too optimistic, and hope to make millions by betting that the yuan will soon fall.
I outlined my optimism last week in a column discussing 11 reasons stocks will storm back. And as usual, the bears weighed in with their counterpoints, many of them well reasoned and some of them ones that I actually share. After all, just because I'm optimistic doesn't mean I don't see the potential for some very real problems. See 11 reasons stocks will storm back soon.
But let's be clear: Being defensive or having a reasoned argument for why things will go south in the near term is vastly different than scare tactics about another Great Depression.
Since I'm a glutton for punishment, I figure I'd bang on some bunkers today and see what kind of bears are inside. Are you a reasoned, defensive and judicious bear? Or are you hoarding canned goods and firearms, cheering for economic failure?
Here are a few hard questions bears should ask themselves to find out:
As housing prices plummeted and as consumer spending remained anemic in 2010, many a column was written about how the 2009 dead-cat bounce would end in a double-dip, driven by a wave of deflation akin to Japan's "lost decade."?
Now I see similar headlines "â? only substituting "inflation"? for "deflation?"?
As late as August 2010, I saw deflation predictions of "a bleak second half 2010,"? literally days before the market went on to add 13% in just 3 months. There were even some folks urging investors to sell commodities like gold and oil to avoid the deflationary mess. Pity the poor souls who followed that advice. Read about 7 stocks under $7 to buy now on InvestorPlace.com.
All pundits and forecasters make mistakes, so it's no great shame to have been wrong on the great deflation menace. Lord knows I'm wrong plenty. But I have to admit, it's hard to take folks seriously when they are using the same apocalyptic rants but simply changing two letters in a headline.
The January 1980 peak price of gold was $850. So on paper, gold has netted a gain of over 80%. But don't forget that back in 1980, you could buy a Camaro for about $7,500 and fill it up with gas for $1.25 a gallon.
Inflation adjusted, that $850 equates to over $2,300 "â? meaning gold is actually down 33% from peak levels.
After the bubble popped in 1980, gold was trading around $500 in 1983. Inflation-adjusted that's north of $1,100 "â? a decent gain of 40%. Of course, that's based on a holding period of 27 years for an annualized return of less than 2%. Hardly bunker-busting profits.
"Stocks in Europe drop in early trades following Fed's downbeat assessment of U.S. economy http://on.mktw.net/lQ234O" 2:20 a.m. EDT, June 23, 2011 from MarketWatch
"Stocks on Shanghai Composite end session 1.5% higher http://on.mktw.net/llfcQy" 2:10 a.m. EDT, June 23, 2011 from MarketWatch
"Hong Kong stocks fall as banks weaken; Hang Seng Index down 0.6% http://on.mktw.net/jtb9Sr" 8:35 p.m. EDT, June 22, 2011 from MarketWatch
"Japanese stocks open weaker after U.S. slips on Fed outlook; Nikkei Average down 0.6% http://on.mktw.net/ksppgP" 7:10 p.m. EDT, June 22, 2011 from MarketWatch
"Shares of the used-car company, CarMax surged 7% on an outstanding earnings report http://bit.ly/k2h3cE $KMX" 5:29 p.m. EDT, June 22, 2011 from MarketWatch
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