Doomsdayers Are Like Mushrooms

Alcoa was scheduled to report its Q3 numbers after the markets close unofficially kicking off earnings season.

I mentioned Monday how I believe that another 2008 has been unnecessarily priced into things, so I’m excited to see just how much the lowering of expectations will cost the market as far as the price-earnings ratio goes.

Let’s take that giant leap of faith here and say the situation in Europe is stabilizing. And let’s say those inflation numbers in China come out tame and they begin to loosen their money a bit. Add the fact that the Japanese supply chain is finally getting back up and running, and we’ve got a lot of bullish signals.

If earnings by and large beat expectations, as I believe they will, and the S&P can get through that 1215-1220 level, the market could really take off. In fact, if earnings are as strong as I think they’ll be, I don’t see any reason why it won’t take off 15% between now and the end of the year.

My concern, however, is that when this market does take off, it will do so without anyone in it. Looking at the 10-year, there’s still a lot of cash on the sidelines. All that volatility over the last few months and all the doomsdayers preaching Armageddon have created a lot of nonbelievers in this market. I sincerely hope you’re not one of them.

Doomsdayers are like mushrooms. They come out in the rain, and they die off when the sun comes out. Over the last few months, it’s been very easy to talk down the market and find a million reasons to sell. But if you’ve been tuning them out and using this period to identify value and accumulate positions, you may find yourself on the cusp of a great reward for that discipline.

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