Lilguy

Expect the Real Rally by Mid-2009

The core assumption of your judgment that the market will turn around in mid-2009 is that the labor market will improve--less unemployment, more employment.

I'm sorry, but this doesn't withstand the smell test. If US consumers aren't buying as much and exports are stagnating as (a) the dollar strengthens relative to other currencies and (b) other economies are experiencing their own recessions, employers will continue to lay off staff. The now 6.1% official unemployment rate is likely to exceed 7% by the middle of next year.

On top of this, the boomers may have to retire much later than they want as their savings go up in smoke during the ongoing bull market. So, if you add 3-5 years to their work life (not considering how Congress may push the Social Security retirement age farther down the road to save some pennies), there will be few openings for a new generation of workers looking for jobs.

Finally, when there is an economic recovery, jobs are almost the last category to see gains as employers are uncertain that the recovery will actually continue. Employment is very much a lagging indicator of the economy, more so as the US becomes less focused on manufacturing and more focused on services.

I see no reason, employment or otherwise, that the stock market should rally into a bull market next summer. Once the housing mess has stabilized, permitting the financial sector to stabilize, then maybe we will see a bull market opportunity. I don't think that will happen before 2010 at the earliest.