What a Wild Month!

Written by Nathan White, CFA

I feel sorry for anyone who bet on the January Effect this year! With so much doom and gloom you would think that the end of the world is nigh.

I've heard a lot of negative prognostications about the future of the markets lately. It's seems to me that people have forgotten what an economic cycle is:  expansion-peak-contraction-trough. Just because the economy is in a contraction phase doesn't mean it is the end of the world.

Such is the state of our modern, media- hyped world. The true threat to the economy is not sub prime/credit contraction per se, but the government's responses to it (i.e., higher regulation and taxes, unnecessary bailouts, etc.)

It's interesting to watch the market make regular fools of people who are so confident in their predictions. A lot of what I call the "urban legends" of the financial markets are talked about this time of year especially if they have seemingly negative implications.

You might have heard the following two which have been touted lately:  "As January goes, so goes the rest of the year" or the Super Bowl indicator, which says that it is bearish for an AFC team to win and bullish for an NFC team to win. As for the first indicator, we all know how January turned out. Going into the Super Bowl, the heavily favored Patriots (from the AFC) seemed to cement the bearish view. That's why they play the game! With a Giant victory, which indicator is right? Tune in December 31, 2008 to find out.