The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Prepare for Boredom…?

01/31/2010

Wall Street attaches some significance to the “January Effect”, which basically says that January predicts the whole year. In fact, when the market is up in January, it is usually up 10.4% for the whole year. If it is down in January, the year is essentially flat. January 2010 was down 2.9%, suggesting a flat year. Since the market was so hot the last part of 2009, a cooling off period is quite appropriate and probably good for us.

Another rule of thumb is that, during election years, the second half of the year is better than the first half. The thinking is that uncertainty about the election outcome is greatest early in the year, but the “smart money” already has the election figured out before it happens, reducing uncertainty.

This suggests that 2010 will be a boring year for traders, who make short term bets, and a good year for investors, who invest in long term trends, so they can think about those long term trends. For those who need to worry, think about the problem of sovereign debt in general and Greek bonds in particular, as well as the continuing lack of transparency for the derivatives, which Warren Buffet defined as “financial weapons of mass destruction” and were a huge contributing factor to the Great Recession.

Worry is never boring . . . darn it!

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