Outlook For Equities

Abhijit Chakrabortti, an equity strategist from JP Morgan, came on CNBC to share his bearish outlook for the S+P 500 in 2006. His target is 1125. The way the interview went, it seemed like the shape of the yield is the biggest driver behind the call. I generally agree with the importance of the yield curve in driving the economy. He made an interesting point that every time the curve inverts people try to dismiss its importance.

It seemed like, similar to my thoughts, Mr. Chakrabortti's call is more focused more on how markets usually work as opposed to just looking at current events to make a forecast.

Each path, how-the-market-works or assessing-current-events, has drawbacks. The how-the-market-works (which includes me) can potentially miss the forest for the trees. The assessing-current-events crowd risks falling prey to this time is different.

If you fall into one of these camps, you need to see the other side of your trade and plan accordingly. Since I believe the market will likely drop I am prepared to take defensive action but will not do so until the market shows signs of cracking. I think down a little goes with the territory and so I am not concerned about trying to get out at the top.

If you are a current-events guy you need to recognize that this time might not be different and a specific I am wrong plan needs to be in place.