Dueling Fools: 2006 Bear Rebuttal

Sure, you should be worried, Rick. As good as your argument might look on paper, this so-called bull market is standing on ice thinner than the frost covering my truck's windshield this morning.

March of the optimists
I know it feels as though you're the lone wolf in this debate, but you've got plenty of allies. Maybe none of them reside here at Fool HQ, but among the journalistic hordes there are dozens. And there's no guarantee that they're right. Indeed, such groupthink is often flawed.

Lies, damned lies, and predictions
Just ask the analysts who follow Google (Nasdaq: GOOG  ) what they think. They've been right on the search king's numbers just short of never. Not once.

But what am I saying? You already know how reliable crystal balls are. After all, your predictions from last January haven't exactly been spot-on. Apple (Nasdaq: AAPL  ) will go lower? Oops. Krispy Kreme (NYSE: KKD  ) will bounce back? Not really. TiVo (Nasdaq: TIVO  ) shares will recover? If only.

Not that my predictions are any better than yours. I'm just saying that it pays to be a pessimist when it comes to the market. There's more money made that way. Besides, recent events bring forth the faint growling of a hungry bear. And he's beginning to chew on the economy.

Dead investor's curve
Yeah, that's right, I said the economy. Sure, it's going well now. But personal savings, which supplies much of the lifeblood of the stock market, isn't growing at all. Quite the opposite, in fact.

What's more, on Tuesday the yield on the two-year Treasury bond exceeded that of the 10-year bond for the first time since the last recession. That's called an inverted yield curve, and the markets didn't like the warning one bit. Both the Dow and the Nasdaq were down 1% on the day.

Is that a sign of things to come? That's impossible to know for sure, but a recession has followed an inverted yield five times over the past 30 years. Only in 1998, at the beginning of the bubble era, did the inverted yield curve prove toothless.

It's different this time?
Market optimists say the curve can't stay inverted as the Fed continues to raise rates. Maybe they're right. Maybe rising rates are good for the economy. Maybe corporate profits are sustainable. Maybe home prices can keep going through the roof. If so, Rick, you're right; 2006 should be a great year for stocks. History, however, suggests you're wrong and that the most recent bull run is near its end. Unless you're Santa, now isn't the time to be waving a red cape.

Don't let the bear batter your portfolio. OurStocks 2006annual includes 12 of our best picks for the year ahead, including David Gardner, Philip Durell, Bill Mann, and both ofyour Foolish duelists.Get your copytoday.

TiVo is aMotley Fool Stock Advisorrecommendation.

Wait! You're not done. This is just a quarter of the Duel! Don't miss the Bull and Bear opening arguments and the Bull rebuttal. Even when you're done, you're still not done. You canvoteand let us know who you think won this Duel.

Fool contributorTim Beyers, like Stephen Colbert, places bears near the top of the threat list. Bears: You're on notice. Tim didn't own shares of any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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