Some times you get the Bear, sometimes the Bear gets you

In case you were feeling too comfy cozy, USA Today lists 5 scenarios for an economic downturn in 2007.

It's prudent for investors constructing their portfolios for the coming year to consider what can go wrong. Five risks to consider:
1: Puny profits.
If Corporate America doesn't deliver the bottom-line results that Wall Street is expecting, investors will be disappointed, and stocks could suffer, says Abhijit Chakrabortti, chief global strategist at JPMorgan Chase. Analysts expect companies in the S&P 500 to grow earnings at a 9.3% clip in 2007, down from 15.5% in 2006, says Thomson Financial. But even analysts' lowered forecasts may be too "ambitious," Chakrabortti says.

Shameless fearmongering. "Stocks could suffer" how, exactly? What kind of loss of liquidity does it take for the market to really collapse, as opposed to trough? I've got a little hint: if you own a bunch of S&P 500 stocks, or even Index Funds, you only take a beating on them if you sell them for less than you paid. If you're long, you ride it out. If you're a short seller, then a bear market is your oyster.*

2: Faulty Fed forecast.
There are two possible scenarios related to interest rates that could pose a problem for stocks, says Tom McManus, chief investment strategist at Banc of America Securities. The first is if the economy keeps chugging along and the Federal Reserve does not lower short-term interest rates as investors expect — or actually raises rates. The second scenario is if the Fed lowers rates more than investors envision. "The only reason we get more easings is if the economic environment is weaker than anticipated," says McManus.

Wow, I haven't read that much prevarication about nothing since I finished my senior level English courses. Really, does anyone really listen to anything the US Federal Reserve says? And by extension, does anyone really listen to anything anyone says about the US Federal Reserve?

3: Recession reality.
If oil cracks $75 per barrel again in 2007, that would put a "wrench in the bulls' plans," says Hugh Johnson, chief investment officer at Johnson Illington Advisors. The reason: An energy spike coupled with continued weakness in the housing market would exacerbate consumer cash-flow problems. That means a "higher chance of recession," says Johnson.

Plans? The bulls have plans? Don't leave me hanging! What kind of plans!? If they are plans that involve making money by going long,* I totally didn't see that coming!

4: Inflation worsens. If price increases for consumers and producers don't abate and continue to test levels the Fed is not comfortable with, more interest rate increases are likely, says Johnson.

And how exactly is the cost of lending catastrophic? Isn't the pickle that American consumers are in right now a direct result of too-attractive interest rates?

5: Political problems prove perilous. "If tensions in the Middle East were to broaden and deepen, energy prices are likely to spike, and I'm not sure the global economy will be able to swallow that," says Mike Ryan, head of UBS Wealth Management Research Americas.

Really, how about the parts of the global economy that own energy stocks? Will they not be able to swallow big, fat, juicy dividend payments?

If any bears want to tell me that I'm being a great big jerk, drop me a line.

*The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? This blog is intended solely for the entertainment of the reader, and the author.

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