The Top Ten Reasons For a 2009 Market Rally

At this point, it is very uncertain as to the direction of the markets for 2009. Earlier we penned the Top 10 dangers for 2009 and now we will attempt to outline the events that could propel the market higher.

1. Low mortgage rates have finally appeared. Declining housing prices, falling housing starts, fewer house sales, and growing inventories have made 2008 a dismal year for anyone watching the destruction of value for the nations housing stock. The Federal Reserve has orchestrated a lower interest rate environment which has led to 5% and lower mortgages. It looks like the refinancing market has picked up considerably. However, should spring awaken with a zest from new buyers willing to take the chance of purchasing a very cheap house with an historically low mortgage rate, the housing market could get a long awaited lift. Such an event, will be positive for home builders, building products companies, real estate agents, and retailers like Lowes and Home Depot. This would clearly bring some excitement to the markets.

2. The auto Industry is clearly a mess. It is over levered, has a bloated cost structure and currently lacks enough viable products. The Government gave GM and Chrysler a life line with many contingencies. If these two companies can successful exchange the bulk of their debt into equity, renegotiate a competitive labor agreement, and relieve themselves of some legacy healthcare and pension costs, perhaps profitability can return to this industry. An impactful restructuring will be viewed very positively by the markets.

3. The corporate loan and bond markets have seen some life recently. If this trend continues, the capital markets could reopen and companies can begin to borrow again. This would clearly benefit the stock market which will take its lead from the credit markets.

4. The Federal Reserve is growing the monetary base and has pledged to do whatever is necessary to stimulate our economy. It is very concerned about deflation and was willing to drop rates to zero. The dollar subsequently began to lose its value again to the yen and the euro. If the Fed suddenly determines deflation is not a risk anymore, the dollar will stabilize and any fears of a depression will dissipate. If the Fed is ready to raise rates, growth will be on the horizon and markets will be moving up.

5. The financial crisis is not over. It appears that many of the weak financial institutions have been fixed but one never know when a Madoff event could appear. One big concern we still have is the stability of Citigroup. The Government truly bailed out Citigroup with a bad deal for taxpayers but a good result for creditors and stockholders. However, we believe such a move is the precursor to an acquisition of Citigroup by another financial company. Citi can not survive in its current form by itself. It needs to dismantle its pieces or sell itself. An announcement of a Citi transaction will be very positively received by the markets.

6. AIG finally sold an asset today but the proceeds hardly put a dent in the loan owed to the Government. This company has become an albatross on the taxpayer's back. Additional sales of assets which will meaningfully reduce the Government loan will please Congress and be perceived by investors as a positive sign that the financial crisis may be moving in the right direction.

7. Unemployment is rising each week and there is no slowdown in sight. Eventually, companies will pare their workforces down to levels needed to remain in business. A slowdown in the growth of unemployment will be a good sign that an economic bottom is around the corner. If the market hasn't risen by this point, it certainly will become a raging bull.

8. The announcement of Mergers and Acquisitions have been sparse. As financially strong companies peruse their competitors, value is being seen everywhere. It is hard to execute an acquisition in these markets even if both parties come to an agreement because stock prices are too volatile. As the volatility declines, the pace of acquisitions will pick up. Investors will start to sense there is plenty of value in the market and they won't want to miss the opportunity.

9. China's growth is clearly slowing but its government is not sitting on its hands. A huge stimulus package was implemented to keep the economy moving. Most investors expect the country to continue to grow but at a much slower pace than the last few years. If the Chinese Government can figure out a plan to propel its economy back to the double digit growth, the global economy will get a jump start and markets will follow.

10. President-Elect Obama is gearing up for his own stimulus package. His economic team is well versed in economic history and the financial markets. A creative plan could clearly give a boost to our souring economy.

There is no right answer to when, how , and why the markets will finally start its upward march again but the above ideas can prove to be some of the factors that drive the markets higher and bring smiles to investor's faces.