Were the Bears Wrong or Just Early

With only a few days remaining in 2010, we can now say with some degree of confidence that it was a good year for both the stock market and US economy. Not great, but good.

That means we can also say that the bears were wrong.

And that's saying something. Because coming into this year, pretty much everyone was convinced the US was headed for hell in a handbasket. And that means pretty much everyone was wrong.

But what most bears will tell you these days is that they weren't wrong--they were just early. All the horrible things the bears were predicting, the bears will say, are still going to happen, they're just not going to happen as quickly as they thought they would. For example, the bears will continue, you just wait until next year. The US is still Japan--an empire in decline, in the midst of two or three "lost decades." And the recent stock market revival is just a "sucker's rally" in the midst of a long-term bear market. And so on.

So will the bears finally win in 2011?

That remains to be seen.

I find the "two-decade workout" argument compelling. The golden economy and bull markets of 1980-2007 were fueled in large part by massive borrowing by both consumers and the government. The new forced "austerity," I think, will lead to slower growth and weak asset performance. Houses and the stock market are, even now, expensive by historical measures. So I think the future is likely to bring more high unemployment and disappointing returns.

Dan Gross, however, is more optimistic. He points out that there are important differences between the US and Japan. By bouncing back from the worst financial crisis since the Great Depression, the U.S. has, once again, demonstrated its resilience. And I certainly wouldn't disagree with him on that.

In any event, 2010 was a good year for the bulls. For the sake of all of us, here's hoping we get more of the same in 2011.

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