Land mines, as we know, kill. Equal in killing power, at least as far as our net worth goes, are financial land mines. Unfortunately, they're all around us, they're growing in number and escaping them won't be easy.
You don't need a microscope. They're easy enough to spot -- such as the prospects of higher interest rates, higher taxes, the threat of debt defaults in foreign nations, such as Greece, Spain and Portugal, more bank financial bashing from the non-stop increases in mortgage deficiencies and foreclosures and ongoing job losses.
Tack on a slew of other unknowns and uncertainties, such as the question of whether foreigners will begin to balk at buying Treasury debt, given our financial turmoil and puny yields, and a worsening Congressional war in do-nothing Washington, D.C. -- the place that's stifling progress on a host of major issues, most notably health care -- and you have to be bonkers to take the danger of financial land mines lightly.
Unfortunately, many investors seem to be blissfully ignoring them, even though some could explode at any time, leading to new chaos in the stock market.
"Too many investors are on cloud nine," says Los Angeles money manager Leonard Mohr. They're betting, he observes, that the economic decay is over, that Washington will get its act together sooner than later and that any new shocks will not seriously impede the rise in stock prices despite the market's big recovery. "It seems like a lousy bet," he quips, "that's about as credible as what you might hear from John Edwards."
One potential land mine that comes to mind centers on an old Wall Street adage: "As goes January, so goes the year." With the market, as measured by the S&P 500, down 3.7 percent last month, obviously the decline has worrisome overtones.
Yes and no, judging what I hear from one of Wall Street's leading historians, Sam Stovall, the chief investment strategist of Standard & Poor's, who views the January showing as an effective market indicator, but tends to minimize it for this year. The reason: the record shows it provides a more accurate yearly reading when the market goes up in January rather than when it goes down.
History hears him out. Dating back to 1945, the January indicator boasts an 85 percent accuracy rating when the month rises, but only 46 percent when it falls.
Still, a 46 percent reading is almost 50-50, which conjures up a legitimate reason to be concerned.
Stovall is one of a couple of bulls I recently chatted with. Interestingly, each voiced concerns about potential land mines, any one of which could drive stock prices appreciably lower if they were to become a reality.
In Stovall's case, he expressed concern about two in particular. One is the possibility that China might be too successful in slowing domestic loan growth, which could negatively impact the Chinese economy and the global economy in general. The other is the debt levels of smaller European and eastern European countries, and the uncertainty of whether the European Central Bank will bail them out.
Still, Stovall, even though he thinks 2010 could produce a fairly bumpy investment ride, tells me "I'd be a buyer of stocks here." One key reason is his expectations of an economic rebound, with GDP this year growing 2.5 percent and S&P 500 earnings ballooning 37 percent from year-earlier levels. Overall, he sees the S&P 500 climbing about 9 percent from current levels to wrap up the year at 1,215.
He cautions, though, that we're still emerging from a recession -- the market advanced more strongly than it usually does in the first year of a new bull market (23.4 percent in 2009) and consumer and government debt levels remain high.
Stovall favors seven stocks for the new year, all carrying five-star rankings from S&P, and each of which is viewed as a market outperformer. They are: Coach, Computer Sciences, Express Script, IBM, Jacobs Engineering, State Street Corp., and Wal-Mart.
There's good and bad news from another bull, San Francisco money manager Gary Wollin. On the good side, the economy is on the move, he says, pointing to three consecutive months of rising consumer spending. Further, he adds, "rising top-line sales, lower materials and labor costs, fatter profit margins and a zippier economy should add up to higher stock prices." He figures the Dow, by year-end should climb to between 11,000 and 11,500 from its current level of about 10,185.
The bad news: those land mines. For the near term, Wollin is fearful of higher taxes, the Federal Reserve hiking interest rates, more bum residential and commercial loans making their way onto bank balance sheets and China slowing its growth.
Add to this, what Wollin sees, as an "overblown market -- one that has gone too far too fast" (up nearly 70 percent from last March's lows -- and he expects about a 500-600 point Dow selloff over the short run.
But Wollin hastens to point out that he would use any such decline as a buying opportunity. His five top picks: Chevron, IBM, AT&T, Microsoft and Procter & Gamble.
Our bulls may be right in their positive market outlook. But on the negative side, it ain't easy to dodge land mines. It all reminds me of an old African-American spiritual:
"Swing low, Sweet charity, Coming for to carry me home."
Except I would revise the words to "Swing low, Sweet market, Coming for to carry me down."
What do you think? E-mail me at Dandordan@aol.com