There are other bullish signs out there as well. According to John Mauldin, famous bear Bill Fleckenstein is closing down his short-only fund and sending the money back to investors. According to Mauldin, Fleckenstein said that: “Right now, my list of stocks that I want to be long is longer than the list I want to short.” When the “smart money” starts giving you signals about market valuation, it is wise to pay heed. This comes on top of a number of other market sages who seem to be indicating at least a passing interest in the long side of U.S. equities right now. As long as overall sentiment is decidedly morose and “smart money” types are beginning to see value, that is a positive for stocks.

Make no mistake about it, 2009 will be a tough year for Main Street as corporate earnings drop, unemployment increases and businesses retrench. However, markets tend to look ahead to the next phase of the economy rather than dwell on the present. We are already in the thirteenth month of this recession—which is a pretty long time as recessions go. Even if the economy faces another year of retrenchment, the market will start to discount in a recovery six months or so prior to one being visible. That gets us to the mid-year point.

Clearly, there are a number of events that could cause a renewed panic sell-off in U.S. stocks. Further bad headlines like the Madoff affair, a major war somewhere in the world (Israel’s action versus Hamas in Gaza does not appear to be rattling the markets just yet) an oil embargo, etc. could cause short-term jitters that could take out the lows established in the various indices in late 2008. However, absent some large shock, expect the markets to be pretty range bound for a few months before beginning a rally near the end of the year that begins to price in a better economic environment in 2010.