Prof. Jeremy Siegel, author of the excellent book The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New, seems to think 2009 will be a good year for the stock market:

All of this means that, although the first quarter of 2009 will see negative growth, GDP should stabilize in the second quarter, earlier than most economists now anticipate. In real terms, housing prices have already retraced most of their gains from 2000, and by midyear prices should stabilize in this low-interest-rate environment. Year-over-year inflation should sink to zero, especially in the first half of 2009.

This year, as the economic slide abates and investors realize a catastrophe has been avoided, stock prices should enjoy a 20 percent or higher return. All equity sectors should recover.

The financial stocks will still be burdened by bad loans and government obligations. Nevertheless, new lending will prove extremely profitable to the banks whose cost of funds is now essentially zero. The Fed might find that it will be forced to raise rates during the summer, earlier than planned. And I believe long-term Treasuries are in a giant bubble and their prices will fall to earth once the economy improves.

All of this doesn’t mean there are no risks to stocks. The Fed must do more to encourage banks to lend to credit-worthy, non-delinquent customers. And the Obama administration must carefully structure its recovery plan so as not to bail out those that have been profligate and penalize those who have been thrifty.

Still, just as 2008 disappointed us on the downside, 2009 might surprise with better numbers than most are expecting.

Of course, just like everyone else, he didn’t exactly predict the worst bear market since the Great Depression! In fact, he thought the market would be led higher by financial stocks.

One of the few people who got it write was Nassim Nicholas Taleb or NNT for short. NNT was an options trader who achieved public fame after his awesome 2001 book Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets became a best-seller. His hedge fund actually did very well last year returning in excess of 50%.  Check out his video:

Also check out this great NYT article on how misunderstanding of risk management tools caused the financial mess.