Have we passed the market bottom now?

[Aurel]

It seems that the DJI has started recovering now, and my 401k has also regained a little bit of its losses. So, have we passed bottom already, or is this just a temporary dead cat bounce?

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&chdeh=0&chdet=1238627995494&chddm=99314&q=INDEXDJX:.DJI&ntsp=0

[the]

Allow me to direct you to my post from the beginning of March, posted literally the day before this "rally" began.

Nothing has changed. Beware.

http://forums.pelicanparts.com/showthread.php?t=461771

[cab83_750]

Well, a close friend of mine, a loan broker, has suddenly been bombarded with new loans/refi requests. Given the tax incentive, low interest rates, etc., people are now buying again.

[Porsche-O-Phile]

Bottom for the DJIA? Maybe.

Bottom for real estate? Nope.

Bottom for the job market? Not even close.

Bottom for the financial sector? Nope. Not until Citi gets out of the woods and banks start seriously lending to the private sector again. It's all about liquidity. Until that happens, the financial sector will continue to be a drag on this whole thing.

It's getting close to the overall bottom I think, but there are still a few torpedos in the water that need to be dodged. One is obviously the BK filing of GM and/or Chrysler. Either one will sink the markets a lot and have a lot of ripple effect, as well as stifling any turnaround/recovery for a few more months but honestly I think their failure is largely already priced into the markets (including the job markets). Not entirely, but a lot.

Still a very real possibility that one or more large financial institutions (like Citi) might get nationalized. So that's another thing that could really drag on financials for a while.

Overall we're getting there but also keep in mind this is likely to be an "L" bottom, not a "U" or "V" bottom...

[imcarthur]

From that same post above . . .

Originally Posted by legion

If you drop a dead cat from high enough, even it will bounce.

Ian

[alf]

Do not mistake the thermometer for the tempreture or the DJIA for the Economy. The economy rebounding will lift the DJIA, thinking it works the other way is folly.

[grudk]

My 2 cents: Housing has corrected well in some places, but who's to say it can't overcorrect (often does, historically). In the LA area, the cheaper homes have come down in price nicely, but the higher tiered homes have not corrected to anything close to historical price/rent ratios (and rents are falling now). So, housing started this, but has more to fall. And now unemployment is bad and getting worse. There is a 'plan' for the banks, which many think will FAIL. What has changed, fundamentally, to call a bottom (other than the govt issuing debt)? Nothing. I find it amusing that stocks go down 50% and more, and then up a bit from the bottom -- now pundits are all so ready to call a bottom. Many, many more shoes to drop. This is going to be a long, wild ride. And that is assuming that nothing crazy happens (and sooner or later, something crazy always does). The govt/wall st/banks all want another bubble. They will get one eventually, but I think it's highly unlikely to be soon. That said, I would not be suprised to see this bear market rally hold for a while (months). If it does, it will make the next leg down all the more devastating.

[pwd72s]

My crystal ball is cloudy...

[Tishabet]

Originally Posted by alf

Do not mistake the thermometer for the tempreture or the DJIA for the Economy. The economy rebounding will lift the DJIA, thinking it works the other way is folly.

+ $700 Billion

[berettafan]

i've been quietly suspecting that real estate in our area has found the bottom.

[turbo6bar]

If you drop a banker from high enough, will the bonus check bounce from his pocket?

Housing is far from mended. Unemployment is up and delinquencies/foreclosures continue. If you have the funds, foreclosure pricing is looking quite nice. We'll hit bottom when prices resemble replacement cost or new household formation necessitates new supply.

A great market timer might be able to do good with a double-inverse S&P500, but the week to buy is next week or next quarter.

[KFC911]

Originally Posted by turbo6bar

If you drop a banker from high enough, will the bonus check bounce from his pocket?....

He/she won't even bounce at all...that's the purpose of the "golden parachutes"

[tabs]

Originally Posted by pwd72s

My crystal ball is cloudy...

I will lend you mine. My crystal ball tells me not to listen to these fools. Or is that Mothers voice I hear...of course Mother is flying around someplace on her broom. Seems she misplaced her sisters Ruby Slippers.

[RKC]

If you put every economist in the world end to end around the equator, they still couldn't reach a conclusion!

[tomphot]

It may be on the rebound now, but just wait until all the 1st Q earnings reports come out - it's going to be ugly!

[HardDrive]

I think this country is in deep, deep trouble, and we all best get used to eating crap sandwiches for a good long while.

[Jim Richards]

The key will be spicey mustard.

[jyl]

The stock market will bottom 6 months to a year before the economy (GDP) bottoms, and even further before the employment market bottoms.

Investors try to predict the future, not the past, so the stock market is anticipatory. Hence the stock market is a leading economic indicator and unemployment is a lagging economic indicator.

When do you think the economy (measured by coincident indicators like GDP, industrial production, retail sales, etc) will be at its very worst? Do you think it will be sometime in 2009? Then you would normally expect the stock market to bottom in 1H09.

If you think the economy will continue deteriorating all through 2009 and reach its very worst in 2010, then what does that imply? Look at charts (absolute and YOY) for industrial production, retail sales, housing, etc - most of these are already at or near their worst levels in 50 years, you have to go back to to the Great Depression to see worse. Since you think these will continue falling hard for at least another year, then you are effectively predicting another Great Depression or something like it.

How likely is another Great Depression?
- The banking system is not going to collapse - despite all the govt's mistakes, this is one thing they are doing right - govt has made it clear they will do anything it takes to prevent the banking system from shutting down as it did during the Great Depression, they will even suspend mark-to-market if that's what it takes.
- The credit functions of the capital markets are not going to collapse - credit metrics bottomed last year and have been improving ever since, from LIBOR to corporate bond yields to bond issuance - and govt has been pretty effectively restarting these markets one by one.
- The world is not going to shut down global trade in a repeat of Smoot-Hawley - a few stupid congressmen keep making protectionist noises, but the govt isn't falling into that trap.
- Unemployment isn't going to throw tens of millions into shanty-towns or homelessness - we have automatic stabilizers and govt is aggressively pumping money into those stabilizers.
- We aren't going to fall into deflation - err, well, to be honest this is still a wait and see - but so far prices appear to be creeping back from the deflationary edge.

So, everyone has to assess the situation and make their own call - but that is the thought process I am using.

The biggest risk to the stock market from here, in my opinion, is Congress and the electorate. Congress, as a whole, does not appear to understand the depth/length of the crisis that the US/world could still potentially fall into here. They are more interested in being "Dr. No" (as in no stimulus, no extra spending, no no no) or "Mr. Outrage" (as in we're so mad about bonuses and corporate jets, we'll hold our breath and let the economy turn blue). And, while they posture and scream about how many trillions the stimulus and budget are costing, they don't seem to realize how many more trillions the, let's say, "Great Depression of 2009-2014" would cost. Meanwhile, some of the electorate is just as stupid. I hear people saying "why spend all this money, we're already in a depression, just let go and things will work themselves out". Morons, they have no idea what a depression is really like, if we just "let go" - well, they haven't seen anything yet.

At some point, the govt will need more money to continue repairing the financial system. E.g., the PPIP program may require more than the $185BN of remaining TARP. How much more, I don't know - it is designed to leverage the mountains of private money that is on the sidelines, so maybe not that much - but if Congress, egged on by their most witless constituents, refuses to fund it, then the stock market will fall to new lows.

Edit: I should explain a bit more. For stock market purposes the question is not when will the economy be "good" again. The economy may not feel "good" to the average person until 2011, for all we know. The stock market is investors' forecast of future corporate earnings and inflation. As the economy is breaking down, investors get shocked by new pieces of bad news that they didn't expect. "Retail sales fell XXX - crap, that is a lot worse than I expected". Then they revise their forecasts downward and the market declines. At some point, investors are so pessimistic that they are no longer shocked by the new pieces of bad news. "Initial claims were XXX - yeah, I figured they'd be that awful." So they stop revising their forecasts downward, and the market stabilizes. Then the new bad news starts to be less bad than investors were expecting. "Industrial production was down XXX - gosh, I though it would be worse". They start revising their forecasts upward, and the market starts rising. This is a ridiculously oversimplified explanation, but you get the idea. Ever wonder why a company can report what look like bad earnings and the stock goes up? That's the same principle.

[Aurel]

I enjoyed your analysis and explanations, John.

[turbo6bar]

The stock market did not anticipate this recession, so I'm not confident the market can anticipate the recovery.