Bottomed out?

Happy Friday everyone,

As I am sure you all know, the financial markets have rallied over the previous three trading sessions. The initial spark was Citigroup having released the news that their results for the first two months of the year were better than expected and that they were actually profitable. This is a good sign for the economy. Fear about the health of banks is what has been the predominant driving force behind the stock market tripping and falling down. So does this rally indicate that we have reached a bottom?

[By the way, even if we haven’t reached bottom, I am still aggressively purchasing equities for the first time since ’04.]

Well my biggest mistake here on ze blog is that I called the market bottom back in November. Granted this turned out to be true until the late-February, early March religious-experience meltdown. I also know of the bloodied altar which I chose to rest my prediction on: the altar of the Market Prognosticator. As a professional I hated those folks because the info was generally not useful or accurate – a bad combo, don’t you think? So what led me to break with my normal silence on such issues? I truly believe that my understanding of what needs to change is pretty complete and representative of the root causes of this financial catastrophe: old institutions, their leaders and their ideas have to change. Back in November there were flourishing signs that all three of those things were changing. That was what led me to make a call. Ouch!

So where are we now? I am even more nervous about making a call at this juncture, given my short-term accuracy, but longer-term failure. I have to tell you that there is still a lot of bad news that is bound to hit the financial markets soon. For example, first quarter earnings are going to be out in mid-April. More importantly, the recession that we are experiencing here in the U.S. is a global phenomenon and in other places the recession is even STRONGER. Europe, for example, is getting pummeled even worse than we are and because the European Economic Union is not unified, they do not have a unified policy response in the same way that we do. Oh, and what about China? They are crazy dependent on U.S. and European consumers spending. And China is way less than transparent in its economic reporting. What about the specifics of the model for change that I keep harping on? Well not much has changed since November, frankly.

What would I like to see that would give me more confidence that the bottom has been reached? Well I would love to see regulatory change taking place. I would also love to see upticks in consumer spending and confidence. I would love to see some stabilization in the fall of home prices. If those statistics come out in the affirmative then I would have more confidence. Do you remember that in my (ultimately, doomed) market bottom prediction last fall I had said that we still had to get through 4th quarter earnings season and news of foreign woes, too? We have a similar situation now: calm before a potential shit storm.

If you have courage as I do that we are at or very near the bottom then you can do as I am doing: buy equities. If not, then know that we still have close to 7,000 points of the market on the upside before we re-reach previous peaks! That is a 100% appreciation (god damn!) and likely to take almost a decade to recoup. No, I am not kidding. If it doesn’t take upwards of 5-7 years to recoup then I will feel like the idiots are running the asylum again and sell into such madness.

Does all of this make sense?

In conclusion: I am not confident that the bottom has been definitively reached, yet but am buying anyway. The lows are just too low and bargains in sound businesses abound.

Have a good weekend!

Jason