Have We Hit Bottom Yet?

Newsclips — April 8, 2008

By Gregory Blaha

MarketBeat (WSJ Blog) – Four at Four: Bottoms UpWhat marks a bottom in the market? Some say catastrophe is the identifier — the Bear Stearns Cos. implosion might be a nice example. Some say it’s boredom — when so many players in the market have exhausted themselves and an eerie calm takes over before the… Continue reading Have We Hit Bottom Yet?

  • MarketBeat (WSJ Blog) – Four at Four: Bottoms Up
    What marks a bottom in the market? Some say catastrophe is the identifier — the Bear Stearns Cos. implosion might be a nice example. Some say it’s boredom — when so many players in the market have exhausted themselves and an eerie calm takes over before the market turns around. Still others point to technical analysis, others look to sentiment, and still others believe that it is only reached when people stop searching for it. If this last point is the best indication, this isn’t the bottom yet, as too many strategists are discussing it in weekly commentary. Bob Doll, global chief investment officer of equities at BlackRock, says this week that he believes the stock market “has most likely completed its decline sequence.” Bill O’Grady, chief investment strategist at Wachovia Securities, also says that “last week’s market action was impressive enough to improve the odds that the bottoming process is underway.” But Brian Belski, U.S. sector strategist at Merrill Lynch, notes that this recession, being a consumer-led one, may be worse than previous recessions, and cause more attendant pain in the equity market. And Mr. Doll, too, is hardly convinced, saying “turning points for equities are always veiled in great uncertainty, appear unconvincing at the time they begin and are frequently accompanied by many erratic moves; only over time and in retrospect does a clear bottom emerge.”

  • Dow Jones Business Wire – Merrill Lynch CEO: Balance Sheet Shrinkage “Will Continue”
    Merrill Lynch & Co. (MER) Chief Executive Office John Thain said Tuesday that shrinkage in the brokerage’s balance sheet “will continue.” Speaking in Tokyo, Thain added that despite such difficulties, there would be absolutely no change to Merrill’s global strategy.

  • Aleablog.com – Scorecard: Securitization Q1-2008
    Investors bought only $131 billion of new asset-backed securities, residential and commercial mortgage bonds and CDOs – down 81% from $701 billion a year earlier. To put things in perspective, the shutdown of the securitization market is equivalent to closing down a large bank like Citigroup [annualized basis].

Comment As we have stated time and time again, the market will not bottom so long as the financial system’s capital base is shrinking. As Bill Gross would put it, the shadow banking system is currently under attack. John Thain confirms as much by predicting that Merrill’s balance sheet shrinkage will continue. Furthermore, the last story above points out that purchases of asset-backed securities, mortgage bonds and CDOs were down 81% from the previous year. We covered all our most recent thoughts on this in a recent Commentary.