October 06, 2008

What will be some sure signs of a bottom in housing? How about stocks?

And isn't it about time for another panicked Bernanke rate cut?

From wiki:

A stock market bottom is a trend reversal that marks the end of a market downturn and the beginning of an upward moving trend. A "bottom" may occur because of the presence of a cycle, or because of panic selling as a reaction to an adverse financial development.

It is easy to identify a bottom in hindsight but very difficult to identify a bottom (referred to by investors as "bottom picking") while it is occurring. This is because the upturn following a decline is often shortlived and results in a continued price decline and hence a loss of capital for the investor who purchased stock(s) during a misperceived or "fake" market bottom.


15 comments:

satan said...

'Helicopter Ben' becomes 'B-52 Ben'.
___________

May See Lending to Companies, States as Next Crisis Fronts

Oct. 6 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month's downfall of Wall Street titans: its spread to corporate America and state and local governments.

Companies from Goodyear Tire & Rubber Co. and Duke Energy Corp. to Gannett Co. and Caterpillar Inc. are being forced to tap emergency credit lines or pay more to borrow as investors flee even firms with few links to the subprime-mortgage debacle. California Governor Arnold Schwarzenegger says his and other states may need emergency federal loans as funding dries up.

A cash crunch on Main Street would endanger companies' basic functions -- paying suppliers, making payrolls and rolling over debt. The widening of the crisis suggests that Bernanke and Treasury Secretary Henry Paulson may have further fires to put out even as the Treasury sets up the $700 billion financial- industry rescue plan approved last week.

Anonymous said...

Better to go for Barter system like Afghanistan or Zimbabwe. Basic food items, personal items etc.

patrat said...

Yahoo finance today, OCT 6. This is happening in Illinois:
Facing a lawsuit over deceptive mortgage practices, a Bank of America Corp. subsidiary has agreed to modify tens of thousands of loans to keep people in 11 states from losing their homes, the Illinois attorney general's office said Sunday. Borrowers stuck with Countrywide Financial mortgages that they can't afford could see their interest rates reduced or have the loan principal cut. Some might qualify for having to pay nothing but interest for a decade. Even people who can't afford to keep their homes with such changes will be able to get help moving to a new home. The mortgage aid includes revising customers' payments so they don't exceed 34 percent of income. Other options include reducing interest rates and adjusting principal so that borrowers don't wind up actually losing equity under some payment plans. Countrywide will not charge loan modification fees and will waive prepayment penalties.

Anonymous said...

well... now they aren't playing fair...

Anonymous said...

I think the bottom will be close when state and local governments end up winning eminent domain lawsuits and take peoples houses without having to pay any money for the purpose of bulldozing them. As evidence, the governments would present accounts of auctions with a minimum bid of $1 that didn't attract any buyers. This is already starting to happen in Detroit and the other Rust Belt cities, but not to the extent that would reduce supply enough to stop falling prices.

When millions of houses in California's Inland Empire, the outer parts of the Las Vegas area, the exurbs of the Northeast, and other similar areas across the U.S. get knocked down, there might be a chance that the remaining houses can put a bottom underneath their values.

The states like California that are reliant on property tax revenues are most likely to try extreme measures. Keeping property taxes at bubble-peak levels is a matter of life and death for them, and as far as I know the taxing scheme post-Prop 13 is applying a fixed percentage to the lesser of (a) the current value of a home or (b) the purchase price of a home increased by 2% per year since its last sale. As you have pointed out before, "(a)" has fallen by over 40% statewide in the past year. Other states are in similar if not quite as dire position.

Some of the houses that got built earlier this decade should not have been built at all if there existed a rational building climate. And that was before gas reached $2/gallon in early 2005, $3 after Katrina, and over $4.50 this summer in California. What value would you put on a 3000 house that requires you to drive 10 miles to a supermarket and 50 miles to the nearest reasonable concentration of white-collar jobs? Since there doesn't seem to be a pattern of commercial development around these new exurbs, their prices are going to fall almost and in some cases exactly to zero.

I don't see stocks approaching the X-axis, so a bottom is only going to be recognizable in hindsight to me and most others. However, there are going to be some unprecedented signs that are going to indicate a bottom in housing. And once that bottom is reached, the market will remain very close to it for at least several years.

Anonymous said...

Housing Panic will become as main stream as Dancing with the Fucking Stars. We have a long way to go.

mickeyc said...

The bottom in housing is close when we get to housing at three times average income.
The bottom for stocks when we hit a P/E average around 6.
I think the day you stop trying to call the bottom of the market will be a great contrary signal too!

Miss Goldbug said...

OMG-we are no where near a market bottom. Stocks are way overvalued for future earnings.

How long did the bull market last for stocks in the late 1960s?

How long did the market go up since the mid 1990's?

We are in for a lost decade of both housing & stocks - starting this month.

kilgore said...

Tomorrow the Senate (House?) banking committee begins public deliberations on the new credit default swap market. Two things will happen:

1. The media will be forced to pick up this story, and at least one of the network anchors will begin to grasp the gravity of the problem - causing the panic to accelerate.

2. The banks will fight it because any transparency into those opaque markets will be the end of our financial system as we know it.

bostonobserver said...

Look for a 50-100 bps cut as early as today. Perhaps coordinated with BOE and ECB.

Market bottoms are impossible to call. If you believe in the future of the US and all western economies the best thing to do is dollar cost average into in the market.

Miss Goldbug is calling for a lost decade in stocks... heck we just had one...

vanilla ice said...

DOW Below 10,000. Ah hah!

property investment said...

I think he had some interesting things to say from a big corporation point of view but what about the little person.

Stuck in So Pa said...

I think the bottom will be close when state and local governments end up winning eminent domain lawsuits and take peoples houses without having to pay any money for the purpose of bulldozing them. As evidence, the governments would present accounts of auctions with a minimum bid of $1 that didn't attract any buyers. This is already starting to happen in Detroit and the other Rust Belt cities, but not to the extent that would reduce supply enough to stop falling prices.
==================================
Tearing down abandoned buildings in the rust belt will not reduce supply of LIVABLE houses. No one's living in these tear-downs any way. Just Google "urban decay Detroit" to get an idea. It's sickening to see the decline of our cities. On a brighter note, satellite images of Detroit show vast areas of the city turning green. More parks you think, No just mother nature reclaiming vacant lots where once whole city blocks of houses stood!

Anonymous said...

When you can buy ten - twenty houses for the price of one right now, then you may be close to a bottom.

Anonymous said...

When?


When we see the dead bodies of every dem and repub rotting in the streets!

.