Saturday, November 29, 2008

* Does This Market Have A Bottom?

Each time the market rallies, the question is asked 'Was yesterday the bottom?' Up to this point the answer has been a resounding 'No' as the market quickly resumed its downward slide after each rally. Recently, a columnist asked some Wall Street pros, people who deal with hundreds of millions, billions, of dollars every day, what they are looking for that will tell them the worst is finally over and the market is beginning to recover? Here are their responses:

Brian Reynolds, chief market strategist, WJB Capital Group
Looking for easier credit, lower rates on corporate bonds
  • Credit market must improve significantly before stocks can begin a lasting rebound
  • Flood of money from the Federal Reserve has thawed the credit market some, especially for banks lending to other banks
  • Credit for everybody else is still extraordinarily tight. And that keeps a lid on stock prices.
Tobias Levkovich, chief equity strategist, Citigroup
Investor apathy, near-zero interest rates
  • Many market watchers are on the lookout for what is known as "capitulation," or peak panic selling, when the market suffers one dramatic, final swoon that creates a lasting opportunity for the bulls.
  • The Chicago Board Options Exchange's Volatility Index, or VIX, a closely watched indicator of market fear, last week set a record high, on a day that also happened to bring the stock market's fresh lows. That suggests to some that there was so much panic that a lasting bottom has been reached.
  • But the VIX has peaked, fallen and peaked again repeatedly this year, with the market later finding new bottoms each time. Mr. Levkovich doubts the final moment of surrender will be quite so obvious.
  • Mr. Levkovich would rather see apathy than fear -- a shift that would cause volatility to fall rather than rise.
  • "What I'd look for is more realism on earnings," said Mr. Levkovich. "And then we need very low interest rates, almost zero, to push people back to taking risk."
Robert Pavlik, chief investment officer, Oaktree Asset Management
Thinks a lasting recovery is still six months away
  • Until last week's market swoon, Mr. Pavlik thought stocks had already found their bottom and were simply stuck in a trading range.
  • Like other market watchers, he had taken heart in the market's ability to repeatedly rebound above its lows for the year. That suggested there was a price at which investors were willing to buy stocks, which typically lures other investors out of the woodwork.
  • Any bounce from these levels will likely be short-lived, Mr. Pavlik now believes.
  • Mr. Pavlik doesn't expect clarity until after the second quarter of 2009, when corporate profit reports will, he hopes, start to hint at a recovery.
  • "Something significant has to change in order to get any kind of lasting rally," he said. "Nothing has changed yet."
As a dividend investor, 'finding a bottom' is not something that is essential for success. There is a lot of fear today. Many are posturing themselves in a defensive stance, moving money out of equities into cash and bonds. By most measures, many blue-chip stocks are trading at a historical discount. Are you going to buy now or pay full-price or a premium price later? Unlike the perpetual going-out-of-business sale at the local furniture store, this sale will end suddenly and without warning. Will you miss the opportunity?

Reference: Weary Investors Plead, 'Give Us a Sign!'