This Bear's Just About Played Out

Back from a bit of a vacation and I wish I had not returned. This is now a full-fledged bear market. A look at financials, small caps, and tech tells the tale.

The S&P 500 is holding up relatively well due to the large energy component and to a lesser extent the utilities and materials. I doubt that will last much longer. Now for the good news. It is almost over!

I think we really started this bear in the summer of 2007, that is when a lot of stocks just stopped working. Especially in my world of smaller-cap quant names, all heck broke loose and it is continuing. So if I take that as the beginning, I think the end of the bear for the majority of stocks is probably in the first quater of this year.

Lately bear markets have been quicker than the 12 to 18 months of times past, and given the depth of decline in many of the smaller names I think a nine month time frame is reasonable.

The earnings yield relative to treasuries should prevent much more downside. Worst case scenario is the S&P 500 trading down to 1300-1250, another 10%. Best case scenario is that we saw the low Wednesday.

I am sticking to my guns on one particular small-cap name that I think is a 50 cent dollar even though I am getting abused in it. The next few weeks should provide some great opportunities and a lot of stress.

Take it all in stride and remember when things are uniformly agreed to be terrible it is already priced into the market. Feels like we are mighty close to that right now.

Comments

[billb:]

Finally, an article grounded in some reality. I don't think that things are necessarily going to go to the moon, but this talk of deep recession and now even depression is a bit overzealous. You wonder why the market gyrates like it does, but then it becomes obvious when you read all of these articles and news reports that are just teeming with emotion. The only thing that makes me feel that this correction (I'm not even calling it a bear) is nearly over is the excessive pessimism. I find it extremely hard to believe that everyone is getting it right this time. That would truly be a first for the market :)

2008 Jan 10 10:06 AM

[SmartGuySto...:]

Funny. My friends at the largest PE and hedge funds in the world say we are in the second to third inning of the credit crisis. Did you miss the article cover of WSJ that shows how expensive debt insurance is getting? How about MBIA's debt offering that is not exactly finding a sponge?

With all do respect, you are merely encouraging those with no real time information to bottom fish. Once again, you can find thousands of articles like this from 2000-2001 ...

What is the catalyst for the turnaround? Housing is still in free fall, retail numbers were horrific, casual dining is slowing fast, credit card defaults are on the rise, and employment is softening.

Like you, I would love to be a bull, but there is no evidence to support going long yet ...

2008 Jan 10 11:07 AM

[SmartGuySto...:]

Oh yeah, billb, if you think we're swamped in pessimism, go to B&N and look at the finance magazines. They are ALL bullish on 2008 ...

And that is why we have room to fall ...

2008 Jan 10 12:04 PM

[SmartGuySto...:]

Seems like Bernake wasn't aware that the bear market (which we haven't qualified for yet, but are on our way) is over:

Incoming information suggests that the outlook for economic activity for this year has worsened and that the "downside risks to growth have become more pronounced," Bernanke warned.

A housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said.

2008 Jan 10 01:19 PM

[Malkiel:]

This is a crisis of leadership--investors want proof that the people in charge can manage the economy--and you're not seeing the FED pick up on that, nor can we expect any sound or logical policies from Bush in his waning days, so there is no reason to trade or invest heavily and won't be until the November election clears the air. The market has no reason to do anything other than drift lower from here until November. Recession is a psychological phenomenon before it's a material phenomenon, and I see nothing to brake the current psychology...

2008 Jan 10 03:39 PM

[TA:]

Why do even the quality sites become infected with bears telling us the world will end tomorrow and we're all fools to not believe it everytime someone posts an upbeat article?

Like market timing or the state of the market has anything to do with buying cheap stocks in out of favour sectors and collecting the increasing dividends

I so hope you are right and we're in for another 30% down from here, I just love buying stocks on sale from doomsayers and people in a panic

I'm sorry you sold all your stocks or went short and need to keep pumping the bad news but please do it on the Yahoo boards where it belongs...

2008 Jan 10 11:30 PM

[calvino:]

The rout in the small caps has not tolled on the s&p, which is 5% off it's highs, or something close to that. LIke smart guy, I wish this was a bull market so that I can put my capital to work for good american startups that promise huge yields, with success. I have seen the opposite, brilliant technology dying on the vine in the face of political incompetence and financial treachery. This market is pleading for punishment as long as the likes of bidu and jrjc exist in the 300 multiples. That is where the money has gone, not to the startups, as you and I wish. I do not see it coming back , and moved to the other side.

2008 Jan 10 11:34 PM

[pepe:]

Thank you for your sage forward-looking investing advice. I am going back into the market on Monday and stuff my portfolio with all those bargain basement financials and home builders stocks

2008 Jan 12 03:12 AM