Philip Gvinter

10 Contrarian Reasons for a Bottom

I tend to agree here. I think that we have what has been referred to as a Santa Claus rally followed by another leg down and than we can talk about a real bottom forming. I still feel that while stock prices are beaten up they are not cheap when measured against anything but the trailing 12 months of earnings and that analyst estimates for S&P earnings for next year are much too high. I think that $65 is a much more realistic level than the $80-$95 that many analysts are still forecasting. That having been said a "cheap" price for the S&P would be somewhere in the 600s so a very realistic scenario would be one last nasty leg down some time in Q1 09. The counterpoint to this is the argument that all bubbles tend to over-correct before a recovery which would mean the low 600s or lower for the S&P.

This Recession Will Be Anything but Deep

I disagree with the fundamental premise here. While government intervention is indeed finally becoming effective the recesionary effects of the restoration of sustainable credit standards and general common sense in the pricing of risk will still mean significant housing and commodity price declines. These declines will lead to a deep recession and an equally sharp recovery. We are however at least 12 months from the end of the recession and at least 6 months from its bottom. It will be time to buy stocks again once more reasonable earnings are priced in for FY 09 which will likely happen some time between Q1 and Q2 earnings reports. Bond yields also need to come back towards reasonable levels. Banks do indeed need to make money, and in order to do so they need to take risk. It is extremely difficult to make money by taking risk if the price of the risk is artificially deflated.