Lilguy

Last Thursday Was the Bottom - It's Time to Get Back in

THe key reason for believing the market has hit its cyclical bottom is that most economists believe the economy will begin to turn around in the 3rd or maybe 4th quarter of next year. These same economists earlier thought that we'd hit bottom before the end of this year.

Most economists are wrong.

I think if one looks at what's driving the economic decline, one has a hard time seeing it turn around anytime next year. Layoffs will continue throughout next year (with a possible seasonal uptick in temporary employment for next holiday season). The financial crisis will continue as banks, insurance cos., etc., continue to writedown bad derivatives based on residential and commercial mortgages, credit card debt, etc. And ultimately, the continuing increases in foreclosures linked to mortgages across the spectrum from prime to sub-prime will not subside next year.

About the only serious help to stem these economic forces must come from the USG. It is clear that Obama intends to try to use major fiscal stimulii to do so. The Fed has already tried to use monetary policy to ease the decline, but so far has generally failed (although things could have been a lot worse without their efforts to date, especially in preventing a complete financial sector meltdown).

NTL, I don't think anything the Obama administration can do will have significant effect until at least 2010. It just takes that long for even continuing fiscal injections (such as infrastructure development) to make their way through our economy.