Wednesday, March 4, 2009

Have The Markets Bottomed?

It is premature to say that we have bottomed after one rally. For all we know we could see the markets plummeting again tomorrow. But it is worth mentioning some news. Yesterday Obama pointed to stocks, while not taken as a serious reason to buy equities, it did show that maybe the White House is finally looking to stocks and considering how they are doing. Without a doubt, the downfall of stocks in the past couple weeks has been attributed to a series of unfriendly investor news set out by the White House. But maybe, just maybe Obama is beginning to realize what he says and the actions of the government really move the market. Obama wants to fight for main street and lately it seems like he doesn't care about the stock market... but it is time to realize that main street has their retirement and savings in the stock market. A drop in the stock market seems like only wealthy Wall Street fat cats are losing money, but it is really main street that is getting hurt. If Obama has realized this, maybe we can stop seeing a loss in stocks due to government action.

From a technical standpoint, which I rarely focus on, it seems that we touched the level of 700, broke it, but now we have rebounded. It is important to keep in mind that when discussing market levels, you do so in ranges. For example, instead of giving an S&P level of 648, you would acknowledge the range of 645-655. So though we dipped below the 700 point on the S&P, I don't think we dipped below the range. To me that is much more critical than just a single point. We touched the range yesterday, and shot back up today. So in my eyes, we still held that 700 point level. 

The government has also started work on setting up a market for banks to sell off their toxic assets. This is critical. In my opinion, the biggest factor preventing us from moving on from the banking problems is that we don't know the value of their toxic assets. By setting up a market for the toxic assets, we will soon be able to fix this problem and move on. The government also outlined details about how the TALF program, which basically gets lending going in the small business, education, credit cards, etc... What I like about both these programs is that it is finally tapping into private equity. Private equity firms will be involved in setting the prices for these different securities. This is going to be well received by the markets because finally the government is tapping into private equity, which many investors see as the way to get credit and investments flowing in the economy, through private equity, not government money.

The next big thing to move the market is going to the be unemployment numbers on Friday. Now, more important than the actual number, is the reaction to the number. Now a less than expected figure in unemployment would be great news and will surely send markets rallying. But a worse than expected number is not necessarily a bad thing. If we get a worse than expected number, and markets don't tank, to me that will be further evidence that we have bottomed. If horrible economic news can no longer move the market, than we can agree that the market has priced in the worst of the news and does not have anywhere lower to go. If the unemployment number is bad and the markets tank... well then we will be having this discussion about a bottom some other time.

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