PART 1
When the bottom comes, it could be stealthy
Extract was ourced from an article by DAVID BERMAN at ReportonBusiness.com
March 6, 2009
In the more innocent days of the stock market - like 2008 - many observers and investors were eagerly anticipating a stock market blow-off as a sign of capitulation, the moment of maximum pessimism that would be followed by a rebirth. Maybe they've been awaiting the wrong signal. Maybe the market is forming a stealth bottom.
There certainly has been no shortage of pessimism, but the rebirth has proved elusive. On Nov. 20, the S&P 500 finished the day 6.7 per cent lower after posting a 6.1-per-cent decline the day before. At the same time, the VIX volatility index surged to a record high above 80, suggesting that investors were in a full-blown panic. But since then, the S&P 500 has slumped another 8.5 per cent. So much for capitulation.
"The more I hear about the need for some sort of dramatic capitulation to affirm that a bottom has been made, the less likely I think it is going to happen," said Bill Luby, who writes the VIX and More blog. "Instead, my thinking is that the longer and steeper the bear market, the more likely that any sort of capitulation will happen in stages."
He believes that the 2002 bottom for the Nasdaq may be a good template to use today for the broader market. Back then, the bear market that followed the implosion of the dot-com bubble coincided with five spikes in the VIX volatility index - each of them decreasing in magnitude, along with unremarkable stock trading volume, until the bottom was reached.
PART 2
U.S. Housing Market May Bottom in 2009, Zandi Says - Bloomerg News
Extract sourced from an artcile by Brian Louis
Feb. 9 (Bloomberg) -- U.S. home prices will reach bottom by the end of the year, concluding a slide that will have cut values 36 percent, Moody’s Economy.com said today.
“Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight,” chief economist Mark Zandi said in a statement today. “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”
Demand for new and existing homes began to fall in 2005, marking the end of a five-year U.S. housing boom fueled in part by easy credit for subprime borrowers. Existing home prices tumbled from an average high of $230,200 in July 2006 to $175,400 in December, according to data from the Chicago-based National Association of Realtors.
U.S. home prices will fall another 11 percent on average before stabilizing, according to Moody’s Economy.com. The Case- Shiller home price index will fall 36 percent from its 2006 peak to the bottom this year, Zandi’s study said.
About 62 percent of U.S. metropolitan areas surveyed will record double-digit declines in home prices by the end of the slump, according to today’s report. Prices will fall more than 50 percent in former boom areas such as southeast Florida and parts of California, including Riverside.
Florida Real Estate Falls
The biggest home-price decline is forecast for the Naples, Florida, area, where the report estimates prices will tumble 70.1 percent from the top before hitting bottom in the fourth quarter of 2010. Naples is followed by the California areas of Merced and Salinas. Merced prices are forecast to fall 69.6 percent from the peak and Salinas 67.9 percent.
Zandi said at a Credit Suisse homebuilder conference in September 2007 that the housing slump would last through 2008. In an interview on Bloomberg Television on March 3, 2008, he said home prices had fallen about 10 percent nationwide from the peak and he expected prices to fall another 10 percent through early 2009.
In a separate forecast today, housing starts are estimated to plunge 47 percent to 483,000 in 2009, according to Metrostudy, a Houston-based housing market research and consulting company. An estimated 904,300 housing units were started in 2008, according to the U.S. Census Bureau.
“Builders are still trying to sell off the inventory they have,” Brad Hunter, chief economist at Metrostudy, said in an interview. “Consumers are scared to purchase a refrigerator much less the house to put it in.”
The Obama administration and Congress are trying to stem the housing slide at the root of the U.S. recession. President Barack Obama is trying to get a $780 billion economic stimulus bill passed that may help ease lending and bolster home buying.
The U.S. Senate is working to boost house purchases among six-figure-income households by replacing a $7,500 tax credit for first-time homebuyers earning less than $150,000 with a $15,000 break for all income groups. Adding that to the economic stimulus package, senators effectively are encouraging purchases by higher-income households with a reduced risk of default.
"In short, it was a stealth bottom," Mr. Luby said. "I would not at all be surprised to see the current bear market end in a similar stealth bottom. Sometimes a desensitized investment community is more likely to form a bottom than a panicky one."
Yesterday, with the S&P 500 plumbing new 12-year lows at 682.55, the VIX index was above 50 and at the top end of a recent trading range.
However, the VIX was in the process of forming its sixth peak since that Nov. 20 surge, and each peak has been shorter than the previous one - which certainly looks stealth-like.
PART 3
Use This Tool to Identify Stock Market Bottom
Sourced from an article on Nasdaq.com by S. Wade Hansen, analyst at LearningMarkets.com
Investing during a bear market can be a lot like taking a road trip with young children. Just as the children seem to continually yell "Are we there yet?" from the back seat during a road trip, investors seem to continually ask "Have we reached the bottom yet?" during a bear market.
Trying to identify the bottom of a market downturn seems to be a favorite activity among investors and analysts---especially in this day and age when we have 24-hour news channels constantly telling us how bad things are. Unfortunately, the truth is there is no sure-fire way to guarantee an accurate prediction of when the bottom is going to arrive until after it has arrived.
However, there are a few tools you can use to help you put the odds in your favor in your analysis. The S&P 500 Bullish Percent Index is one of those tools.
The S&P 500 Bullish Percent Index is a point-and-figure chart that derives its value from the point-and-figure charts of the 500 stocks that comprise the S&P 500. Here's how it works:
- If an increasing number of those 500 stocks are showing buy signals on their point-and-figure charts, the S&P 500 Bullish Percent Index will be moving higher.
- If an increasing number of those 500 stocks are showing sell signals on their point-and-figure charts, the S&P 500 Bullish Percent Index will be moving lower.
Source: StockCharts.com
Now, you don't need to understand exactly what a point-and-figure chart is or how it works to understand how to use the S&P 500 Bullish Percent Index. So if you aren't familiar with point-and-figure charts right now, don't worry about it.
Here's what you look for on the S&P 500 Bullish Percent Index chart:
- If the farthest column to the right is a column of Xs and is moving higher, the stock market should be moving higher.
- If the farthest column to the right is a column of Os and is moving lower, the stock market should be moving lower.
- If the farthest column to the right is a column of Xs and is moving above 70, the stock market is approaching a level where it could be considered overextended, and it may turn around and start moving lower in the near future.
- If the farthest column to the right is a column of Os and is moving below 30, the stock market is approaching a level where it could be considered overextended, and it may turn around and start moving higher in the near future.
This last condition is the one we are most interested in now. As you can see in the chart above, the most recent column of Os has dropped down below 30. This means the market is getting to a point where it may be overextended to the downside, and it has a chance of finding a bottom and turning around.
Of course, this is not guarantee, and it may take a while for the bottom to actually form and the turnaround to actually happen, but we at least have some advanced warning of what may lie ahead.
Wait until you see a column of Xs form to the right of this column of Os. Once it does, it's probably time to start getting back into some more stocks.
PART 4
Middle Market Executives Expect Financial Crisis to Reach Bottom in 2009
Article sourced from Pr.com
5 March 2009
Reflecting cautious optimism, four out of five middle market executives anticipate that the financial crisis will bottom out in 2009, according to an exclusive study released today by CIT Group Inc. (NYSE: CIT), a leading provider of financing and advisory services to the middle market. The research report, "U.S. Middle Market Outlook 2009: Navigating the Credit Crunch," shows, among other things, that a majority of middle market executives expect stable or growing revenues as they actively focus on operating efficiencies, managing their cash flow and spending more effectively. This study is the first in a series of four middle market studies to be released this year in association with Forbes Insights. "In the face of one of the most challenging financial crises in generations, middle market executives remain cautiously optimistic about the market's recovery as well as their own prospects over the next 12 months," said Jim Hudak, Co-Head of Corporate Finance at CIT. "These findings are in line with what we are seeing ourselves. Despite the current economic crisis, our middle market clients continue to demonstrate their resiliency and ability to adapt as they look for the market to improve." The study, based on the responses of 150 senior-level financial decision makers at U.S. middle market companies (those with annual revenues between $25 million and $1 billion), highlights how these executives are managing the current economic crisis and also reveals their outlook for 2009. The results are in stark contrast to a similar examination of the middle market sponsored by CIT in mid-2007. During that period of positive economic strength, executives had greater expectations for revenue growth and were taking more aggressive steps to invest in the talent and infrastructure necessary to support future expansion. Peter Connolly, Co-Head of Corporate Finance at CIT, said, "Middle market companies have clearly braced themselves to get through these tough times. They are instituting operational efficiencies, watching their cash flow and buttoning up their spending and as they wait for the market to turn around. When recovery does occur, this should help them return to growth." Middle market companies, a key component of the U.S. economy, account for more than $6 trillion in sales and employ almost 32 million Americans (2002 U.S. Census). Key findings of the study include: - Cautious Optimism. Four out of five respondents indicated that the financial crisis will bottom out this year with 28% predicting it will happen within 6 months and 52% saying it will happen in 6 to 12 months. - Resiliency in the Face of Adversity. - Revenue Growth. A majority of middle market executives expect stable (23%) or growing (41%) revenues. Of those who expect their revenues to grow, 73% said they would achieve/support this growth by improving their operating efficiencies as they manage their cash flow and spending more effectively. Thirty-six percent said their revenues would decline. In 2007, approximately two-thirds of executives believed that their revenues would grow over the next 12 months. - Keeping Cash Close. Executives indicated that they remained focused on maintaining day-to-day operations as they delay longer-term plans. Respondents indicated that cash-flow financing was the number one form of financing that they will use in the next 12 months, and 31% said working capital needs was the number one item for which they might use any financing, while traditionally longer-term investments, such as plant and equipment (21%) and new technology (16%), seem to be put on hold. By comparison, in 2007, new technology topped the list, being picked by more than a third of respondents, and working capital was fifth. - Managing Expenses. In an effort to contain costs and work through the current economic crisis, more than two-thirds of executives surveyed indicated that they would cut their capital expenditures (36%) or keep them at the same level as last year (36%), while just 28% planned to spend more. Regarding cost-cutting initiatives, more than half anticipate reducing staff levels, 49% will invest less in new plants and equipment, and 38% intend to cut back on R&D. In contrast, in 2007, a little more than half of those surveyed indicated they would increase their capital expenditures as they focused on growing staff levels (47%) and investing in new technology (36%). - Not Immune to Current Economic Crisis. When asked how the current crisis has affected their business, nearly two-thirds said it has had a significant or moderate impact, while one-third said it had a slight impact or no impact at all. - Market Conditions Portend Financing Challenges. Should economic conditions worsen, executives expressed concern that their access to financing will become more difficult. Forty percent indicated that changes in the availability of credit/financing would have a negative impact on their business; more than a quarter (27%) said their ability to secure financing will worsen in the next year. NOTE TO EDITORS: Complimentary copies of "U.S. Middle Market Outlook 2009: Navigating the Credit Crunch," as well as podcasts related to the study featuring Peter Connolly and Jim Hudak, Co-Heads of Corporate Finance at CIT, can be downloaded at middlemarket.cit.com.
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