This level of pessimism often marks signficant bottoms. Evidencing this pessimism is the fact that after falling 40% over an 16-month period, the S&P collapsed another 30% in just 2 months - THIS level of pessimism is found at significant bottoms...markets move on investor perceptions...at the end of last week, the prevailing perception and expectation was that
- the DOW could potentially breach 5000
- unemployment would rise to double-digit levels by the end of the year
- every bank in the US would be closing their doors, despite only a handful of bank failures thus far, a very different state than we were looking at during the S&L debacle of the early 90's
That's where we were late last week...now, it is certainly possible that the economy will get worse, but the PERCEIVED disaster level cannot get any worse that it was 2 weeks ago...and as mentioned above, the stock market moves based on PERCEPTION.
Unless Vikram Pandit, Jamie Dimon and Ken Lewis all made bold-faced lies this week (and if they did, then guaranteed that each of them will see the inside of a cellblock), then you can take it to the bank (sorry for the pun) that the bottom has come and gone.
The markets will be volatile on the way up, but we have undoubtedly established a bottom - one that will likely last a generation, if not more...
DIMON indicates that JPM profitable through February 2009