2008-2010 Bear Market

kkr555 · #1 13th April 2009, 11:22 PM

My views regarding this 2008-10 bear market:

This bear market is probably the most vicious we shall ever see in our life time. Given this background, it is hard to envision that we are in any V shaped recovery without any true bear market rallies. The current rally from Nifty 2550 levels to 3400 is the first true bear market rally. If and when the Nifty breaks above the 200 day MA's, it is going to be the first time that the Nifty is trading above those crucial levels. In all probability, this is only to sucker in new buyers before the rally eventually fizzles out. We saw it happen twice during the 2000-03 bear market. So there's no reason why it shouldn't happen this time around too.

Secondly, the seeds of a new secular bull market are usually sown after periods of apathetic consolidation during which almost every one gives up hope.

The US and the 2008-10 bear market:

The US banks aren't really making the money even though they might report earnings otherwise. It is all but a simple accounting trick.

http://www.housingwire.com/2009/04/0...t-wells-fargo/

The news I have been reading in the US is not too rosy.

http://www.economist.com/finance/dis...ry_id=13447001
http://zerohedge.blogspot.com/2009/0...liquidity.html

I have been hearing that the government in cooking up this rally so that the US banks can raise money from the markets.

http://www.bloomberg.com/apps/news?p...d=aEX9sBcofMYY

Here's something I received from a friend of mine:

Quote:

By now we all know that bank earnings are going to be “better than expected” and that “better than expected” is actually the result of creative accounting changes, early Christmas presents from the AIG (1.29 ↑11.21%) trading desk and an upward sloping yield curve environment in which a blind monkey could make money. What we don’t know is why the Treasury is delaying their results of the stress tests if the banks are all “going to pass”. My guess: the banks will try to raise capital in the coming weeks before the stress test results. This way the banks can attempt to recapitalize without treasuries help, but based on the independent “strength” of their balance sheets. Surely Wells Fargo (WFC 19.18 ↓2.19%) can find a few suckers to sell equity to now that everything in the world of banking has been fixed….My translation: treasury is worried they won’t be able to get the toxic assets off the bank balance sheets based on preliminary supply/demand results of the PPIP and that means the banks will need to raise capital from the public (since the taxpayer is almost guaranteed not to fork anymore over via Congress). This is just a hunch, but it’s the most logical one I can think of. Treasury knows a lot of the banks are technically insolvent once they mark their books properly and they’re terrified of the fact that they might not be able to recapitalize them before the credit card, CRE and Alt-A tidal waves hit in the coming 12 months. As Meredith Whitney said, this is turning into “the biggest head fake of all time."

Geithner and the Fed have gone “all-in” and they know it. They better hope they’re holding something better than Ace/Jack because they’ve pushed “all-in” with a weak hand that the Scots (read - short sellers) have already sniffed out and are waiting to pounce on…

To illustrate, Goldman Sachs has just announced today that it is starting a new fund that will buy private equity investments in the secondary market.

http://online.wsj.com/article/SB123932742279007541.html

More meltdowns are still awaiting in the US that can rattle the markets here. The housing crisis is nowhere near done.

http://online.barrons.com/article/SB...53.html?page=1
http://www.sfgate.com/cgi-bin/articl...business&tsp=1

Alchemist · #2 15th April 2009, 05:55 PM

I found another interesting article on Yahoo Finance.

It points to the fact that current profitability of US companies is still not at depressed levels and thus cannot be expected to bounce back in near future.

See the chart at the bottom of the page:

http://finance.yahoo.com/news/Are-Co...=TBD&ccode=TBD

The exceptionally strong bear market is a reaction to an exceptionally strong bull market.

Now to expect another exceptionally strong bull market to follow this bear market would be wishful thinking.

The serious problems that the world economy faces today are a result of the credit and liquidity bubble that the world created in last few years.

It is unlikely that another bubble can be created so soon again.

The western economies have been built on credit and consumer spending.

I interact with many many people in the US on daily basis.

From what I understand, the people there are really facing hard times and things are just worsening with every passing day.

The world markets may rally some more, but I have no doubt that a new bull phase is still very distant.

I am less bearish on India and don't see much possibility of the October lows getting breached.

At the same time, I don't feel we are ready for a new bull market.

I expect new lows in the west and a consolidation phase for India in months to come.

My guess is that this bull phase will be terminated by some major event like bankruptcy at General Motors etc.

Unemployment in the US has already jumped to double digits.

US is a totally consumer driven economy and a few major bankruptcies will create serious problems there.

sudhashbahu · #3 15th April 2009, 09:21 PM

I agree with your analysis.

I booked profits yesterday and I plan to wait for a few months to enter the market near earlier the bear market low.

Regards,
Sudhanshu

kkr555 · #4 15th April 2009, 09:48 PM

Quote:

It points to the fact that current profitability of US companies is still not at depressed levels and thus cannot be expected to bounce back in near future.

This article further confirms your views that earnings will not recover for a very long time.

Here's some info regarding the S&P 500 earnings estimate for 2008 and 2009. According to this article, the fact is that "Even being overly optimistic, new highs will not be seen for the next 6 years in the US."

The entire article can be read here:

Is That Recovery We See? by James Maudlin

ramkasi · #5 3rd May 2009, 08:29 AM

let's guess what happen:

http://uk.biz.yahoo.com/01052009/325...lts-due-7.html

http://www.reuters.com/article/compa...1?symbol=JPM.N

early leaked reports?

http://www.reuters.com/article/Globa...53S6X220090429

Bank of America has a higher risk than its peers.

JPMorgan Chase may need another $10 billion in capital.

Wells Fargo significant capital raise is needed to strengthen.

U.S. Bancorp (USB) is “unlikely to require additional capital".

banks may try to quickly pay back federal bailout funds:

BB&T, Goldman Sachs, Morgan Stanley.

Alchemist · #6 4th May 2009, 08:27 AM

Quote:

Originally Posted by ramkasi

BB&T, Goldman Sachs, Morgan Stanley.

Just for those who don't know, BB&T is short for "Branch Banking and Trust Company" and is one of the larger banks in US.