S&P

[Masshog]

If I'm counting correctly there have only been only four days since the bear market started on which the S&P closed lower than todays close.  Lots of optimism, but no real progress. 

[PORKINATOR]

Don't think you'll be able to say that in another month. Think we retest the Nov. 20 low before we're done with this mess.

[Masshog]

I'm guessing that the odds of the November low holding are somewhere South of 30%.  But, I really hope I'm wrong.   

[HotlantaHog]

You know, while it is disappointing, in a way what is happening in the banking system is more important than the market in the short term. Credit has been frozen because the banks have been mired in toxic assets, and thus afraid to lend to one another, resulting in a freezing of credit pretty much throughout the system.

Credit spreads are narrowing, an indication that credit markets are starting to thaw. The Libor OIS spread, which is the one that Alan Greenspan says is the single most important indicator of credit, has narrowed to 92 basis points -- lower than it was before Lehman filed bankruptcy. The Ted spread (banks borrowing over US Treasuries) has narrowed as well.                                                                   

There are still a lot of bad banks that are undercapitalized and will have to be merged or closed or get new capital. Home prices are still falling, making it impossible to value the collateral for a lot of mortgage backed securities. So the process has a while to go. But my sense is what is happening in credit markets right now is MUCH more important than equity markets, and on balance, it is pretty postive.

When there are some indications of good news (better than expected economic data or whatever), in conjunction with the improvement in credit markets, you could easily see a fairly sharp rally in equities is my view.

I have been pretty negative on stocks for some time and my sense is things are close to getting considerably better.

[Masshog]

But, in fairness I tend to react to behavior rather than predict behavior.  The techniques I use and depend on continue to suggest significantly lower prices...  but, as the market moves to the vicinity of the November low I will begin to monitor for bullish behaviors.... and if they show up, I will invest. 

[Masshog]

I wouldn't read too much into the improvement in credit spreads.  They have narrowed over the last few weeks but are still discounting depression like defaults.  It is true that Libor OIS has fallen and the TED has narrowed, but both are still at levels that in past years have been consistent with dis-function.  Instead of getting more hopeful over the last few weeks, I have found myself becoming less so.