Thursday, March 19, 2009

Why This is Not the Bottom

Insane bullishness. There is a panic to buy equities. Bearishness and the depression were forgotten in a week! Look at the equity put/call ratio. It is at a level recently associated with short term tops.

Astonishing - scenes from the recession:

What do these four pictures have in common: they describe completely broken sectors of the economy - housing, autos, and retail.

Have you heard any plans to fix the auto industry? Not prop it up, but figure out how many cars a non-bubble economy needs annually, and then figure out an economical way to produce that quantity?


Mark said...

Doesn't every bull market start from a position of over capacity?

CP said...

Are you joking?

Do companies have any pricing power when there is overcapacity? What will that do to earnings?

Mark said...

Of course they don't have any pricing power, but that's when assets sell for low prices. They sell for high prices when things are tight and pricing power is strong.

P.S. I agree that we're not at a bottom. But that doesn't mean you wait for over capacity to go away and then buy stocks. By the time that happens, we'll be up 50% or more.