Tuesday, June 3, 2008

Where is the bottom?

There seems to be a preoccupation with trying to pick the bottom in the housing and financial sectors lately. I guess I can understand the reasoning since I don't really expect the market to enter into a significant new bull market until these two sectors especially the banks bottom.

Let's look at a broken sector and two previous bubbles to see if we can find any clues to what we should look for to spot the bottom.

The airline sector took a huge hit on 911 that continued as oil started to climb. The Fed is virtually crushing any hope for the recovery of this industry with their inflationary policies. It's been 7 years and no sign of a bottom yet.

Next we see the collapse of the tech bubble. It's been 5 years and still no sign of a major recovery to new highs.

The Nikkei bubble popped in 1990. it's now been 18 years and again because of the Japanese unwillingness to let segments of the financial system fail we see no sign of the Nikkei pulling out of the secular bear market.

Now look at the housing index. Only 2 1/2 years have passed. Inventory is still building. We have another wave of foreclosures yet to come this year. They haven't even started yet much less hit the banking system.

The BKX is down a little over a year. The Fed is following the same course as Japan and trying to prop up the financial system.

After looking at the other three charts does anyone really think that we are even remotely close to seeing the final bottom in these two sectors?