Turn the beat around

There was great news on the stock market front with overall share prices up 3.7% on 26 March. This came after two big days on Wall Street following the US central bank's rescue of Bear Stearns. So, have we hit bottom?
This is a question that all the business channels and media commentators are continually probing at the moment. Why? For many reasons.

Crowd pleasers

First, those who have seen their share portfolio head south into negative territory want to see their shares head up out of the 'red' region and into the 'black'.

Second, those who went to cash before the sell off want to get the double whammy of picking the bottom and riding up the next bull market.

Third, others who worry about a US recession hitting the global economy and ultimately business and jobs here will want to see an American turnaround story on equity markets.

Finally, fund managers who have to prepare their quarterly results for clients needed a nice lift in share prices before the end of March to retain their customers.

Signs of strength

I was asked on Sky Business last Tuesday morning, where I do a regular spot, if I thought we had hit the bottom. So I looked at the important data so far.

The Federal Reserve cut interest rates again by 0.75% instead of 1%, which indicated an air of confidence that the central bank felt things were improving.

The stock market liked it, pumping up the Dow Jones by 2.16%. The Nasdaq rose by 2.18%. Then after Easter, the Yanks came again and bought more.

The bail out by the Fed and JPMorgan Chase at $2 a share was then pumped up to $10 and that made the market more confident about finance stocks.

The ripple effect

In Australia, the good vibes on finance stocks spread here with Commonwealth Bank up 8% and Macquarie Group up 11.72%.

The new feeling of confidence in banks was best seen in the look at the past four trading days. Westpac was up 17.2%, St George rose 20.8% and ANZ up 17%, which all suggests that the overseas fears had spooked locals about related financial concerns.

These worries and sell-offs were over-the-top as the recent share price increases indicate but you just don't get controlled panic in stock markets.

Tough call

Given the nice rise in markets, is it sensible to assume we have hit the bottom?

Right now our S&P/ASX 200 is approximately 5300 and my most negative 'deep throat' had tipped the index falling to 4800. The worst we've seen lately is 5086 and that could prove to be the bottom of this market dive, but I wouldn't bet on it.

And while I am optimistic that the US Fed and the world's central banks will navigate us through this credit crunch, I think there has to be bad news around the corner.

The question is: will it be worse than what we have already had?

Bottom's up?

Mark Zandi, the chief economist at Moody's Economy.com, actually called the day when Wall Street bought the Bear Stearns rescue, and Goldman Sachs and Lehman Brothers came in with better than expected results at the bottom.

He might live to regret those words, but he won't if he was only a little bit wrong. If that's the case we could see Wall Street dive on some bad news, but if there is a rebound not long after, then it is safe to say we're around the bottom. I call it an average bottom.

At that point you can buy shares on the dips in the market to prepare yourself for the eventual bull market, which historically last longer than bear markets.

Looking at the comments from the experts makes me sense that we're around the average bottom. Bob Doll, the vice chairman of BlackRock, saw the Fed rescue this way: "It takes a big entity to fall over for aggressive, creative regulatory policy to develop."

And that's what the Fed's latest action has been. It might need to stay in the creative camp for a little longer as the economic data confirms whether the US is or has been in a recession. Bad news will hurt confidence and share prices. On the other hand, good news will do the opposite.

Action stations

Joseph Stiglitz, the legendary economist, argues: "The Fed action has not fixed the fundamental problem - the collapse of the financial sector."

However, that is simply his opinion and others think their actions are a part of the repair job, which is not yet complete.

A turning point for a falling market usually happens with the following developments:

- Big falls in share prices

- Low price/earnings figures for companies

- High dividend yields

- Pessimism

- Debt unwinding

And that's exactly what we've been seeing. I don't know if we're at the bottom, but I'd rather be buying shares over the next few months than I would have six months ago when the opposite of the above conditions prevailed.

Click here to visit Peter Switzer's website

Turn the beat around

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