Bottom Fishing Time?

Fans may have noted my absense from Dissecting the Bull for multiple weeks. I was doing a project for Microsoft. I turned it in Monday night. I was so far behind on rest and other requirements that I have not had time to write until now. I did go to a local poetry reading last night and read a poem:

Touching the old skills
Fingering them like tools
The Mind sends forth tendrils
Frosty and interwoven

Which I wrote an amazingly long time ago. But the question for many investors, that I continue to ponder as well, is: time for bottomfishing? That is an old skill, for sure.

In a normal week I would be writing blogs on AMD and Gilead's analyst conferences, but that would take more energy than I have this morning.

When the tide goes out ... around here lots of people go looking for abalone. I have always considered abolone too beautiful and too rare to grace my barbeque. While taking them should be banned until they become plentiful again, at least Fish and Game has cut back to 4 the number a person can take in one day.

Taking stocks off the bottom is limited only by your available cash and credit. The problem is knowing when there is a bottom. While many signs and portents are visible in the world now - famines and melting glaciers and three-headed snakes - let's look at something we are better at interpreting, the housing market, mortgage crisis, and overall U.S. economy.

The thing about downward spirals is that there are usually two options. One is that the downward action impells more downward action. The other is that balancing forces come into play, breaking the cycle, and perhaps even causing an upward cycle to resume.

I think the bulls and bears both have it right. The bears say that housing prices are continuing to fall, which will continue to make houses worth less than the mortgages on them, which will hurt consumer spending, anyone involved in the banking and mortgage industries, and hence rippling out to the general economy. And the slowing general economy will feed back into the spiral. So bears believe it is not time to buy stocks, in fact if you have not been smart enought to sell off your entire portfolio, you should do so now.

The bulls say that we have passed through a liquidity crisis. The Federal Reserve may have screwed up in the past by allowing the housing bubble to form, but now it has created enough liquidity to restore confidence and allow growth to resume. There is a lot of new and used housing out on the market right now, but housing starts are now below the real level of increasing demand. Because immigrants are still immigrating, young adults are still having children, and increasing population requires increasing housing. Are people being turned down for loans in large numbers? Well, that shows there is pent up demand.

So the overstock of housing on the market will dwindle, then it will drindle rapidly (varying in rate by locality). One man's foreclosure is another man's windfall. Then the new home builders will start upping their building permit applications. Then workers will be hired and demand for cement and lumber will return. The stock market will go up, and people will wish they had bought while it was down. Given that the rest of the economy is pretty sound, so far, that means GNP will start growing again, aggregate consumer spending will go up, and we can start worrying about famines and three-headed snakes instead of the economy.

Of course, you should hedge your bets. The bears might be crowing for a few more months. Then again they might be underestimating the American spirit. I know a lot of people who have tightened their belts in the past 2 years. And the payoff has already begun. With less debt, they have less interest to pay, and more real disposable income.

We won't know when the corner has turned. The statisticians will let us know three months later.

There are no tide tables for the economy. But if you want abalone, you have to go to the tide pools while the tide is out. When the tide comes in, the picnic is over.