20-20

Hindsight’s a bitch. I was cleaning out my (overcrowded) Outlook folders and came across an old email from my friend Jayson at 10:53 p.m. on March 10, 2009. In hindsight, we now know that the prior day’s close of 676.53 for the S&P500 on March 9 turned out to be the nadir of the bear market. The next day (the 10th) the S&P jumped over 6% on good news from Citibank, and Jayson’s email to me that night said “So is the bull back?” In all of my infinite wisdom, I responded to him with the following (this will prove once and for all that I am not doing this blog to impress anyone with my market-timing skills):

Is the bear dead? Maybe – at the very least the market had gotten insanely oversold and needed a bounce. In the bigger picture:

BULLISH: Copper prices have turned up noticeably over the past seven days. It is not a big move yet, but if it continues that is very bullish. Note that copper prices turned up a week before yesterday’s stock market bump.

BEARISH: Economic news is still 100% bad (e.g. UTX news, WSJ p. B1). I do not count C’s announcement yesterday of operating profit in February as good economic news. They borrow from the fed at about 0% and lend at much greater than 0%. A monkey can make an operating profit in those conditions – they will still show a loss this quarter after marks and reserves. The fact that the market moved up so big on this silly news just shows how oversold the market was. Also bearish last week was increasing LIBOR and widening spreads in the debt markets.

BOTTOM LINE: It doesn’t feel over to me. It is hard for me to believe that such a ridiculous piece of “news” as Vikram Pandit’s remarks at Citi marked the end of the bear market. On the other hand, copper has been a very good indicator of market bottoms in the past, and if it keeps moving up then I will have to concede that the bear is probably dead. Also, if auto sales stabilize or turn up in March then that would also be very bullish (note they will report a huge drop vs. prior year’s March – the key is what happens to the seasonally adjusted annualized run-rate in March 09 vs. Feb. 09). Also watch for any other glimmers of economic good news.

So what have I learned from this? Two things: First, I should not have doubted copper. As I discussed below in my post “Anatomy of the Bear” on March 4, copper prices turning up marked the bottom of all four great bear markets of the 20th century, and so far it is one-for-one in the 21st century (and I’ll give Jayson credit for being one-for-one for at least asking the question at the right time). Second, and perhaps more important, this is yet another reminder of knowing what we don’t know. Bear market bottoms occur when everyone is sure it has farther to go. It is worth remembering that the same applies to bull market tops.