Industry Figure Tom Chappell

There is a Barron’s columnist, Alan Abelson, whom I absolutely adore.

He’s ironic — sarcastic, even — and is properly wary when Bear Markets are stalking around. Back when the dot.bomb bubble was rising, and then falling, he couldn’t have been more (rightly) sardonic about the Glory of the New Economy.

And he’s often been heard to say that bottoms don’t come when everybody is sniffing around, waiting to buy, looking for which stock is undervalued — they come when everyone has given up, and all have sworn off stocks forever.

Which brings us to last week’s column:

AS STEPHANIE POMBOY reminds us in her most recent MacroMavens commentary, this isn’t by any means the first time that the prayer parading as forecast — “the worst is over” — has been heard in Wall Street. In March 2001, the Nasdaq was off by more than 70% from its peak set only a scant year earlier. Investors became increasingly convinced that lightning had already struck, the landscape was littered with shattered stocks and a turn had to be in the offing. Were they ever wrong! Instead, recession reared its ugly head, profits posted their biggest declines since the 1920s and Nasdaq fell another 50% before hitting bottom deep into 2002. [...and that's not even counting the companies that had failed and been delisted --Tom]

Stephanie, who has a thing for scary comparisons (the scarier the better, of course) notes some unsettling resemblances between then and now. The most conspicuous of which is that, just as in March 2001 when the Nasdaq was off 72% from its top, so the home builders today are down eerily the same percentage from their all-time high. And there has been, at least until the shock of AIG perhaps nicked it a trifle, a revived appetite among investors for risk.

The biggest flaw in the notion that the worst is over, in her view, is that the source of the problem — home-price deflation — is not only continuing but intensifying. “According to the latest Case-Shiller Index,” she notes, “home prices are now deflating at a 32% annual rate, versus 8% six months ago. And the deflation is sure to intensify as the 4.6 million new and existing homes still sitting on the market find a clearing price.”

She exhorts us to “Think of it…that 4.6 million inventory is nearly double the 2.6 million average inventory in the 20 years leading up to the bubble. More disturbing still, a record 2.27 million of those homes are sitting empty!” Well, leery of getting her mad, we followed instructions and thought of it, and, we’re sure she’ll be pleased to learn, we felt an appropriate shiver go up our spine.

For good measure, Stephanie adds that those melancholy figures fail to include all the homes “stuck in purgatory at banks, which are now collecting keys faster than they can list the properties.” The Federal Deposit Insurance Corp., she relates, reckons that “other real estate owned” by banks is up more than double the year-ago total.

And, she concludes, “As long as the largest asset on household — and bank — balance sheets continues to deflate, the credit and consumption hits will keep coming.” In short, the worst sure ain’t over.

IF, WE’RE DEAD WRONG (which, hard as it may be to believe, would not be a first for us) and the worst really is over, we wish that some illustrious personage — say [Treasury Secretary] Mr. Paulson or [JP Morgan Chase Chairman and CEO] Mr. Dimon — would take a few minutes out of his busy, busy schedule to pass the good news along to [Federal Reserve Chairman] Ben Bernanke. For if the credit crisis truly is winding down, why in the world is Mr. Bernanke’s Fed running around like a proverbial chicken without its head and still working feverishly to prop up the banks?…

Read the Full Column at Barron’s
“It Ain’t Over”
May 12, 2008