The Bottom: Markets Turn After Seventeen Months

On Monday the market closed at 676.53, the lowest close of the crisis, after seventeen months of decline. The Standard and Poor's 500 has fallen 56.5 percent from the October 2007 peak, and the great technology names have lost half to two thirds of their value. The question hanging over the market is whether the selling is finished. The question is the March 2009 story, and the story is the lesson: the bottom is the price of the fear, and the fear is the sale.

The Bottom is the subject of this article: the seventeen months of decline, the Monday that closed slightly higher after touching 666.79, the wreckage in the technology names, and the question of the week. The bottom is the subject, and the subject is the uncertainty. This is the story of the decline, and the story is the moment when the selling meets the value.

1. The Months

The seventeen months were the decline, and the decline was the numbers. The Standard and Poor's 500 had peaked at 1,565.15 in October 2007, and by Monday it had fallen 56.5 percent to 676.53, its lowest close of the crisis. The bear market had lasted seventeen months, the longest and deepest since the Depression, and the length was the weight. Month after month had brought new lows, and each low had brought a new round of selling. The losses were the destruction of a decade of gains, and the destruction was the daily news. The fall was the fact of the year.

The months were also the mood, and the mood was the despair. The decline had lasted seventeen months, and the length had worn down the bulls, the bears, and everyone in between. The selling had become the habit, and the habit was the resignation. The analysts spoke of capitulation, the moment when the last sellers give up, and the moment was the only comfort the charts offered. The seventeen months were the longest and deepest since the Depression, and the deepest was the question: when does the fall stop? The forecasts promised more losses ahead, and the promise was the pressure.

2. The Day

The day was Monday, and Monday was the capitulation. The market opened lower, and the lower was the new low: the Standard and Poor's 500 fell to 666.79 in the session before closing slightly higher at 676.53. The close was still the lowest of the crisis, and the lowest was the record no one wanted. The banking stocks were the symbol of the fear, and Citigroup shares fell below one dollar, the price of the penny stocks and the failure. The session was the crisis in miniature: the morning hope, the midday fear, and the shrug at the final close.

The day was also the mood, and the mood was the despair. The word capitulation was on every screen, and the word was the only comfort the charts offered. The headlines this week were full of the word bottom, and the word was the question. No one knew on Monday whether the selling was finished, and the not knowing was the fear. The day ended slightly higher, and the higher was the smallest of mercies, the kind that means nothing until the next session proves it, and the failed rallies of the long year were the reason for the doubt.

3. The Tech

The technology stocks were the wreckage, and the wreckage was the story. From the October 2007 peak, the maker of the iPhone had fallen from about 190 dollars to about 82, and the search giant from about 740 to about 290. The great names of the PC era, the software company, the chipmaker, and the networking leader, were down 50 to 70 percent. The Nasdaq had fallen from 2,859 to about 1,268, and the fall was the erasure of the boom. The companies of the digital age were trading like the bust was permanent, and the trading was the disbelief.

The tech wreck was also the opportunity in disguise, and the disguise was the question. The cash rich companies of the industry, the ones with the billions on the balance sheets, were selling at the prices that the 1990s would have laughed at. The valuations had returned to the levels of the 1990s, and the return was the talk of the value investors. The survivors of the crisis would buy the wreckage, and the buying was the bet. The question was which companies were the survivors, and the question was the risk. The market was pricing the industry for death, and the pricing was the debate.

4. The Valuations

The valuations were the math, and the math was the argument. The stocks that had traded at the heights of the boom were trading at fractions of those prices, and the fractions were the discount. The analysts were pointing at the great technology names and calling the prices 1990s prices, the prices of the last great bottom. The cash on the balance sheets was the floor, and the floor was the comfort. The companies were cheap, and the cheap was the temptation. The bargain hunters were circling, and the circling was the first sign that someone believed the prices were wrong.

The valuations were also the history, and the history was the guide. The market had returned to the levels of the 1990s, and the return was the erasure of a decade. The last time prices looked like this, the buying was rewarded, and the reward was the memory. The investors who had lived through the last bottom knew the fear, and the knowledge was the edge. The question was whether the history would repeat, and the repetition was the bet that no one could prove on Monday. The value investors called the prices the opportunity, and the opportunity was the debate.

5. The Survivors

The survivors were the theme of the crisis, and the theme was the cash. The companies that held the cash would survive, and the companies that owed the money would not. The technology industry had its share of both: the giants with the billions in the bank, and the borrowers that had grown on debt. The survivors would buy the wreckage, the rivals, the technologies, and the talent at the prices of the panic. The buying was the opportunity, and the opportunity was the future of the industry. The crisis was the selection, and the selection was the great consolidation.

The survivors were also the question of the reporting season, and the season was the proof. The earnings were the proof, and the proof was the cash flow. The companies that were still making money in the recession were the ones the investors would trust, and the trust was the rare commodity this year. The balance sheets were the resumes of the crisis, read with the care of the hiring manager. The survivors would be the buyers, and the buyers would set the prices of the next cycle. The buyers were the cash rich, and the cash rich were the patient.

6. The Question

The question was the bottom, and the bottom was the unknown. No one knew on Monday whether the low of 676.53 was the last low, and the not knowing was the honest answer. The label of the bottom would come later, if it came at all, and the later was the problem for the investors of today. The market could fall further, the recession could deepen, and the winter could last another year. The question was hanging over the market, and the hanging was the weight. The bottoms of the past were visible only in the mirror, and the mirror was the honest chart.

The question was also the opportunity, and the opportunity was the price of the answer. The investors who waited for the proof would pay the higher prices, and the investors who bought the fear would take the risk. The bargain was the uncertainty, and the uncertainty was the discount. The market was offering the technology giants at the prices of the 1990s, and the offer was the test of the nerve. The question was whether the nerve would hold, and the holding was the difference between the buyers and the watchers. The days without new lows were the arguments for hope.

7. The Lesson

The lesson of the seventeen months was the difference between the price and the value, and the difference was the gap. The price had fallen with the fear, and the value had stayed with the cash. The great technology names had lost half to two thirds of their value in the market, and the market was not the company. The companies were still selling the products, still holding the billions, and the business was the anchor. The price was the mood, and the mood was not the math. The lesson of the past bottoms was the same, and the sameness was the pattern.

The lesson was also the capitulation, and the capitulation was the signal. The markets had always bottomed when the despair was the loudest, and the despair on Monday was the loudest of the crisis. The selling had become the resignation, and the resignation was the exhaustion. The exhausted sellers were the last sellers, and the last sellers were the condition of the turn. The history said the turn came when no one believed in it, and the history was the only teacher the markets had. The charts of past bottoms showed the same shape, and the shape was the panic and the pause.

8. The Unknown

The unknown was the future, and the future was the next session. The market opens again on Tuesday, and the opening will be the first vote on Monday's close. The rally will either hold or fail, and the holding is the hope. The week ahead will bring the news, the data, and the earnings, and the news will move the prices. No one can say whether the worst is behind, and the saying is the guessing. The unknown is the market, and the market is the unknown. The experts are split, and the split is the honest answer of the week.

The unknown was also the lesson of the week, and the lesson was the humility. The smartest investors of the era had been wrong for seventeen months, and the wrongness was the warning. The forecasts had failed, and the failure was the fact. The honest answer on Monday was the uncertainty, and the uncertainty was the only certainty. The story of the bottom would be written by the prices of the coming months, and the writing was the waiting. The bottom was the question, and the question was the March 2009 story. The lesson was the patience, and the patience was the position.

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