We may come to know 15 July 2008 as a turning point.

  • The market bottomed on 15 July
  • The $US bottomed on 15 July
  • The $A peaked on 15 July
  • The US Financial sector bottomed on 15 July
  • The oil price peaked on 15 July
  • The gold price peaked on 15 July
  • The CRB Commodity price index peaked on 15 July.

So what happened? Fannie Mae and Freddie Mac were bailed out by the Fed and Fed boss Ben Bernanke said they were “adequately capitalised. They are in no danger of failing”. But perhaps more importantly, Bernanke’s testimony to the Senate Banking Committee changed the rhetoric from concerns about growth to concerns about inflation — in other words, US interest rates bottomed.

A market inflection point is often the combination of a lot of things. In March 2003 the bottom of the market came a week after the start of the Gulf War. After two and a half years of terrorist inspired uncertainty a “Victory” (sic) looked likely and out of uncertainty a certainty emerged.

For the first time in two and a half years everyone looked up from fear and saw value. Greed kicked in and the bull market began, blown along with a Chinese tailwind. The China growth story, the deep value available in equities and the sudden emergence of “certainty” from uncertainty were the inflection points. It was an ethereal, unquantifiable, unpredictable and unanalysable change. And it will be the same this time.

This time around, our War has been in the credit markets. The credit crisis has created immense uncertainty, enough to smash the banks, the property trusts, the infrastructure stocks, consumer confidence and anyone else with debt. Most of the market, in other words. In the uncertainty, the safe havens have rallied. Resources, gold, commodities and anything that wasn’t the $US.

Then came 15 July. The fact that so many factors changed makes it significant, more significant than the bottom in March. The Fed’s message on 15 July was that US interest rates had bottomed. It caught the market by surprise. US bond yields bottomed and the $US started going up and with that, commodity prices started coming down. Was that the bottom? Who knows. When it comes to sentiment changes you have one finger in the air and one crossed behind your back. Whatever, it seems to be working. Take a look at these charts.

Since 15 July:

  • The US market is up 7.5%.
  • The Australian market up 5%.
  • Take out the 11% fall in resources and the industrials are up 12.5%.
  • Banks, despite a profit warning from ANZ and another from the NAB, are up 13.4%. Property trusts are up 21.8%.
  • Infrastructure stocks are up 15-25%.
  • The Retail sector is up 23%.

At the same time:

  • Gold is down 16%, oil 17% and the $A 10.4%.

Anyone would think the credit crisis had ended. It clearly hasn’t, but it looks like the market has stopped worrying about it and for the first time in nine months has finally looked across the valley of death … and seen life, life after the credit crisis.

Peter Fray

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