How to tell when the bear market is over

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As I’ve noted before, the City isn’t a big fan of plain-speaking.

It all comes down to hedging your bets. If you can pack an outlook statement, for example, with enough jargon, then you can hope that no one will notice that what you’re delivering is actually really bad news.

But all the technical terms and tedious sentences in the world can’t hide the fact that most of those in the know now think that things are bad for the USeconomy.

And they’re only set to get worse…

A great example of prime City-speak came in this description of sub-prime investments by HSBC’s chairman Stephen Green yesterday. Mr Green was warning that we might see further write downs in various subprime-related assets, saying it all depends on what happens to the USeconomy. He added: “These assets deteriorate in a non-linear line as they are highly leveraged.”

What he meant to say was: “when these things go bad, they fall off a cliff.” They certainly have at HSBC (HSBA). The group’s US sub-prime lending unit Household suffered £5.9bn in bad debts last year, wiping out most of its North American profits.

Thankfully for HSBC, it has good exposure to emerging markets. The group also made a profit of more than $1bn in Chinafor the first time, while profits in Hong Kong and Latin Americaalso soared.

Don’t go bargain-hunting just yet

With that in mind, if I had HSBC in my portfolio, I probably wouldn’t be worrying about offloading it. But I certainly wouldn’t buy it just now. Conditions in the USare set to get worse, as Mr Green admits. And it’s very debatable as to whether Asia can continue to see strong growth in the face of a USrecession. The pundits are still in denial. Many have come round to the idea that there will be a recession, but most are still saying it will be ‘shallow’.

The justification for this is hard to see. It seems to be an article of faith, more than anything else. But this faith that the USeconomy is on the verge of bouncing back is gradually being eroded, as the optimists keep being disappointed. At first, the sub-prime collapse was going to be contained. It wasn’t. Then the housing slump was bottoming out. It hasn’t.

Then we were facing a period of slowdown, but not recession. Now we’re facing a recession, but not a big one.

There’s a pattern here. Even though people are acknowledging that times are hard, they are still expecting an imminent recovery. They can’t come to terms with the idea that asset prices can fall, and simply keep falling, because it hasn’t happened like that for such a long time.

That’s why so many investors still think there must be lots of buying opportunities around right now. Banks look cheap, surely? What about housebuilders? But as long as this “bargain-hunting” mentality dominates, you can be sure that prices have further to fall.

It’s only when everyone has decided that stocks and house prices will never rise again, when the last bear has left the market and there’s no one left to sell, that prices will start rising again.

Warren Buffett: US is ‘in a recession’

You might think this is all groundless doom and gloom. But even the world’s most respected investor, Warren Buffett, reckons that the USis a long way from recovery. “From a common-sense standpoint right now, [the US] is in a recession.”

Investors shouldn’t rule out a ‘significant economic downturn’, he says, and there is also a chance that inflation may pick up in a “serious way”, reports The Telegraph. And despite the S&P 500 already having fallen more than 9% this year alone, Mr Buffett still reckons stocks will get cheaper. “I find more things to look at now than I did six months or a year ago,” but shares are “not cheap” yet. He’d rather wait until they’re “very cheap.”

We’ll have more on Mr Buffett’s latest pearls of wisdom in the forthcoming issue of MoneyWeek (out on Friday), where we’ll also be looking at the risks and rewards of investing in Russia. If you aren’t already a subscriber, you can get your first three issues free by clicking here: 3-week free trial.

Turning to the wider markets…

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HSBC surprise gainer as banks fall

In London, the FTSE 100 index ended the day 65 points in the red, at 5,818 with financials including HBOS and Alliance & Leicester weighing heavily. However, despite its subprime losses, HSBC made the best gains of the day. For a full market report, see: London market close.

On the Continent, the Paris CAC-40 lost 48 points to close at 4,742. And in Frankfurt, the DAX-30 closed just 3 points lower, at 6,689.

On Wall Street, most stocks closed in the red for the third session in a row yesterday. Despite recovering from lows of almost 100 points earlier in the session, the Dow Jones still closed 7 points lower, at 12,258. The tech-rich Nasdaq index fell 12 points to end the day at 2,258, its lowest closing level since October 2006. The S&P 500, however, closed flat at 1,331.

In Asia, the Japanese Nikkei closed flat at 12,992 today. And in Hong Kong, the Hang Seng had fallen 1.4% to 23,265.

Gold and oil just below record highs

Crude oil futures hit a new record high of $103.95 yesterday, thanks to the deteriorating dollar. However, the oil price had fallen to £102.07 this morning. And in London, Brent spot had slipped back to $100.24.

Spot gold also hit a new record of $992 an ounce yesterday, but had fallen back to $981.30 this morning.

Turning to forex, the pound was at 1.9867 against the dollar and 1.3978 against the euro this morning. And the dollar was at 0.6583 against the euro and 103.25 against the Japanese yen.

And in Londonthis morning, money manager Schroders announced a 30% rise in second-half profit to £160m. Inflows to high-fee mutual funds in the UKand Asiaoffset outflows from its continental European operations.

Our recommended article for today…

2008 will be a tough year – but there’s a silver lining
– The cheap credit that sustained many a bubble is drying up, and that’s hitting everything from house prices to private equity. It’s not going to be nice, says Merryn Somerset Webb, but not every investment will fall. To find out where to look for a silver lining on a gloomy year, see: 2008 will be a tough year – but there’s a silver lining

Twelve steps to financial disaster
– Economist Nouriel Roubini recently detailed the inevitable consequences of the mad credit expansion. And, say John Robson and Andrew Selsby of Threesixty asset management, what makes this alarming list even more frightening is the fact that Fed Chief Ben Bernanke recently hinted at further monetary easing. To read more on the next developments to watch out for, see: Twelve steps to financial disaster

HSBC surprise gainer as banks fall

In London, the FTSE 100 index ended the day 65 points in the red, at 5,818 with financials including HBOS and Alliance & Leicester weighing heavily. However, despite its subprime losses, HSBC made the best gains of the day. For a full market report, see: London market close.

On the Continent, the Paris CAC-40 lost 48 points to close at 4,742. And in Frankfurt, the DAX-30 closed just 3 points lower, at 6,689.

On Wall Street, most stocks closed in the red for the third session in a row yesterday. Despite recovering from lows of almost 100 points earlier in the session, the Dow Jones still closed 7 points lower, at 12,258. The tech-rich Nasdaq index fell 12 points to end the day at 2,258, its lowest closing level since October 2006. The S&P 500, however, closed flat at 1,331.

In Asia, the Japanese Nikkei closed flat at 12,992 today. And in Hong Kong, the Hang Seng had fallen 1.4% to 23,265.

Gold and oil just below record highs

Crude oil futures hit a new record high of $103.95 yesterday, thanks to the deteriorating dollar. However, the oil price had fallen to £102.07 this morning. And in London, Brent spot had slipped back to $100.24.

Spot gold also hit a new record of $992 an ounce yesterday, but had fallen back to $981.30 this morning.

Turning to forex, the pound was at 1.9867 against the dollar and 1.3978 against the euro this morning. And the dollar was at 0.6583 against the euro and 103.25 against the Japanese yen.

And in Londonthis morning, money manager Schroders announced a 30% rise in second-half profit to £160m. Inflows to high-fee mutual funds in the UKand Asiaoffset outflows from its continental European operations.

Our recommended article for today…

2008 will be a tough year – but there’s a silver lining
– The cheap credit that sustained many a bubble is drying up, and that’s hitting everything from house prices to private equity. It’s not going to be nice, says Merryn Somerset Webb, but not every investment will fall. To find out where to look for a silver lining on a gloomy year, see: 2008 will be a tough year – but there’s a silver lining

Twelve steps to financial disaster
– Economist Nouriel Roubini recently detailed the inevitable consequences of the mad credit expansion. And, say John Robson and Andrew Selsby of Threesixty asset management, what makes this alarming list even more frightening is the fact that Fed Chief Ben Bernanke recently hinted at further monetary easing. To read more on the next developments to watch out for, see: Twelve steps to financial disaster

HSBC surprise gainer as banks fall

In London, the FTSE 100 index ended the day 65 points in the red, at 5,818 with financials including HBOS and Alliance & Leicester weighing heavily. However, despite its subprime losses, HSBC made the best gains of the day. For a full market report, see: London market close.

On the Continent, the Paris CAC-40 lost 48 points to close at 4,742. And in Frankfurt, the DAX-30 closed just 3 points lower, at 6,689.

On Wall Street, most stocks closed in the red for the third session in a row yesterday. Despite recovering from lows of almost 100 points earlier in the session, the Dow Jones still closed 7 points lower, at 12,258. The tech-rich Nasdaq index fell 12 points to end the day at 2,258, its lowest closing level since October 2006. The S&P 500, however, closed flat at 1,331.

In Asia, the Japanese Nikkei closed flat at 12,992 today. And in Hong Kong, the Hang Seng had fallen 1.4% to 23,265.

Gold and oil just below record highs

Crude oil futures hit a new record high of $103.95 yesterday, thanks to the deteriorating dollar. However, the oil price had fallen to £102.07 this morning. And in London, Brent spot had slipped back to $100.24.

Spot gold also hit a new record of $992 an ounce yesterday, but had fallen back to $981.30 this morning.

Turning to forex, the pound was at 1.9867 against the dollar and 1.3978 against the euro this morning. And the dollar was at 0.6583 against the euro and 103.25 against the Japanese yen.

And in Londonthis morning, money manager Schroders announced a 30% rise in second-half profit to £160m. Inflows to high-fee mutual funds in the UKand Asiaoffset outflows from its continental European operations.

Our recommended article for today…

2008 will be a tough year – but there’s a silver lining
– The cheap credit that sustained many a bubble is drying up, and that’s hitting everything from house prices to private equity. It’s not going to be nice, says Merryn Somerset Webb, but not every investment will fall. To find out where to look for a silver lining on a gloomy year, see: 2008 will be a tough year – but there’s a silver lining

Twelve steps to financial disaster
– Economist Nouriel Roubini recently detailed the inevitable consequences of the mad credit expansion. And, say John Robson and Andrew Selsby of Threesixty asset management, what makes this alarming list even more frightening is the fact that Fed Chief Ben Bernanke recently hinted at further monetary easing. To read more on the next developments to watch out for, see: Twelve steps to financial disaster