There are a couple of commentators I follow who accurately called the (at least interim) bottom last week... Gene Inger (who writes his own newsletter) and Jeffery Sout at Raymond James. On Monday, Sout reprinted his "Special Alert" from the previous week.

Consequently, the ‘call’ is that the lows are ‘in.’ How far the rally will carry is anyone’s guess since we never got the perfect crescendo downside-climax. But, ‘higher’ is our call from here and we would therefore be buyers on any weakness.”

Historically, he puts the October lows into context:

Further, we are entering the months of November/December, which we have learned the hard way is a tough time of the year to put things away on the downside. This is likely because of the festive nature of the Thanksgiving, Christmas, and year-end ebullient seasonality. Even after the October 1929 crash ‘they’ could not break the markets back down in the November/December timeframe!

If "they" couldn't break the '29 market in Nov/Dec, how are "they" going to break this one?

Bill Gross's latest missive is up at the PIMCO site... you can skip the first 30% of the article, unless you want to listen to another person give an unsolicited political opinion. However, the remainder of the article focuses on what we should be expecting from a Bernanke Fed, and how much longer the rate hikes will continue.

By the time 10-year and 2-year Treasuries reach parity, as is almost the case now, the economy is typically slowing and the Fed is at or near the end of its tightening cycle....

...The current upward cycle is now 27 months in duration and 230 basis points in magnitude, enough by historical standards to slow an economy or even produce a mild recession given increased leverage and the exogenous shock of energy prices. Typically an economic slowdown occurs 18 months after the beginning of an upward move in 5-year rates, and this cycle appears to be no exception with industrial production and service-related indicators having peaked nearly a year ago.

Bill goes on to predict a 2% or less GDP growth rate in 2006, with a good chance of an ease in Fed Funds by the end of the year.

There certainly are some economic headwinds out there, doing there best to hold things back. Let's see... higher oil prices, rising US trade and budget deficits, a Fed tightening cycle, and the ever-present specter of terrorism/geopolitical unrest just to name a few. Nevertheless, equity markets and risk premiums continue to sing "happy days are here again" no matter what the headlines read. How can this be happening?!?

...The answer is not an easy one. It largely revolves around the many years of excess liquidity creation in the U.S. economy — the repercussions of which have been felt across asset classes, and across global financial markets. Were long-dated interest rates in the U.S. in the 6%-8% band — as they were in the 1990s — it would be very hard to envisage an environment of booming credit and buoyant equity markets.

Put simply, despite a gradual policy reversal by the Fed since the middle of last year, the world remains awash with liquidity, and — as a result of this — remains largely anaesthetised against the many risks associated with investing.

It's the liquidity, stupid!

Many have been quick to discount the encouraging unemployment levels reported each month (5.1% rate in September) to people leaving the workforce, as opposed to job creation. However, leaving the workforce might not be such a bad thing. TaxProf Blog makes a number of interesting observations regarding the increasing importance of independent or entrepreneurial activity in today's economy. The two key points are:

1. The number of tax returns reporting income from entrepreneurial activities has more than doubled over the past 25 years (from 13.3 million to 27.7 million in 2004).

2. The highest income taxpayers also have the highest percentage of those reporting business income on their tax returns.

So, although the payroll figures seem to be stuck in a rut, the unemployment rate really may be the most important figure reported each month.

I need to start a company... fast!

$100 oil prices coming soon? Maybe, but Henry Groppe (one of the most respected and listened to energy analysts around) isn't buying it. His analysis shows that $40 - $60 per barrel should be the equlibrium price over the next few years. On the topic of peak oil production, he thinks we are right at the top.

...we are at the point where production is peaking and the price required to restrain consumption to match this future available supply is in the 50-60 dollar range on an annual average basis…This or next year might very well be the all time peak year in world liquid petroleum production.”

He views the transportation use of oil to be the biggest demand driver going forward, as the developing countries um, develop... and as alternate sources of energy for heating are marketed at these higher prices.

The biggest threat to continued demand?... worldwide recession, of course!

Robert Prechter is sounding his familiar theme again (and again and again and again...). I've been listening to him for quite a few years now, and it seems that we are always right on the brink of falling off the cliff.

The U.S. is in fact already bankrupt and poverty-stricken; these facts just haven’t yet become a matter of record. When they do, the public’s anger and dismay will be tremendous because its current expectation of business as usual is the complete opposite of the reality that’s coming....

Short sellers are poised to reap the rewards of a unique opportunity; never has a recorded stock market had so far down to fall. Never have so many other markets – commodities, metals, corporate and municipal bonds – been poised to fall with it.

Who knows, maybe this time he's right -- why does a vision of a broken clock keep flashing through my head?

Richard Russell takes us on a little trip down memory lane, reminiscing about the Depression, WWII, and life before antibiotics... you know, the good old days! He doesn't understand today's youth and their lack of drive and willingness to grind it out. Richard's never much of an optimist, but his conclusion is pretty bleak, even by his standards.

Families are smaller today because it costs so much to raise children. Half the people in the US are heavily in debt. I believe we're moving steadily toward what I call "difficult times." The auto workers found that out last week. We'll all find that out in future years. In the meantime, the dollar is temporarily strong. Enjoy it. Now go out and spend.

Read it all, then go out an buy guns, gold, and canned food... time to bunker down!

The German economy is back! or it might be coming back... Yesterday's IFO survey of business confidence was the strongest it's been in five years. And what is good news for Germany is good news for Europe, as Germany accounts for a third of all economic output in the 12 nation euro zone.

However, not everyone is ready to trumpet the start of a new gilded age...

"I expect that after this quite good second half, Germany will sink back to anemic growth next year, said Jörg Krämer, the chief economist of HVB Group in Munich.

Kramer said the new German government was not likely to pursue radical changes in the labor market, as Merkel had once advocated. That will limit the number of new jobs generated, he said

Until the labor/social services side of the equation gets sorted out, I don't see how "old europe" can compete with China/Asia or the US.

Short interest (the percentage of short sales of stock) on the Nasdaq reached a new record for the week ending October 14th, according to the Wall Street Journal. High short interest is generally bullish, and the article also notes that

short-selling on the New York Stock Exchange in the past month also hit a record, at 8,646,881,921 shares, up 1% in the period.

Hmm... record short interest - so that's why we're going up!

Here's something I missed last week, but it certainly looks significant...

Against this historical backdrop, it is evident how cheap and, therefore, how attractive equities are today. Using consensus earnings figures for the present calendar year, the S&P 500 has an earnings yield of about 6%. Today's comparison stands in stark contrast to the historical record. Instead of earnings yields below bond yields [as they almost always have been for several decades], the S&P 500's earnings yield presently is actually higher than the yield on the 10-year Treasury.

The article goes on to note that the past 3 times that the earnings yield on the S&P have been above 10-year yields looks like this:

In March 2003, when earnings yields stood abnormally high compared to bond yields, the S&P 500 rallied by 35% during the succeeding 12 months. In mid-1995, a similar signal presaged a 26% rally, and before that in 1988 another such signal preceded a 31% rally during the succeeding 12 months.

That, combined with the massive amount of share buybacks that we can expect due to extra cash resulting from the Homeland Investment Act could be enough to get me in the bullish camp.

The "impending train wreck" in housing prices is not going to materialize. So claims Anthony Chan, Economist at JPMorgan Asset Management. There are several things supporting housing prices, and they aren't changing any time soon.

First of all, Long Rates are averaging 6% in this economic cycle, compared to an average of 11% over past finanacial cycles. This alone is very supportive of current price levels, and he finds it improbable that long rates will back up in the kind of dramatic fashion needed for a collapse in housing prices.

Second, despite many claims to the contrary, the level of home sales is not dramatically different from levels in previous cycles:

On a related front, we also examined the path of new home sales growth during the current expansion and compared this trajectory with the average performance over the last four expansions. Our results show that while the cumulative growth in new home sales has been a bit more impressive in the current cycle, its path has already begun to moderate and move closer to its historical norm.

This seems to fly in the face of the majority of the analysis out there... which means there just might be something to it!

Doug Gillespie is calling for lower bond prices, a lower dollar, and a pop-and-drop in equities between now and year-end. He notes that the dollar index sell-off yesterday after the Bernanke announcement wasn't exactly encouraging. He is convinced that many participants are looking for equities to mirror their Nov-Dec performance of last year (a strong finish), but he is less sanguine.

So, what I am currently looking for over the short run is enough of a rally to expunge the market's oversold condition. Then, I suspect prices will head south again. If so, it will be time perhaps to dust off the April lows as possible targets, but it's premature to do that now.

Was yesterday the "pop" or is there more to come?

So it looks like Ben Bernanke will probably be our next Fed Chairman. Bernanke has received his share of press regarding his interest in having the Fed explicitly target inflation rates (instead of simply a target of price stability). There is an excellent interview with Mr. Bernanke on the Federal Reserve Bank of Minneapolis website that looks at his views on many aspects of today's global economy, as well as his perception of prior economic events, including the great depression. One of the things Wall Street is likely to cheer loudest about Mr. Bernanke is that he is a big believer in increased transparency at the Fed.

In one of my earlier speeches I suggested that the FOMC release more information (for example, for longer forecast horizons) about our view of the state of the economy, with the purpose of trying to help the public and the markets better understand what our perspective is and what policy is likely to be doing in the future. That's the kind of transparency I think would be most useful.

As the say, read it all.

On a bullish note, Mark Hulbert feels that the capitulation among market newsletters may have already occurred:

Consider readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average stock market exposure among a subset of short-term market timing newsletters tracked by the Hulbert Financial Digest. Last Friday, the HSNSI dropped to minus 30.1%, very close to its lowest level in over six years.

Besides Friday, the only other time over the last six years when the HSNSI got any lower was at the market's mid-April low, and even then it was only barely lower. The index then dropped to minus 30.6%, and a nearly 600 point rally in the Dow Jones Industrials Average ensued.

This, of course, is a bullish signal from a contrarian point of view. If everyone has already pulled there money out of the market (or shorted it) then the selling is over, and we go up.

Bill Gross at PIMCO can certainly be considered an A-list guru. His views on the Bond Market and interest rates are spot on, in part because he manages a sizable chunk of that market through his funds at PIMCO. He analyzes some recent data put out by the Federal Reserve in his October outlook.

I think it’s pretty clear that real housing prices have peaked on average four to six quarters after the central bank first raises interest rates and following what appears to be 200 basis points of short-term rate hikes. ... I find it illuminating that our own Fed has raised policy rates for nearly five quarters now to the tune of 275 basis points, dead on the average point where real housing prices have peaked over the past 35 years.

In other words, THIS IS THE PEAK in housing price inflation. As the Home Equity ATM shuts down, recession is not only likely, but practically inevitable.

You have been forewarned!

I love to read Richard Russell, and his views on gold have certainly been vindicated over the past 3 years or so. He sees even better things ahead for those holding gold:

But this time, gold's relative strength broke out to its highest level since 2003. This is important, and it tells us that something is changing. I believe we are now seeing a primary trend change away from financial assets and towards tangible assets. Or to put it another way, I believe we are seeing a primary trend change away from items denominated in paper dollars and towards gold or real money.

However, even Russell views the current levels as overbought, and suggests waiting for some kind of retracement before buying new positions.

As you may know, Stephen Roach at Morgan Stanley was calling for a fairly dramatic slowdown in Chinese growth in late 2005, which hasn't yet come to fruition. However, he isn't throwing in the towel just yet.

Because of China’s excess dependence on the over-extended American consumer, the Chinese export outlook faces far more immediate risks than those which eventually might come to pass on the investment side of the equation. Even so, the mounting overhang on China’s supply side -- underscored by an aggregate investment share that has now hit an astonishing 54% of GDP -- is increasingly worrisome.

He isn't wrong, he was just early...

Gene Inger writes in a somewhat cryptic fashion, but when you read between the lines you'll find that he is consistently right on the money. In his update last thursday he states

Simply put: special situation and non-leveraged holders (barring worldwide pandemic of course) probably relish these fears in Octobers, because it's often the best of times to be entering purges, not exiting. And that's why having reserve buying power so as to enter during any (presumably non-systemic/non-earth-shattering) October sell-off's is in most cases the desired approach. This week we worked-into such an inflection.

Fade the October selloff?

Doug Noland is expecting increased volatility through the end of the year, but he doesn't yet detect the start of capitulation

So I am left – for now – to lean toward assuming that mortgage debt growth will remain resilient, that housing markets stay resilient, the consumer demonstrates surprising resiliency, the economy hang tough and liquidity excess probably remains resilient - that is, until the bond market falters.

That is good news coming from Doug