I am asked this question several times every day.  The true answer is that I do not know and no one knows. We are in unprecedented times.There are so many factors to look at to try to figure out when this market will start to correct but nothing that has happened, thus far, has indicated that we are headed for clear skies in the short term.  There are several things we need to see and several hurdles we need to overcome before we can say that we are headed for recovery.There is no doubt that many people will be financially disadvantaged and billions will be lost only to provide others with the opportunity to make fortunes. We saw this during in the early 1990s and today the circumstances are much more acute.Last week the stock market rallied leaving some pundits proclaiming that we are at the bottom and the recovery has begun.  I do not think so and I will try to explain why.We have said for many quarters that in order to believe that a recovery has begun, we need to track three indicators: 1) a couple of quarters where banks are not compelled to raise capital, 2) leveraged loan spread regulating and 3) credit default swap premiums attaining stabilized levels. Let’s look at each of these indicators.Bank capital is stressed. Banks currently have more cash than they have ever had but distortions caused by mark-to-market accounting rules have forced banks to write down assets to levels where bank capital levels are marginal. Due to reserve requirements, while banks have huge levels of cash, they are not lending as much as they could because of their capital ratios. Mark-to-market accounting is stifling the appetite for banks to originate new loans.Leveraged loan spreads are at all time highs. These spreads indicated the willingness of banks to make loans. Based upon these spreads, it would appear that banks are less eager to lend than they should be. Several banks publically state that they are lending and lending more than last year, but who is seeing this liquidity in the market? We could also include TED spreads in this category. This is the spread on bank loans to other banks which has historically been 5 to 10 basis points. In September, this spread hit 470! Today it is around 100.Lastly, let’s look at credit default swaps. They are indicative of the perception peers have of the credit worthiness of other companies. The premiums that these swaps have been trading at are indicative of a general skeptisism that exists in the equity market today.Notwithstanding Citigroup and Bank of America recently announcing that they do not require any additional cash injections from the government, banks still need to raise cash and capital. Leveraged loan spreads are still bloated and credit default swap premiums are still far too high. Based upon all of this, the recent bear market rally does not seem to be indicative of  a bottom in the market.We believe that the housing market needs to bottom out before the economy can bottom.  Can housing bottom before unemployment peaks? Many economists do not think so. Neither do I.Optimistic economists believe the economy will bottom out in the third quarter of 2009 and the pessimists are projecting a bottom in the second quarter of 2010. Unemployment is a lagging indicator and will, likely, not peak until 3 or 4 months after the economy bottoms. If we assume that the optimists are correct, we should have unemployment peak in the first or second quarter of 2010. This is when the housing market will probably bottom and the big 3 indicators (mentioned above) will start to regulate. This is also the point at which we should start to see improvement in the fundamentals within the commercial real estate market.Based upon all of the data available today, it would seem that we are looking at about a year before the correction begins. I certaintly hope it happens sooner.

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