Bloomberg: Biggs Says U.S. Stocks `Close to Bottom,' May Rally (5 Sept 2008)

I have written on 2nd Aug 2008 that there are a few key metrics that can be used to gauge the health of US Economy:

1. Job losses situation (affects unemployment rate)
2. Housing Inventory (affects housing prices)
3. Consumer sentiments (affects domestic spending)

http://invest-thots.blogspot.com/2008/08/is-us-economy-bottoming-out.html

The recent data has pointed to worsening data for all the 3 above. However, over the weekend, US Government announced the takeover of the two largest mortgage giants, Fannie & Freddie in order to stablise the housing market situation. This is a positive news for the credit and housing market, as the of US Government is the deepest pocket to solve the problem.

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Biggs Says U.S. Stocks `Close to Bottom,' May Rally

By Eric Martin and Kathleen Hays

Sept. 5 (Bloomberg) -- The U.S. stock market is ``pretty close to a bottom'' and may mount a ``powerful'' rally, hedge- fund manager Barton Biggs said.

``This is not the end of the world,'' Biggs said in an interview on Bloomberg Television. ``There's a possibility out there that with oil down as much as it is, we're going to get a push in consumer spending.''

Investors should wait to buy stocks until oil retreats further from its July 11 record and central banks lower interest rates, Biggs said. Crude touched a five-month low of $105.13 a barrel today and has dropped 28 percent from its peak.

Biggs, a former Morgan Stanley strategist, now runs the hedge fund Traxis Partners LLC, which is down about 10 percent this year through Aug. 31. His March projection that the Dow Jones Industrial Average was poised to climb 1,000 points proved accurate when the measure gained more than 1,100 in the following two months.

The Standard & Poor's 500 Index has since tumbled to the lowest levels since 2005, defying Biggs's May forecast that the U.S. stock benchmark would jump to a record this year. On July 14, Biggs said it was too early to buy bank shares because the slide in home prices is reducing the value of their mortgage- related assets. The S&P 500 Financials Index has climbed 20 percent since.

Housing Market

Biggs said the housing market, mired in its worst slump since the Great Depression, may not begin to improve for another six to nine months. Foreclosures accelerated to the fastest pace in almost three decades during the second quarter, the Mortgage Bankers Association said today. Interest rates increased and home values fell during the period, prompting more Americans to walk away from houses they couldn't refinance or sell.

The U.S. government should take over Fannie Mae and Freddie Mac, Biggs said, reiterating his July position that the largest U.S. providers of mortgage financing are too important to the housing market to allow them to fail.

The stock market will rise regardless of whether Democratic presidential nominee Barack Obama or Republican candidate John McCain wins the November election, Biggs said.

Biggs's comments come three days after former colleague Stephen Roach, Morgan Stanley's Asia chairman, said the global economic slump has only just begun and the U.S. is near a ``recession trajectory.'' Biggs and Roach together led Wall Street in correctly predicting the U.S. economy was slumping into recession in 2001.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net.

Last Updated: September 5, 2008 16:24 EDT