Wednesday, 30 September 2009

World Cup 2010: How big will its impact be?

Not everybody in South Africa is that buoyant about the economic prospects of the biggest sport event in the world, the World Cup soccer tournament to be held in South Africa in 2010. Rene Vollgraaf of reports:

The economic impact of the World Cup soccer tournament next year could be considerably smaller than people expect. "They are just a bunch of soccer supporters," says Jeff Gable, head of Absa Capital's research division. "Although 64 soccer tournaments will be good for the country's reputation, the economy is much bigger than this. What's more, the effect of the tournament will be measured in two different quarters."
The tournament begins on June 11, that is to say in the second quarter, and ends in the third quarter on July 11. "I imagine the tournament will generate less than $1bn from soccer tourism," Gable declares."Most of this will be in the first two weeks during the group matches. Most people will go home once their teams are out of the tournament."
Research by Grant Thornton indicates that the tournament will contribute about R55.7bn to the South African economy. The estimated 483 257 tourists will spend R8.5bn-odd here, according to Grant Thornton.
Gable adds that South Africa is not necessarily a cheap tourist destination. "You have to reckon that World Cup tourists will spend considerably more than ordinary tourists would if you expect to see a massive economic impact." As far as the inflationary effect of additional spending during the World Cup is concerned, Gable reckons hotels and restaurants run the highest risk. "The average price of a hotel room in the last two weeks of June next year will be significantly higher than the normal price for that time of year."

Modern Economic Theory still relevant?

Professor PDF Strydom recently published his thoughts on why the current macroeconomic theory was not appropriate to foresee or handle the current financial and economic crisis. It appeared on the Weekly Comment published by FNB:

The present economic crisis that started in 2007 encouraged critics to raise the question whether economists could not have predicted the crisis, suggesting timely corrective measures.

A more pertinent question is whether economics, more particularly modern mainstream macroeconomics (MMM) is in a position to analyse the present crisis and able to come forward with appropriate policy measures?

Could MMM have successfully identified (flagged), understood and given early advice to counter the factors responsible for this latest crisis?

The answer to these questions is an unambiguous "no" as MMM has already for a long time not been geared for the kind of complexities that were ultimately encountered.

Markets and human behaviour

There were certainly some economists who analysed global developments prior to the present crisis and whose conclusions clearly indicated the serious consequences likely to follow if these issues were left unattended.

One example is the major international imbalances developing in recent years between saving surplus and saving deficit countries.

Another example is the exuberant behaviour of market participants in certain instances, such as the property market during recent years (but not limited thereto). Behavioural economics devoted much attention in analyzing the causes and likely effects of these developments.

In contrast, the MMM approach to economic crises makes key assumptions about the way markets operate and about human behaviour generally that did not prove realistic.

MMM sees markets as stable and basically self correcting. This view of the smooth market adjustment process implies that the forces in favour of equilibrium are always overruling those of disequilibrium. An important corollary is that government intervention in markets is destabilising. Government action is seen as disrupting the equilibrating forces and cannot contribute towards equilibrium. In the event of a disturbing experience the typical MMM approach would be to allow the distortion to develop on its own because it is easier to clean up after the event.

This analysis is not very helpful during economic crises because during such events disequilibrating forces tend to overrule. Moreover, Keynesian economics clearly argued in favour of government intervention in such circumstances, such as depressions, in order to support the forces working towards equilibrium. MMM caricatured this as fiscal activism.

Apart from a distorted perception of market functioning, MMM cannot deal effectively with crises because of its Walrasian analytical elements. The main shortcoming here is that the resulting analysis does not take cognisance of uncertainty.

In Walrasian analysis uncertainty is overcome through the means of creating a Walrasian auctioneer who disseminates information without charge. Market participants are now in a position to trade towards equilibrium and in the event of misjudgment are allowed to do recontracting.

MMM substitutes rational expectations for the Walrasian auctioneer. Thus economic agents are assumed to have full information at zero cost as displayed by the relevant economic model. Also, economic agents do not make systematic mistakes.

In essence, MMM assumes information dissemination at zero cost, thereby facilitating the introduction of the Walrasian property of instantaneous adjustments in markets. This feature of Walrasian analysis encourages the development of general equilibrium analysis dealing with the interrelations between markets in achieving simultaneous equilibrium.

Yet such outcomes have little reference to the real world where all these conditions are not met and where calendar time prevails.

Human behaviour is an important element in explaining the actions of market participants. This has been an important element in the development of economic theory. In the historic evolution of macroeconomics these elements featured explicitly in the work of Keynes and others who followed.

MMM has historically developed an intellectual framework that could not successfully conduct an analysis of the forces shaping the global economic crisis that started in 2007. Moreover, this analysis failed in developing a coherent policy framework to deal effectively with the crisis.

Friday, 25 September 2009

The worst is over...

The Federal Reserve is optimistic that the worst of the financial and economic crisis is over. Yet, they kept interest rates unchanged as it maintains the most aggressive easing monetary policy in history. Financial Times reported the following:
“Conditions in financial markets have improved further, and activity in the housing sector has increased,” Household spending seems to be stabilising, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”
The Fed decision comes amid mounting evidence that the economic crisis is abating. Last week, Ben Bernanke, chairman of the Federal Reserve, said the US recession “is very likely over” and last month’s Federal Open Market Committee meeting minutes indicated that “economic activity is levelling out”.
On Wednesday the Fed said that businesses were still cutting back on fixed investment and staffing, but at a slower pace, and that they continued to make progress in bringing inventory stocks into better alignment with sales.
Those comments came as the manufacturing and housing markets have recently shown promising signs of life. However, unemployment, which last month reached a 26-year high of 9.7 per cent remains a looming problem and economists are expecting the rate to reach above 10 per cent before easing next year.
Analysts are expecting the US economy, which contracted at an annual rate of 1 per cent in the latest quarter, to grow by around 3 per cent in the third quarter of this year. However, many have been awaiting signals from the Fed about “exit ” plans from its aggressive strategies of quantitative easing and its agency debt buying programme.
Meanwhile, substantial “resource slack” is keeping rising costs in check and the Fed said that long-term inflation expectations were “stable” and that inflation would remain “subdued” for some time.

Tuesday, 15 September 2009

The day the music died...

Cees Bruggemans, chief economist of FNB, takes us back down memory lane why and how the financial crisis erupted and what is likely to emerge from all this:

Two years ago at this time, one could be forgiven for only extrapolating good times. The (SA)economy was completing its fourth year of over 5% growth, formal employment was expanding robustly, state revenue was growing in leaps and bounds making all kinds of social spending feasible even as the national debt was steadily whittled down, and the budget was heading for surplus territory.

Yet at the time a worm was already at work in the woodwork. Inflation was rising as a global commodity price surge was steadily taking shape on the back of an enormous global growth wave, much of it arising in the Asian East, but aided and abetted by fantastic credit and asset bubbles originating mainly in the Anglo-Saxon West.

It had called into being a monetary response already the year before, with the SARB since mid-2006 in tightening mode, gradually if persistently raising interest rates.

Between them, rising inflation and interest rates would within another twelve months erode household purchasing power and the means to sustain the growth wave.

Thus, instead of extrapolating the recent past at the time, it would have made eminent sense by late 2007 to have projected the end of an eight-year expansion cycle and the possibility of recession.

For long business cycle expansions rarely die of old age. Instead they get murdered, nearly always by central banks which, responding to dire need, only do it for our best will, mostly to tame inflationary impulses.

Of course, these two major undertakers, rising inflation and interest rates, would very shortly be joined by a third undertaker, electricity shortages. Its origins were 15 years in the making because of a persistent unwillingness to plan and built new generating capacity for when the operating surpluses would finally ran out. The resulting mayhem would seriously hamper industrial activity and deeply undermine confidence by early 2008.

Between them, these many forces would set in motion an economic deceleration which by late 2008 could have created a mild recession quite easily.

This was already being speculated openly about by mid-2008, yet believed by few.

For surely the long prosperity wave would continue indefinitely? Such is the momentum of good times, in which exuberance of mood rules, and in which the obvious is hardly ever recognized early.

But if all of this weren't enough, by that springtime moment in 2007 the water had already broken on an even more momentous development. Mutual trust among global banks had been brutally dissolved by the bankruptcy of a minor investment vehicle in France.

The realization dawned nearly simultaneously in many a banking boardroom that events, but mainly their own behaviour, had delivered them into the middle of a gigantic minefield from which there was no easy escaping.

Many bankers, especially Americans, British and Europeans, by then realized that, given what had happened to their own balance sheets, and extrapolating this worldwide to other banks' balance sheets, absolutely nobody's paper could any longer be trusted.

And so those with surplus cash held on to it on the day, starting an old-fashioned hoarding with unbelievable consequences, for banks in deficit on the day had to turn to their central banks, as traditional lenders of last resort, to tidy them over with needed liquidity.

Happily, modern central banks don't tend to panic and are able to lend when so many private agents are losing their heads. On that day the ECB in Europe, the Fed in the US and the Japanese central bank between them injected over $250bn into their banking systems to keep things afloat.

From that moment on, the global banking system, its capital providers and clients, and not least its many regulators, central banks and governments, embarked on a discovery process to try to understand the extent of the damage and its implications.

It would take more than a full year, to our springtime in 2008, for the full ramifications of what had really happened, to sink in and divulge its awful truth.

Throughout this discovery process, the deep confidence of the long global expansion became rattled and eroded, financial markets peaked as blue chip names went under and needed to be rescued, credit access started to tighten, and economic growth worldwide started to slide, initially only gradually, but steadily none the less.

The awful truth was that the leading banks of the rich industrial world were effectively bankrupt, brought down by two sets of behaviour, namely wild, untested, unstable financial innovation, and the greed and suspension of rules that tends to accompany such hubris.

The problem was fundamentally bigger, more complex and more intractable compared to what had gone wrong in 1929 and the subsequent years in which the Great Depression of the 1930s had its origin.

Then, a catastrophic loss of confidence giving way to panic (nothing unusual in the history of free market finance) had resulted in a run on banks, creating a liquidity squeeze, setting in motion bank defaults, business bankruptcies and spreading unemployment.

Unfortunately, neither inexperienced central banks nor inept governments at the time had the knowledge, the skill or for that matter the means or even the political will to resist these falling dominoes.

Like a simple flu can develop into pneumonia, followed by death if not treated timely with medication (in our time known as antibiotics) the economic policymakers of those days had to stand by helplessly as this terrifying financial spectacle destroyed the underpinnings of the global economy of its day, with terrible social and political ramifications worldwide.

By springtime 2008 was history to repeat it self?

This time things were far worse, for it wasn't primarily a liquidity problem at banks that central banks in the interim had learned to treat with adequate doses of their support (a simple matter of providing banks with cash).

Instead, banks had made decisions that would prove disastrous in that many of their assets would turn out to be less valuable than thought. Solvency was the main issue in 2008, not liquidity. And bank insolvency you can only treat by injecting new capital, writing off the asset losses, replace management, restore trust (that ultimate currency) and then start anew.

But instead of this happening to a single minor bank, whole banking systems crucial to the global economy had to be rescued and repaired simultaneously. This was like wanting to change all four tyres AND the engine on a car still driving at full speed.

Predictably, the panic deepened and spread, culminating in a firestorm of epic global proportions. The end had apparently come in finance, jeopardizing houses, portfolio investments, jobs and pensions of hundreds of millions of people who previously had thought of themselves as well off, even rich.

The stampede set in motion this time last year has been without equal in world history. Credit effectively dried up globally for anything, buying a house, funding a foreign trade, financing business expansion but also working capital.

When confronted by danger, we have basically two options, to fight or flee. If the danger is big enough, there is only one option, fleeing and hoping to survive to fight another day.

Across industries, across time zones, nearly instantly everywhere, being internet linked and all watching the same global television, and with industrial processes finely meshed by just-in-time calculations, managements across the globe took ultra defensive actions. Shooting first and asking questions later. Not wanting to be caught napping by events.

One had to preserve cash flow, jettison unwanted ballast, cut all spending plans, become independent of retreating banks, prevent becoming a banker to one's debtors.

And so the Greatest Recession since the Great Depression was born, around October last year, as everyone in steel, cars, chemicals, furniture, computer chips, travel, mining, transport and thousands of other activities all had the same bright ideas.

Cut production by 30%, start to reduce inventories, cut back on unneeded spending, savage capex and budget plans. Hoard cash. Survival was to be key, everywhere.

Of course, if we all do this together, it is like ritually all slashing the own throat. And as nearly everyone's output fell by 30% on the first round, everyone's sales in the second round would fall yet more disastrously, setting in motion yet another cutting round. And another. And another. Diving to the bottom entwined in a common death struggle.

These were exciting times indeed.

Private individuals are prone to the greatest fantasies, happiness, exuberance and hubris, just as they are capable of shock realizations that everything isn't quite right, the onset of fear, panic and the deep skepticism that then rules all.

In a word, we are human, emotionally, and so are the businesses and institutions we run, as they are run by human beings who have money and livelihoods at risk and try desperately to prevent losing it all.

If you are going to panic, do so early and in style, being the first out of the door. Of course, if all try doing so, the results are predictable. Very few will leave the room alive.

Governments, for all their shortcomings, have one fine characteristic. They aren't supposed to panic, not having as much personally at stake as individual economic agents.

Even better, governments represent all of society and thereby control our collective tax base and the ability to leverage debt thereon. Yet better in modern times, they ultimately control central banks which in turn straddle the money printing presses.

For in our day all currency is basically paper based, indeed only an electronic entry and transfer away.

And thus these past twelve months we have been in the grip of the greatest rescue mission in history. What it required was the political will, to mobilize society's resources and to go out and undo the institutional failures that threatened to pull all down with it.

This rescue mission of central banks and governments has not been a simple tale. For as on the first day of any war, one throws away all carefully prepared plans as unexpected eventualities decide the shape of the battlefield. Literally, they had to make it up as they went. And they did.

In the process mistakes were made, time was lost, terrible fatalities occurred. After all, some $3-4 trillion in financial assets had been lost, and the worldwide recession would incur another $6-7 trillion in output losses forever gone. Between them the bill came to the equivalent of 4000 Gautrain projects never built. You will agree: the ultimate in global opportunity loss.

There were also house price losses, and halving of equity prices, coming to another $30-40 trillion loss globally, but these were ultimately mostly paper losses for those who didn't transact.

By early March 2009, global financial markets bottomed, central banks had arrested the global freefalls, financial repair was well underway, and governments were underwriting just about everything.

The world was taking a deep breath, and trying to shake its panic. But as with all trauma this takes time. It takes time, proof, success to restore the old trust, confidence and risk-taking at the core of any successful economic system.

To regain one's lost cool isn't a simple matter. Take a deep breath, forget those anxieties, there really is life after death for those lucky enough to have survived the ordeal, now carry on as usual, governed by the old rules that shape our economic behaviour.

This is, of course, questioned at every turn, that life could possibly be the same, that it will be business as usual ere long. Yet we are organized in a certain way, success has its own logic, our behaviours tend to be rule-bound, and once we have regained our composure and our legs, it is once again off to work we go.

It is at times of great catastrophes that deep philosophical questions tend to be re-asked, and rightly so, for why waste a perfectly good crisis? So it is a perfect moment to ask a few searching questions, about the meaning of life (having just survived the ultimate ordeal) and whether the old rules should still apply.

Thus there is much seeking for renewal, reform, but also risk assurance, that this terrible thing may never happen again (as of course it will, as it has on numerous occasions in distant histories mostly only remembered in forgotten books).

But there is a deep searching going on daily in an attempt to come up with better rules, better incentives, less risky behaviour to guide our economic activity. This is all for the good, and indeed an age-old process by which we discovered the keys to long-term development and prosperity.

So how now going forward? Are there any prospects?

There certainly are. The world isn't mainly populated by widows and orphans fearfully seeking out the sidelines and forever staying there. The dance floor may have suddenly emptied last October when the balloon went up and the music died.

But since then, the music has started up again, central bank and government assisted, a few brave souls have been tempted back on the dance floor, as early fashion leaders are apt to do, and the great majority, sufficiently calmed down, seems ready to resume its role, if still somewhat shaken by it all and taking more time to fully recuperate and regain its mental equilibrium.

While this re-engagement is slowly starting up, central banks and governments need to carefully plan their coming exits in turn, as the dance floor can support only so many gyrating couples. And we don't want new accidents, now do we, such as fundamentally overheating our economic spending and resource bases and starting the mother of all hyperinflations. For that would be exchanging the fat for the fire.

The key global policymakers first had to catch the baby and ensure its safe delivery. And once accomplished they need to make themselves scarce again, reduced to their legitimate everyday role, which is much reduced from their crisis role as chief firefighter.

So with economies stabilized, if with enormous increases in slack resources, especially in Western countries, US unemployment heading for 10% whereas 4% would be normal, how does the economy start up again?

There are two sides to this question. The one is internal, the other external (global).

Internally, the deeply recessed economies today enjoy support from government spending, but also favourable incentives such as assisted credit flows and super low interest rates from central banks.

There was overreaction at the onset of crisis late last year, and its unwinding gives a needed lift to activity. Once inventory and output slashing ends, yet with final sales less disturbed than originally imagined, production can start gearing up again. This process has been underway worldwide these past six months, ensuring that economic activity didn't keep falling, spiraling out of control indefinitely.

Indeed, this quarter (3Q2009) is probably the first quarter of growth in the new global expansion cycle getting underway about now.

On a slightly more extended timeframe, postponed replacement decisions are coming back into focus. It was easy to delay purchasing a new car, furniture, appliance or whatever, greatly deepening the onset of recession.

But once less unsure and going back to more normal conditions, these replacement decisions come back into focus. If the means are there (90% of the American labour force will still be employed, interest rates are low, credit flowing again), the durable consumption will gradually come back on stream. And with a bit of time lapse, so will business investment.

It isn't good enough to say that there is much spare capacity and therefore no need to invest. Innovation hasn't stood still. The process of creative destruction very much remains alive and at the centre of all economic development, competitive impulses driving us on the replace and invest. Indeed, consolidation, regrouping and renewal are the key watchwords in today's global economy.

And so the business of risk-taking, expansion, employing and private spending resumes, for there remains much unfinished business in the world.

Which brings me to the global stage, and the real core of the growth story of our time.

The East (Asia) is poor. It is also impatient, having discovered to an ever greater degree this past generation how the few got to be prosperous.

The global banking implosion was mainly a rich world phenomenon. The emerging universe was mostly not affected directly, and some industrializing and commodity-supply parts only indirectly.

China's economy throttled back from 10% growth to 8% growth this year and next year is seen doing 11% growth again as it successfully imitates Japan of old, accelerating domestic demand into a global contraction, temporarily lessening the impact of its usual early export dependency.

China and India have reached a critical mass that allows them to play this leadership role at this juncture. It won't undo the output losses incurred in the rich countries, but it does assist the world to recover more easily from its encounter with disaster.

And thus the world, initially limping in parts, but already again racing in others, with an enormous increase in resource slack, as much spare skilled labour as physical resources, is readying itself for another cycle of economic expansion.

Given the low base from which it is beginning, the spare resources, the slow start in places, the absence of major structural risks (unless you don't like overgearing governments and central banks) and the enticing incentives, the world is probably looking at another major and long expansion.

Certainly not everyone believes this, sensing the Great Moderation and balmy economic times lie behind us, and ahead looms much more volatility, inflation, policy action and therefore business cycle interruption, shortening any growth spurts and keeping the growth down through greater inefficiency brought on as a consequence of the great financial shock and its remedies.

Meanwhile, the East is impatient as ever, and the West not necessarily populated only by widows and orphans. Indeed, all I meet daily is great white sharks on the prowl for the easy opportunity at the bottom of this great cyclical implosion. This is the essence of raw market capitalism and it certainly hasn't died.

That suggests a come-back, even though humpty-dumpty had a great fall and can't be quite put together again in the way he was before. But then doctors have a way of stitching you up and wishing you a nice day as they shoehorn you out the door.

Life goes on. The rules of the game are well known, if somewhat moderated. But it won't prevent a resumption of that great human effort known as getting rich, and less prosaically as human development.

So we are going back to global growth, fast in the East, somewhat slow in the West, surplus capital being generated probably everywhere which still will be looking for an outlet, mostly where the action is hottest (in the growing emerging universe).

Monday, 7 September 2009

A step closer towards economic recovery

Greg Robb of MarketWatch reported that the OECD thinks that a global economic recovery is not too far away, but authorities still need to wake against exiting aid strategies too early:
Recovery from the global recession is likely to arrive earlier than expected, but it is too soon to trigger exit strategies. "It is important not to get carried away. Green shoots seem likely to growth further in the near-term but will still need careful nurturing by policy if they are to become strong, self-sustaining plants."
The OECD is not expecting a W-shaped double-dip recession, but at the same time isn't predicting a V-shaped recovery. "I don't think any alphabet has a letter that envisions the economy that we have in mind. Somewhere between an 'L' and a 'V'".
The OECD forecast suggests an economic recovery is already underway in the U.S. States. Economic output, as measured by GDP, is expected to rebound to a 1.6% rate in the current quarter in the U.S. and hit 2.4% in the final three months of the year.
The euro-area growth rate should rebound to a 2% rate in the fourth quarter, with solid rebounds in France and Germany.
The Japanese economy should expand at a 1.1% rate in the third quarter before falling 0.9% in the fourth quarter.
The United Kingdom is expected to lag behind other OECD nations and show no growth this year, the forecast said.
Global trade appears to have hit bottom and is rebounding, the OECD said. Growth in China is boosting trade. The risks of an outbreak of inflation remain low, given the slack in many countries, the OECD said. On the other hand, deflation is also unlikely outside Japan.
The first step toward tightening shouldn't be taken until the middle of 2010 at the earliest, the OECD said.

Thursday, 3 September 2009

Awakening The Bull

Ryan Barnes post the following guidelines on when it is most likely to be the start of a bull market:

Being able to accurately spot the beginning of a bull market can be one of the most lucrative skills around. This fact alone makes it difficult to achieve, as so many well-educated and experienced investors try to spot the signposts that lead us into traditional bull markets.

Are we in one right now? Opinions vary, but the S&P 500's 45% + rise since March 2009 certainly meets the traditional definition of a 20% rise from a market low. But a better definition of a bull market is an extended period of time when markets are stable with an upward trend. The extended part is key, as it allows all investors the chance to participate without feeling like it's a race to the top.

Let's look at five signs that tend to predict the next bull market. No single one is a surefire tip, but that's just the way Mr. Market likes it: he has a nasty habit of eliminating patterns and keeping investors mystified for as long as possible.

Sign No.1 – Sector and industry leadership changes in the stock market.
In the most basic sense, bull markets come when more people want to buy stocks than sell them. Because stocks love to turn bullish before the broad economy picks up, look for a shift in demand to the stocks that benefit first from economic growth. Stocks in sectors like financials, industrials and retail often lag behind in a bear market - nobody wants them.

When a bull is approaching, these sectors often become market leaders. Large institutional investors start piling in, hoping to see the conditions of these companies improve first. So look for leadership to change from defensive sectors like utilities, healthcare and consumer staples. When investors start dumping the latter in exchange for financials, industrials and basic materials, it's a good sign that major investors are optimistic about the future.

Sign No.2 - Key economic indicators turn upward.
We get a slew of economic indicators all throughout the year, but several have been deemed leading indicators for their ability to foretell future growth in the all-important indicator of gross domestic product (GDP). When GDP is positive and growing, the bull market is already in. So look for a turn in the following key leading indicators:

•A rise in industrial production
•Several weeks of falling jobless claims
•A rise in the Philly Fed Index
•Rising durable goods orders
A true bull market should be predicated by all four indicators showing growth, or at least changing direction if they have been falling for several months.

Sign No.3 - The Baltic Dry Index turns sharply upward.
The Baltic Dry Index is a specialized measure of the rates paid by producers and shippers of key raw inputs like coal, iron ore and grains. These raw materials are purchased by the ton, so they need to be put in large carrier ships and sent all around the world to the companies that will use them to create energy, steel, food products and other consumer goods.

This index is good to watch because there's a long lead time before growth in shipping leads to higher production of goods by the end users themselves. The Baltic Dry Index is also quite volatile, so higher price action is easy to spot, and may give a clue toward future growth in the economy long before it shows up elsewhere.

Sign No.4 - Money market fund assets drop.
When investors are generally skittish, they sell their risky investments (stocks) and move cash into safer ones like bonds and money market funds. In a bear market, money market fund assets will rise and rise, building a bubble of pent-up demand. After all, money market funds may be safe, but they won't earn you a solid return.

The Investment Company Institute publishes weekly figures on the aggregate amount held in all types of funds - stock funds, bond funds and cash funds. Look for a sustained drop in money market fund assets, and a corresponding rise in stock fund assets. This will signal that investors are making their way back into the stock market. The higher that money market assets grow in a bear market, the more gunpowder is available to fire back into the stock market when the bull is back.

Sign No.5 - Stock indexes stabilize.
This last sign may sound overly redundant, but don't be fooled by its simplicity. Stock market indexes need to form a bottom that can be recognized by all participants. They then need to form a stable upward trend over weeks and months, rather than a volatile zig-zag that threatens to turn south just as much as north. The more stable the trend of the broad indexes - like the S&P 500 - the more confident investors can become, especially those who have been patiently waiting on the sidelines for obvious signs of safety before dipping their toes back in.