Think twice about near-term market bottom

The housing market will look like a slow-draining bathtub

for at least the next couple of years, with defaults and foreclosures likely to exceed new purchases. The unsold inventory will take a long time to recede to normal levels. And until the bottom in housing is visible, no one can be certain how bad the credit losses will be. We are so far outside any historical patterns that forecasts have become exercises in creative writing.

Reader Jeff sent along this cheery view from Ken Murray of Blue Planet Investing (the whole post is worth reading):

The current situation in the US banking market is without precedent. Never before in a time of near full employment and record corporate profitability have we seen such huge levels of bad debts. By our own estimates bad debts in the US banking market are likely to rise to somewhere in the order of $300bn to $450bn. Other estimates set the figure much higher. This is important because the bad debts that have been incurred so far are entirely due to poor underwriting as opposed to a downturn in economic activity. However, a downturn in economic activity is now occurring and, if the US economy is heading for recession as we forecast in 2007, it will give rise to a huge layer of additional bad debts. One that it simply cannot shoulder. It is perfectly conceivable that bad debts may rise to somewhere in the order of $500bn. To put the scale of these losses into perspective the total equity of the US’s top 100 banks stood at $800bn at the end of the third quarter 2007. Losses of $500bn would wipe out 63% of their capital bases and leave many of them insolvent.

To put it mildly, that doesn't exactly point to a lasting recovery in the credit markets.