No Signs of End to Real Estate, Banking Crises

So what's working? Within equities markets, not much save for steel, gold and commodity plays. Otherwise there are virtually no equities showing strength at present. With such widespread weakness, one could easily fashion an argument that stocks are oversold and due for a bounce. Still, markets tend not to decline sharply because they're poised to thunder up to new highs. There's been some serious damage done that will take, at minimum, months to rebuild.

Of course, I had no idea that the early weakness in financials first observed last summer would turn into one of the worst credit implosions in modern history. Even now, I wonder if the public at large really comprehends the severity of the drop in financials, whose declines are starting to resemble those of tech stocks post-March 2000. Within the last year, names like IndyMac Bancorp (IMB), Countrywide Financial (CFC), Citigroup (C), Washington Mutual (WM) and Zions Bancorp (ZION) have lost between 50% and 95% of their value, just as CMGI (CMGI), Microsoft (MSFT), Cisco Systems (CSCO) and JDS Uniphase (JDSU) did between 2000 and 2001.

Indeed, this has been a generational fall for financials. Unlike many speculative Nasdaq or OTC stocks, it's rare to see such a large and widespread amount of market cap evaporate within a relatively short period of time. The early 1990s decline, for example, which saw stocks like Citigroup fall more than 40% from their highs, was relatively short-lived. A year later, most had recovered lost ground.

For the bulls, the fact that the credit markets and weak economy are front-page news is actually a net positive. As I often like to point out, by the time a market story is being covered on the CBS Evening News, the real tradable portion of the move has usually already been made.