A bottom in equities?

The US stock market managed to recover from early losses to post a gain yesterday. Bloomberg reports:

U.S. stocks rose as a rally in oil prices boosted energy shares, outweighing concern that financial companies face more writedowns after American International Group Inc. said it understated losses in some assets...

The Standard & Poor's 500 Index added 7.84 points, or 0.6 percent, to 1,339.13 after earlier falling as much as 0.8 percent. The Dow average gained 57.88, or 0.5 percent, to 12,240.01, erasing a drop of as much as 113 points and rebounding from the worst week in almost five years. The Nasdaq Composite Index increased 15.21, or 0.7 percent, to 2,320.06. About nine stocks advanced for every seven that fell on the New York Stock Exchange.

"You've had some measure of indiscriminate selling such that you can find real attractive value opportunities,'' said Christian Andreach, who helps manage more than $15 billion at Manning & Napier Advisors Inc. in Fairport, New York...

Barton Biggs probably agrees with that last statement, and thinks we may be approaching an important bottom in equities. From Bloomberg:

Barton Biggs, co-founder of hedge fund Traxis Partners LLC, said he's "gradually increasing" his holdings of U.S. equities because he doesn't expect a recession and shares are "very, very cheap."

Biggs, the former global investment strategist for Morgan Stanley, said in a Bloomberg Television interview that the market is "at or very close to an important bottom" and may be led higher by banks and brokerages when a rally occurs...

But before you act on that, note that Paul Krugman does not think that the current problems can be resolved so quickly.

... [T]he recessions of [the 70s and 80s]...were caused, basically, by high interest rates imposed by the Fed to control inflation...

Since the mid 1980s...recessions haven’t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand.

And while they haven’t been as deep as the older type of recession, they’ve proved hard to end (not officially, but in terms of employment), precisely because housing — which is the main thing that responds to monetary policy — has to rise above normal levels rather than recover from an interest-imposed slump.

That’s why I think our current problems will last a long time. [Calculated Risk] says 2009; I say 2010.