Wednesday, October 22, 2008

The Importance of Hitting Bottom

BusinessWeek has a story called Wells Fargo's Kovacevich: The Importance of Hitting Bottom. It is by Maria Bartiromo and it is about her interview with Wells Fargo Chairman, Dick Kovacevich.

You appear to be one of the real survivors here, you and a couple of others in the financial-services business. Here's the question on everybody's minds: Is the worst over?

Well, I think we're getting close to the bottom. And in a way, all the bad news that's been coming out lately just suggests to me that we're getting to the bottom faster. And that's important. I don't think the depth of the bottom is as important as getting there fast. If this lingers on, then I think there are serious issues with the economy that will be very hard and very expensive to correct. If we can get to the bottom, say in the next six months or so, the economy will still be strong enough to bounce back. Once that happens, it'll be a snowball effect. There's still a lot of liquidity out there ready to invest once the bottom is reached.

Apply that same logic to the housing market. Once people are confident that values aren't going to fall any more, they will want to buy. The problem isn't that home prices are's that they haven't fallen far enough.