At least so the saying goes. Another one tells us that when market panic and negativity is very large, that’s really when the bottom is being set. Jim Cramer argues that the bear market is over. Is it?

The stock exchange is a forward looking device and indeed is one of the first things to turn even if everything around it is still gloomy and dark. And gloomy and dark is indeed what it is, as there are a couple of self-reinforcing feedback loops operating that could well turn the economy down further:

• Increasing unemployment further depresses consumer sentiment, consumer spending, and thereby the economy as a whole
• Further reductions in house prices will lead to further foreclosures, which will put more banks under pressure, leading to further write-downs and cuts in lending, which will put the economy under more downward pressure

And we’re not kidding, this is happening:

• Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co, which oversees $750 billion in assets, told Reuters in an interview the credit crisis has “morphed into a deepening economic weakness. This weakness will accelerate.”
• Mohamed El-Erian Friday said the unemployment rate is headed toward 6 percent, as the year-long global financial market turmoil continues to have a growing effect on the U.S. economy as a whole.
• The Labor Department said 51,000 non-farm jobs were eliminated in July, bringing losses for the year to 463,000. Analysts polled by Reuters had expected the 75,000 jobs to be cut last month but had forecast the unemployment rate would rise only to 5.6 percent
• “We now have three balance sheets all coming under pressure at the same time: housing, consumers, and the financial sector,” he said.

Jobless claims up:

• The Labor Department reported Thursday that the number of applications for jobless benefits soared to 448,000, an increase of 44,000 from the previous week. That was far worse than the decline of 8,000 that economists had been expecting.
• However, the government attributed much of the big jump to a special outreach program to notify people that they could qualify for up to 13 weeks of additional benefits because of legislation Congress passed in June.

Consumers tighten spending:

• Americans in all age and income groups have reduced credit card use and cut spending on non-essential items as oil and food prices soar, home prices sink and lenders tighten credit, a new study shows.
• Thirty-seven percent of consumers said they have reduced spending on credit cards, while just 10 percent said they are spending more, according to the study released on Wednesday by Javelin Strategy & Research of Pleasanton, California.

Banks are deleveraging:

• CME Group Inc , the world’s largest derivatives exchange, said Friday that average daily volume fell in July from a year earlier, a second consecutive monthly decline, as interest rate trading slowed.
• CME shares fell heavily in response to the volume figures and worries that turnover in the interest rate sector could continue to suffer from the credit crunch.
• Interest rate trading, CME’s largest sector, has been hit by a widespread “deleveraging,” or reduction in positions, by financial institutions in response to the global credit crunch that is approaching its first anniversary.

Slower growth elsewhere is adding to the problems in the US:

• Former Federal Reserve Chairman Alan Greenspan said Thursday that a slowing global economy may push the United States into recession, though it is not yet in one.
• “I think the data at this stage in the United States are not … suggesting recession,” Greenspan said in an interview on CNBC television. But he added: “We’re right on the brink and I would be more surprised if we didn’t (have a recession) than if we did, given the financial state.”

We think the situation will start to improve only if the housing market has bottomed. How likely is that? Well, it doesn’t seem like any time soon:

• More than 800,000 vacant homes for sale stand between the housing recession and the bottom of the downturn nationwide. The glut is driving down home prices, slowing sales and turning consumer psychology against the market.
• New figures out Tuesday showed that home prices fell by a record 15.8 percent in May from a year ago, with none of the 20 cities surveyed registering a price gain. The Standard & Poor’s/Case-Shiller Home Price Index is now down more than 18 percent from its peak in July 2006.

Mortgage credit is still shrinking:

• Mortgage application volume tumbled 14.1% during the week ending July 25, hitting its lowest level of the year, according to the Mortgage Bankers Association’s weekly application survey.
• Volume fell even though interest rates on fixed-rate mortgages retreated from sharp increases a week earlier.
• Refinance volume plunged 22.9% during the week, while purchase application volume fell 7.8%. Refinance applications accounted for 35.2% of total application volume during the week.
• The overall application index fell to 420.8 from 489.6 a week earlier.
• An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked such data. The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.

Yet, Cramer is calling the end of the bear market:

• Jim Cramer, the TV stock guru best known for throwing around props and hollering “buy, buy!” — and who just a week ago told investors to sell everything — is back with a new message.
• “Bye, bye bear market,” he said. “Say hello to the bull, and don’t let the door hit you on the way out.” The market has hit bottom. At very least, he says, it won’t go much lower.
• “I am indeed sticking my neck out right here, right now,” Cramer said on CNBC, “declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15.”
• “My bottom call isn’t gutsy,” Cramer said. “I think it’s just a smart call that all the evidence points toward.”

Not gutsy?? Well, we think it is, although we hope he’s right, but it seems somewhat silly after telling his audience to sell everything just a week earlier and giving very little (if any) argumentation for such a dramatic turn in his outlook. Yes, markets look forward, and are usually the first thing to turn, but the visibility is very, very murky still.