Cover Girl: Meredith Whitney; Is This The Bottom?

Oppenheimer banking analyst Meredith Whitney has been at the top of her game, as her pessimistic views on the credit crisis have been dead on. Whitney's prescient calls have given her a national name and now the cover of Fortune magazine (see pic).

Whitney has proven that she is one bright lady, but does her recent celebrity status signal a bottom to the credit crisis?

Tops in markets are often marked by mainstream media picking up the euphoric feeling and putting it in writing. Like the dot com bubble and most recently the housing bubble, article after article were reported in the mainstream about the riches being made by regular folks flipping houses or riding the next hot dot com IPO. But what about bottoms? Usually at market bottoms you have the opposite, with the mainstream media reporting about the fortunes lost, the scam artists, the fear and loathing. With Whitney now, you have a normally low-key banking analyst plastered across CNBC daily and now on the cover of magazines.

Is it a bottom? I wish it were that easy to call, because this credit crisis is big - I mean really big. There are so many potential worries that go far beyond the mortgage market. I try to think of it this way as a worst case scenario - "What if there was no credit in the U.S.?" Take away all the credit (which of course will never happen) and that is the bottom. What will a house sell for if there was no one to give you a mortgage (now mainly the Fed), what about a car? I think the answer is a lot less, but not zero?

Everything has value, and as the Fed starts the printing presses, there is actual value in real assets (yes that includes real estate). Everyone is complaining about inflation, but if there was major inflation (a significant devaluation of the currency), you would want to be in real assets as the depreciating currency gives you nothing to hold but worthless paper. What if you knew your money was going to be worth 75% less one year from now? I would want to put my money in real assets, including real estate. The problem we are facing now is that all the inflation we've seen over the past 10 years has been focused one thing - real estate. A majority of the credit (credit too is inflationary) that was extending during that time went to mortgages, thus artificially driving house prices higher. When trust, which is the key component to credit, was broken, the whole thing came crashing down. This had to happen - but it too will adjust.

With the Fed printing press now in full effect we may yet see real inflation. The recent stimulus plan reminds me of the "Helicopter Ben" title that critics attach to Ben Bernanke. The criticism refers to suggestions that you could drop money out of the sky to fight deflation. In this case the deflation is housing, and the helicopter is the U.S. Post Office with checks for everyone.

Here are some stocks Meredith Whitney covers, as we all wait for the bottom: American Express Company (NYSE: AXP), Goldman Sachs Group Inc. (NYSE: GS), Merrill Lynch (NYSE: MER), JPMorgan (NYSE: JPM), Wachovia (NYSE: WB), Charles Schwab (Nasdaq: SCHW), Bank of America (NYSE: BAC), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), Lehman Brothers (NYSE: LEH), Morgan Stanley (NYSE: MS), UBS AG (NYSE: UBS), Capital One (NYSE: COF), CIT Group (NYSE: CIT).

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