That’s tough to say, although three seemingly unrelated bits of data suggest the ultimate market bottom may be lower still, meaning investors aren’t out of the woods, yet. Let’s take a look:

• Since 1990, there have been 13 declines of 10% or more in the Standard & Poor’s 500 Index. And while each drop of this magnitude tends to precede a rally of six months or more, an ultimate market bottom typically hasn’t been established until we’ve seen an average reading of 36.3 in the Chicago Board Options Exchange Volatility Index – usually referred to as the VIX Index. Generally regarded as a proxy for fear in the markets, the VIX Index closed yesterday (Monday) at 28.48, which is still 22% below the “worry line.” Still, the VIX rose nearly 4% yesterday alone, surged as high as 29.30 – and late last week was at 25.3, a 13% move in just a matter of days. If there’s a takeaway here it’s that stock prices are likely to fall further still.

• Approximately 75% of the stocks on the New York Stock Exchange (NYX) are “oversold,” according to various definitions of the term. Each time the reading has reached this level, there’s been a subsequent stock-price rally of about 4% in the six months that followed. But here’s the wildcard: This happened only three times in the 1990s, but it’s already happened seven times so far in the current decade. This suggests to me that any rally that does start at this level may be shorter in duration than investors would like to see – unless there’s a dramatic reversal in investor confidence or a change in geopolitical terror.

• In recent speeches around the world, Federal Reserve officials have been making noise about taking over some financial institutions while allowing others to fail. Based on some earlier events, this suggests that the Fed may be trying to telegraph to the markets and investors that we’re not out of the woods yet. We can only imagine that the Fed, through close inspection, has determined that it needs the legal framework in place to avoid a catastrophic meltdown should the measured de-leveraging it’s attempting fail for any reason at all.

Does that mean it’s time for “Katy to bar the door?”

Probably not.

Since World War II, downturns have lasted an average of a year each, with the deepest depths (the market bottom) achieved about halfway through. So right now, if the markets hold and the Fed does manage to pull a Harry Houdini – using such maneuvers as the bailouts of The Bear Stearns Cos. Inc. (BSR), Fannie Mae (FNM) and Freddie Mac (FRE) to avoid a catastrophic meltdown – we’re still on track for an election-year rally that would last through the middle part of 2009.

Under that scenario, we could be in “market bottom” territory right now.

Several Wall Street firms have apparently embraced that scenario, and are feeling quite bullish as a result. That’s a hope we’re finding harder and harder to hang onto, yet that’s exactly what we need to do and for one critical reason: History shows us that when investors panic as they have been recently, valuations don’t tend to immediately change with them.

That means two things:

• There are incredible bargains that actually are still in the making.
• And there’s literally no rush to position yourself for a stock-market rally that may be still months from starting – but which will definitely come.

So how do you play this period of intense uncertainty?

• Don’t do anything rash. People make bad decisions under pressure and indiscriminately dumping stocks in a bad market certainly qualifies as a big mistake.
• Take advantage of the market’s turmoil to establish an appropriate mix of growth and income stocks like the 50-40-10 structure (50% “base building” stocks, 40% global growth and income and 10% the speculative shares we have labeled the “rocket riders” for the thrilling but volatile flights they often take investors on) that we advocate in our monthly newsletter, The Money Map Report. Not only can this help prevent a “downside slide” if the already uncertain economic outlook gets even worse, it preserves the potential for profits in an upside recovery. And let’s face it: If you’re on the sidelines, you may miss the train when it pulls out of the station.
• Buy global blue chips that derive a substantial portion of their revenue from overseas markets where the economies remain stronger than their U.S. counterpart. We call these stocks “Global Titans,” and have found them to be a major haven in some of the financial-market storms we’ve seen in recent months. Begin by looking for positive earnings and follow the trail to include choices with low or no debt. And wherever possible, concentrate on high yields. Our studies suggest that dividend yields between 2.5% and 3.71% form a definite “sweet spot” that leads to markedly higher returns over time.

Source: In Search of a Market Bottom: Position Yourself for Profits No Matter Which Way the Market Moves

“The president has asked me to work with Congress to act on this plan immediately,” Paulson said Sunday. “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.”

But half a world away – in his new home in Singapore – peripatetic investing guru Jim Rogers blasted the federal government for its new activist approach, which conflict with the very idea of a free market. A rescue of Fannie Mae and Freddie Mac – the second federally sponsored corporate bailout in four months after the Treasury Department rode to the rescue of The Bear Stearns Cos. Inc. (BSR) in March – is shifting the cost of errant financial strategies away from shareholders and onto U.S. taxpayers.

“I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,” Rogers, the best-selling author and famed investor told Bloomberg News. “These companies were going to go bankrupt if [the feds] hadn’t stepped in to do something, and they should’ve gone bankrupt with all of the mistakes they’ve made. What’s going to happen when you … put some Band-Aids on it for another year or two or three? What’s going to happen three years from now when the situation’s much, much, much worse?”

Clearly, a sweeping rescue of the government sponsored entities, such as the one planned, will bring with it a broad new range of liabilities for the American taxpayer, who will be financing institutions that are widely regarded as insolvent.

The debt securities issued by Fannie and Freddie are widely owned by pension funds, mutual funds, institutional investors, and even foreign governments. So a collapse of the two government-sponsored enterprises would send shockwaves through an economy that is already struggling to overcome the worst housing recession in a quarter-century, tight global credit markets and soaring inflation thanks to rising food and energy prices.

Paulson asked Congress for the authority to buy equity in – and lend to – the companies, while also substantially increasing their lines of credit.

The Treasury Department did not specify the amount of credit that would be made available to Fannie Mae and Freddie Mac, but those briefed on the plan told the International Herald Tribune that administration officials are lobbying Congress to extend the line of credit to $300 billion.

Each company currently has a $2.25 billion credit line that was established close to 40 years ago. At the time, Fannie Mae had only $15 billion in outstanding debt according to IHT. Now, Fannie has a total debt of about $800 billion and Freddie has roughly $740 billion.

Many on Capitol Hill, particularly Senator Charles Schumer (D-NY), greeted the plan with enthusiasm.

“The Treasury’s plan is surgical and carefully thought out and will maximize confidence in Fannie and Freddie while minimizing potential costs to U.S. taxpayers,” Schumer said.

“While Fannie and Freddie still have solid fundamentals, it will be reassuring to investors, bondholders and mortgage-holders that the federal government will be behind these agencies, should it be needed.”

But Rogers – who contends that the U.S. economy is in the midst of its worst recession since World War II – referred to Paulson’s plan as an “unmitigated disaster.”

“They’re ruining what has been one of the greatest economies in the world,” Rogers said, making a collective reference to both Paulson and U.S. Federal Reserve Chairman Ben S. Bernanke.

Said Rogers: Paulson and Bernanke “are bailing out their friends on Wall Street … but there are 300 million Americans that are going to have to pay for this.”

Editor’s Note: For an insider’s explanation of the catalysts for the Fannie Mae/Freddie Mac financial crisis – as well as the long-term fallout investors can expect – check out Contributing Editor Shah Gilani’s “ Inside Wall Street” column also contained in this issue of Money Morning. Global Investing guru Jim Rogers has been particularly critical of the U.S. government’s willingness to bail out Wall Street’s financial miscreants. Indeed, in an exclusive interview with Money Morning earlier this year, Rogers predicted the failure of the U.S. Federal Reserve for this very reason. And while that’s very bad news for U.S.-focused investments, there is an alternative – Asia, and more specifically, China, Rogers says. For more details of this global investing game plan, and to obtain a free copy of Rogers’ new bestseller, “A Bull in China,” check out this investing report.

Source: As Treasury’s Paulson Prescribes Bailout for Fannie Mae and Freddie Mac, Guru Jim Rogers Predicts an ‘Unmitigated Disaster’