But is the slight up-tick for the last week a telling indicator?  Probably not, since it could just as easily turn down next week.  One week does not make a trend.

Another stock market measure is the price/earning ratio of the market.  The market index value divided by the aggregate earnings of all the components is an important indicator of the value of equity holdings.  The chart below shows a long, historical trend of this measure:

P/E Ratios for U.S. Equities

The P/E ratio in earlier recessions was lower than it is now, but this indicates that the bottom may at least be near.  The current level of 13 is below the long term average of around 15, but it was below 10 in both the 1982 and 1930s recession.

One of the reasons business earnings (half of the P/E ratio) are so low is the inability of businesses to raise prices.  We are currently in a period of deflation, which is not promising for a strong business environment.  However, there are a couple of up-indicators for a return of rising prices: the prices of copper, corporate bonds and inflation-protected Treasury securities are higher today than they were in November.

For an Associated Press Report on the possibility of bottoming, follow the link:http://news.yahoo.com/s/ap/20090314/ap_on_bi_ge/wall_street_finding_the_bottom

The prices of homes is another indicator that many consider important to a recovery.  The graph below shows the trend in this important variable:

Prices of Homes

Home prices have come down considerably from their previous high, but they still have a way to go before reaching the long term average.  Also, home prices vary considerably within different markets.  Some of the hardest-hit regions (Las Vegas, Phoenix, Miami) have already lost about 50% of their previous high.

The one variable yet to be considered is the broken banking system that afflicts most of the developed and emerging markets world.  And on this front, there is not much encouraging news.  It is impossible to foresee an economic recovery without a healthy banking system, and that is not present just now.  The meeting of finance ministers in London over the weekend indicates they want to do something about it, but the language they chose in their press release was to “do everything possible” to correct the problem.  This is not language that instills confidence in the investing community.  It will be up to the heads of state, who meet on April 2nd to address this issue more fully.

The only encouraging statement coming out of the meeting of the finance ministers came from U.S. Treasury Secretary, Timothy Geithner, who indicated he would flesh out his proposal to strengthen American banks, “soon.”

Two other items relevant to a recovery are consumer spending, which is still falling, and the huge amount of money market and cash holdings by investors and banks.  Consumer spending needed to fall from its near 100% level just a few month ago.  An economy needs to have savers, and this country lost theirs, at least in the aggregate, for many of the last few years.  There is a recovery of savings underway, but it has a bit further to fall before stabilizing at the long-term average of 93%,

Cash holdings of investors in money market funds and banks are exceptionally high, which indicates to me that there is plenty of money poised to re-enter the equities market, once confidence is restored.  We can only hope it is soon.  Probably by the middle of April, we should see some signs of recovery of consumer confidence.  The G-20 meeting will have concluded, with some expected gains from an agreement to strengthen the IMF lending to emerging markets, better international banking regulation and some coordination of stimulus spending plans.

Plus, there are other signs that the rate of getting worse is slowing down. Unemployment figures for March will help clarify this issue, and they should be out in early April.  If we get some encouraging signs by the end of April, then we might expect a bottoming by the summer or fall quarter.

UPdate 3/16:  Chairman of the Federal Reserve, Ben Bernanke, sees end of recession in 2009.

From NYT: “We’ll see the recession coming to an end probably this year.”

With those words, Federal Reserve Chairman Ben S. Bernanke staked a marker on what he believes will be the end of the malaise that has descended upon the United States economy. And, he said on a “60 Minutes” interview that ran Sunday evening, the country will begin to recover next year — “and it will pick up steam over time.”

To watch a video of the interview on 60 minutes, follow the links below.

• 
  The Chairman Part 1 (13:23)
• 
  The Chairman Part 2 (13:13)
• 
  Behind The Scenes #1 (0:57)

To read the complete transcript of Mr. Bernanke’s inverview Follow this link to the CBS site.

In recent past statements, Mr. Obama had downplayed America’s role  in working on international bank regulations.  His Secretary of the Treasury, Mr. Timothy Geithner, has stated that America would not have a fully fleshed-out regulatory package in time for the London meeting.  It is not clear from the statement whether the new statement of the President means that this problem has been overcome.  But, it is reassuring that he is not backing away from this important agenda item.

There is not a unanimity among world leaders about the most important items on the G-20 agenda.  Angela Merkel, Germany’s Chancellor, has not agreed that a major stimulus program is necessary for the Euroland economies.  Her current proposal of about $63 billion in stimulus spending is dwarfed by the U.S. efforts of almost $800 billion recently passed by Congress and by China’s $500 billion that is already being spent.  Japan is more in the German camp, having committed to stimulus spending, but not being willing to take on much more debt to bring it off.  The U.K. is more in the American and Chinese camps.

Recent downturns in German exports, however, may move the German Chancellor off the dime, but so far, she thinks the major focus of the G-20 meeting should be bank regulation rather than deficit spending.  Japan holds a similar position.

The International Monetary Fund has called on the trading nations of the world to commit to stimulus spending of 2% of GDP for 2009 and 2010, far above the current German efforts.  Mr. Geithner, in a press conference later in the day, endorsed this goal, and he endorsed the IMF goal of funding an additional $500 billion in funding for their efforts to stabilize the weaker currencies of Asian and Central European economies.

In an earlier meeting between Mr. Obama with British Prime Minister, Mr. Gordon Brown, the Prime Minister emphasized an agenda for the G-20 that would completely restructure the original Bretton Woods agreement.  This would mean a new structure for the IMF, the World Bank and internationalizing banking regulation.  Mr. Obama did not specifically endorse these proposals at the meeting, but he may have come along some since that time.

The banks of the world are not enthusiastic about these new regulatory proposals.  Their trade association has already met and drafted their own version of what would pass muster for them.  You can guess as to the nature of their proposal.

Others think that Mr. Brown has set too ambitious an agenda for the meeting.  He, it is said, needs to be seen as a heroic figure at the meeting, given his shaky status in his own country.

There is little doubt that the world needs a new Bretton Woods arrangement.  Too much has changed since the 1944 agreement that reestablish mechanisms that promoted world trade.  Before WWI, the British pound sterling had been used as the major trading currency in the world, but WWI and WWII saw the end of the preeminence of the pound, and Bretton Woods replaced it with the U.S. dollar.

A new agreement would not likely replace the dollar in its role as the major reserve currency in the world.  There are simply no suitable currencies that have the heft to take its place.  But the IMF and World Bank, just to name two, need to be restructured, allowing greater participation by China, India and Brazil, who are becoming important players in world trade.  And, some mechanism needs to be reinforced to come to the rescue of the battered currencies of Europe’s emerging markets.  Adding a complete restructuring of the regulatory environment for the world’s banks and coordinating stimulus spending to the agenda is a long reach.

This is a hugely important meeting, and its success or failure to rise to the occasion is still up in the air. My hope is that on areas where there is still disagreement, they will agree to meet again, perhaps later in the year, to reach a final settlement.  Mr. Obama has not been if office long enough to be fully prepared for this giant a task.

Update 03/14/09

A report from the Wall Street Journal on Saturday concluded that there will not be a unified agreement from G-20 members to call for more stimulus spending.  (Click here for full article.)  Germany and France argued that their unemployment benefits and other social safety net made stimulus spending less necessary.  There was agreement to increase funding for the IMF, but the amount will be left to a later decision, and there was agreement on licensing credit rating agencies.  There will still be an emphasis by the U.S. to coordinate stimulus spending, however.

For Bloomberg’s Saturday update click here.  Their emphasis is on solving the banking asset problem–the difficulties of reaching an agreement and the difficulty of the problem itself.