When I was a investment grade corporate bond manager back in 2002, there were three “false starts” before the recovery began in earnest. The market started rallies in December 2001, August 2002, and October 2002. I remember them vividly, and I behaved like the estimable Doug Kass during that period, buying the dips, and selling the rips.

In this bear market for the financials, we are only through the first leg down. Here is what remains to be reconciled:

• Residential housing prices are still too high by 10-20% across the US on average.
• The same is true of much of commercial real estate.
• The mortgage insurers have not failed yet. Triad Guaranty is close, but at least two of them need to fail.
• There is still too much implicit leverage within the derivative books of the investment banks.
• Too many credit hedge funds and mortgage REITs are left standing.

I have tried to avoid being a pest on issues like these, but the overage of leverage has not been squeezed out yet.