Dead cat bounce for stocks after worst August for a decade
Posted on 05 September 2010 with 3 comments from readers
Global stock markets bounced back after a dismal three last weeks in August that left the month the worst August for equities in a decade. But this was no more than a dead cat bounce, and stocks have far more downside before a bottom is reached in late October.
It was a curious mini-rally based on an unusual logic that things have gotten so bad that they will not be getting any worse. US unemployment still rose, however, house prices continued to fall and homes stayed unsold and US auto sales remained horrible. Some recovery.
Defenseless economies
Nouriel Roubini pointed out at a conference in Italy that the major economies have no weapons to fight a double dip. The arsenal is bare with low interest rates and high deficits. He put the liklihood of a double dip recession at 40 per cent. The consensus is closer to 30 per cent.
Professor Niall Ferguson weighed in with a warning on bonds that a tipping point is coming when interest payments rise beyond what the economy can reasonably handle. Bond prices will fall but only after the sell-off in stock markets over the next two months. Gold and silver will then be the only show in town.
Surely the equity bulls are also running low on ammunition. Job cuts have driven profits up but this is a zero sum game as unemployment then weakens demand. Low or negative growth is not written into stocks at current price levels which are not cheap on many indicators.
This website has attracted much interest for our coverage of the financial astrologer Arch Crawford (click here) and his doomladen predictions have been timely so far. Then there have been the three Hindenburg Omens (click here).
Bond crash too?
It is very hard to see a good future for stock ownership until the bond rally is over. Then as Dr Marc Faber argued persuasively in Abu Dhabi last month things look brighter for stocks (click here).
To see all the bad news as over in August seems unlikely. There needs to be a positive reason to buy stocks at these levels and with many major economies in faltering recovery mode that is singularly lacking.
A return to reality looks inevitable after the Labor Day holiday.
3 Comments posted by readers:
Stocks between now and year end will go up and down yet the general trend will be up.
The nominal low was March 2009 and you have to foget about any correction now as this bull market has been going for to long to be a dead cat bounce or whatever you want to call it.
We all know that the markets are fixed. QE2 in my opinion both in the USA and UK has already begun, its just that they havent told us. That money has to find a home and in stocks it is to be found.
In London I am hearing from reliable sources that bonus monies to be paid to Bankers will be in cash in the final quarter. The sums I am hearing are to the tune of £4-5billion pounds. That cash has to find a home and my money is on the stock markets and not London residential property. Why? Well rental yields on property offers a poor return and with very little capital growth anticipated. Disposing of real estate takes time and is risky if the market turns down. Stocks on the other hand offer better yields and are easy and quick to liquidate.
We are now 18months into the final bubble that is being blown so ride with it especially commodities and strong assets. How long will it take before it pops, I do not know. I am of the opinion that when this bubble bursts there will be nothing left to bail out troubled economies around the world. This boil when it pops will leave more than pock mark.
Doubtful it’s a dead cat bounce.
We won’t know it actually is one until after the fact.
Bears make a good fundamental case, of course, but you won’t find me staking money on their views.
I’m waiting for the Dow to dip below below 10,000, so that I can buy some giant telecoms, and supermajor oils, for their nice dividends, which means that it probably won’t happen anytime soon.
The Bank of International Settlements plans to finalize the Basil 3 rules for implementation over the next five years, within the next month.
I can doom and gloom with the best of them, (My screen name on the Astronomy magazine community forum is PeakOilBill.) but think that Bernanke will create as much new money as needed to stop a double dip. Inflation may take off in a few years, but he will worry about that when it happens. Obama will give a speech Wednesday, 8 September, announcing additional stimulus measures.
This minute, I am hearing on the radio that the US Congress has scheduled a hearing to consider requiring everyone with a 401k private retirement account, to have a certain portion of their money in their account invested in US Government debt. That should be interesting. I can hear ’socialism’ already.
Oh, and there are reports that the ‘peace keeping’ US troops in Iraq are engaged in combat at this very moment. I think US troops will be in Iraq for quite a while. If not, invest in a bicycle, because a civil war in Iraq could spread across the region very fast, and explode the price of oil. The Tehran Times is already running articles saying that Iran deserves reparations for the 1980-88 war that Saddam started. That is NOT a good sign. There, I got the doom in right at the end. Now if only I could master the paragraph creation button.