Recovery or Dead Cat Bounce?

[Pythagerous]

Interested to hear what everyone's thoughts are on the last few days of positive trading in the market.

Could this be signs of recovery, or is it simply a rally following Citi's news?

Part of me thinks that this could be signs of recovery, for a couple of reasons.

A) The majority are expecting it to just be a rally, so most investors are treating it with caution.

B) No one expects a recovery to come this early, yet recoveries always come earlier then expected. If they didnt, then everyone would get in at the bottom of the market.

C) Yes unemployment is rising, however the market generally starts to recover before unemployment hits its peak.

D) Australian Business have started to streamline their businesses, much before they came desperate like in the U.S. So by taking cautionary measures, they are going to be in a better position.

E) Interest rates are likely to fall. Combine this with the fact that businesses are becoming more streamlined, there will become a point where companies appear more profitable then low bank interest.

G) Consumers have really tightened their belt in the last 12 months and with lower interest rates, they surely have to becoming more comfortable and confident in their own financial situations.

H) The outlook for the market is bleak, but this has been factored in already.

I) The chances are, that the majority of the investors who sell on a panic, have already fled the market. Any investors that have remained in the market for the past 12 months, have probably come too far to turn back, and are prepared to stick it out, so we are unlikely to see another level of high volume panic selling.

These are just my personal views, and I must admit I am not a financial adviser or scientist for that matter. I do not know the score of pie, and all I am running on is a Tafe Certificate IV in team leadership.

In saying that, I would be interested to hear people's thoughts on my views.

I don't normally like to toot my own horn, but "TOOT TOOT"

 

[Aussiejeff]

I don't normally like to toot my own horn, but "TOOT TOOT"

"HONK, HONK!!

 

[Gordon Gekko]

"HONK, HONK!!

I was going to quote the same post Jeff! I was going to wait a few hundred more points though.

Lets get this sucker back down to 3300!!

G

 

[metric]

I don't normally like to toot my own horn, but "TOOT TOOT"

i dont know what you are cheering about? the market has fallen some 300 points in the last three days, and morecarnage is expected to come. if you are calling a bottom, so state it please. it will make an interesting quote in a little while.....

 

[Aussiejeff]

I was going to quote the same post Jeff! I was going to wait a few hundred more points though.

Lets get this sucker back down to 3300!!

G

Yup. The rising economarketspin euphoria by Mr Market and his mates from the Biggy Bwanker Gang over the last few weeks was making me feel a bit bilious. Mr Market & friends are way overdue to take some more prescribed medicine.



aj

 

[Aussiejeff]

Metinks the prescribed medicine Mr Market will be forced to quaff for some time to come is called "Massive Dilution Of Share Value Across All Sectors" due to the recent and ongoing SuperTsunami of "capital raisings" by a zillion companies via Mega share placements.

Printing a planetary avalanche of share scrip in a bid for "cash via the backdoor" to keep companies afloat is little different than Treasuries world wide running the money presses flat out.

IMO something had to break sooner or later as far as stock valuations go.

 

[Bushman]

Metinks the prescribed medicine Mr Market will be forced to quaff for some time to come is called "Massive Dilution Of Share Value Across All Sectors" due to the recent and ongoing SuperTsunami of "capital raisings" by a zillion companies via Mega share placements.

Printing a planetary avalanche of share scrip in a bid for "cash via the backdoor" to keep companies afloat is little different than Treasuries world wide running the money presses flat out.

IMO something had to break sooner or later as far as stock valuations go.

The market is going south due to rumours of a $5b Rio rights issue (source - Marketwatch website). I thought ASIC was stamping out 'rumourtrage'?

All together now - 'when my money, when my money goes to Rio .....'

 

[bowseruni]

Is this the end of the dead cat?

I think we will soon test the boundaries of the previous bottom, IMO the market stormed back up way to quick, many people will lock in profits and get out for a breather i think.

Although i expect the likes of JB and hardly normal to come out in weeks to come with "record profits" after being stimulated....like to see them back them up in consecutive months after.

I work in the NSW coal mining industry and i can let you know we have not seen the worst of it yet, we are still gearing up for it. The company i work for is looking at closing atleast 2 of it's NSW mines, gave all new consultants the flick from tomorrow and one mine has given all their contractors a months notice. The mine i'm at will be doing the same very soon....if we are still open in a couple of months time.

I fail to see how the likes of BHP and RIO can put on so much of an increase when realistically they are hurting more now than before when the prices were at rock bottom.

 

[Aussiejeff]

Is this the end of the dead cat?

I think we will soon test the boundaries of the previous bottom, IMO the market stormed back up way to quick, many people will lock in profits and get out for a breather i think.

Although i expect the likes of JB and hardly normal to come out in weeks to come with "record profits" after being stimulated....like to see them back them up in consecutive months after.

I work in the NSW coal mining industry and i can let you know we have not seen the worst of it yet, we are still gearing up for it. The company i work for is looking at closing atleast 2 of it's NSW mines, gave all new consultants the flick from tomorrow and one mine has given all their contractors a months notice. The mine i'm at will be doing the same very soon....if we are still open in a couple of months time.

I fail to see how the likes of BHP and RIO can put on so much of an increase when realistically they are hurting more now than before when the prices were at rock bottom.

A little smoke & mirrors plus easy access to "almost" unlimited capital from gummint guaranteed banks eager to invest our hard-earned always helps...

Good luck with your future in the industry, man.


aj

 

[Beej]

I love how after a significant and sustained rally of 2 months and +25%/800 XAO points, that when get an inevitable retracement in the order of ~200 XAO points, all the bears here start jumping up and down with glee and declaring that we are on our way to a new bottom, and castigating Pythagerous who actually made a pretty good call 2 months ago re what the market was likely to do! Does it ever occur to you the hard core bears that there could just be a bit of profit taking? Consolidation? A bit of a sell off on some negative news? Remember that even after this recent rally there has still been a massive sell off since the 07 highs with significant economic downside priced in even at current levels.

Me? I still don't know what is going to happen, we might have seen the low for this bear, we might not. IMO the odds are looking more likely now that we have seen the lowest low, and if nothing else the recent rally shows just how hard and fast Mr Market will turn once sentiment starts to swing in a more positive direction. Imagine what might happen when some really positive economic news/indicators do start to emerge from the US? Ignore this signal at your financial peril! I think it *might* be a bit like the opposite of what happened in Aug 07 when the market first tanked no US sub-prime fears, then quickly rebounded, but then tanked subsequently into the worse long term equity sell off since the 30s. The market seems to have a habit of telegraphing what the next big move is going to be if you look for the signals.....

Enjoy the ride!

Cheers,

Beej

 

[CanOz]

we might have seen the low for this bear, we might not. IMO the odds are looking more likely now that we have seen the lowest low,

When was the last time we saw a major bear market turn around on one low?

Never.

Where are you saying the odds are?

I'm in cash and will be until this latest bit of chop sorts itself out. For the record my super is now in cash too.

CanOz

 

[Uncle Festivus]

Imagine what might happen when some really positive economic news/indicators do start to emerge from the US? Ignore this signal at your financial peril!

Imagine or dream, it's (really positive news) still a concept yet to materialise. You say the market has priced in all the bad news - I say it's priced in the end of the recession, yet I don't see that happening, not within the timeframe given by the green shooter lemming brigade.

The market moving facts are that the driver of the downturn ie US property is still tanking with record defaults. The unemplyment rate is still rising at the rate of over 500,000 people PER MONTH!

A report by RealtyTrac showed that the number of U.S. households facing foreclosure jumped 32% in April, and mortgage applications fell last week as fewer homeowners sought to refinance.

Are optimists in this climate only ignorant of the facts? Please explain or put forward the data or facts which indicate the end of the bear market was 2 months ago, not just "hope" or "odds"?

The various stimulii around the world are ephemeral measures which won't create long term employment but will create a huge mountain of debt that in the long run may require to be defalted on ie governments will be insolvent.

On Thursday, the Labor Department said initial jobless claims rose 32,000 to 637,000 last week, above expectations, and the highest level since mid-April.

Check the revisions - NFP was revised up to near 700,00 for March, expect the same for April.

The Commerce Department reported that retail sales fell 0.4% in April from the prior month, a steeper decline than the 0.1% slip economists expected. Sales in March were revised down, falling 1.3% instead of 1.2% as previously reported.

 

[MR.]

When was the last time we saw a major bear market turn around on one low?

Never.

CanOz

Australian shares
1987 .... yep double bottom
1980 .... yep double bottom
1973 .... yep double bottom but second bottom higher
1929 .... yep double bottom but second bottom lower

waiting, waiting

Also the US is at the highest trailing price earnings ratio we have ever seen at 56. (last weeks figure)

How long will we continue to get our lead from Wall Street?

 

[Beej]

Imagine or dream, it's (really positive news) still a concept yet to materialise. You say the market has priced in all the bad news - I say it's priced in the end of the recession, yet I don't see that happening, not within the timeframe given by the green shooter lemming brigade.

Did I dream about a 25% rally since March? I don't think that was a dream? All I am saying is that this rally shows us what can and probably will happen - very rapidly - when sentiment turns after a major sell off.

I don't think the end of recession is priced in yet - far from it. I think we are currently priced for recession rather than something much worse. I don't think we will be priced for the end of recession (ie the resumption of economic growth) until the XAO for example is back past 5000.

The market moving facts are that the driver of the downturn ie US property is still tanking with record defaults. The unemplyment rate is still rising at the rate of over 500,000 people PER MONTH!

Are optimists in this climate only ignorant of the facts? Please explain or put forward the data or facts which indicate the end of the bear market was 2 months ago, not just "hope" or "odds"?

I'll tell you a fact - there is ALWAYS economic recovery after an economic downturn; it's only a question of timing. The market will always be forward looking in anticipation of that fact; many of the fundamentals you cite are lagging indicators of past contraction. As soon as they start to level off or improve - watch the stock market rally hard.

The various stimulii around the world are ephemeral measures which won't create long term employment but will create a huge mountain of debt that in the long run may require to be defalted on ie governments will be insolvent.

Check the revisions - NFP was revised up to near 700,00 for March, expect the same for April.

Perhaps - personally I don't subscribe to this Austrian-esque view on the role of public debt and the government stimulus etc. I see the stimulus more like the crash cart "paddles" used on hospital ER to revive a crashing patient - once kick started the patients heart etc continue to pump on it's own again, but without the jolt from the paddles the patient would have died. Once alive they can happily pay for the electricity used.

I think Robert Gottliebsen form business spectator has a good take on the positive role the rescue/stimulus packages around the world have had, and the unprecedented cooperation seen amongst the central banks and governments of all the major economies: http://www.businessspectator.com.au/bs.nsf/Article/Stress-test-pd20090508-RTVFN?OpenDocument

EDIT: Plus from a purely AU market perspective, public debt does not look being the big issue for us compared to the debt levels in other countries like the US and UK!

PS: If we do really start to re-test the March lows and have a "double bottom", that for me will be a strong buy signal and I will happily accumulate more quality shares into my portfolio at that point. I haven't been adding much through this current rally, other than re-investing dividends (which have remained quite good), and I sold nothing at the lows either.

Cheers,

Beej

 

[Uncle Festivus]

EDIT: Plus from a purely AU market perspective, public debt does not look being the big issue for us compared to the debt levels in other countries like the US and UK!

Much has been made of the comparitive 'worseness' of other countries, but if the global economy is to even start to look healthy, wouldn't these consumer countries like the US, UK & Japan have to start consuming ie going into more debt? With public debt to GDP of these countries between 70-110%, they are hardly in any state to start consuming our raw materials again in boom qauntities any time soon?

It's still a problem of debt and it still hasn't been adressed.

Maybe this will be the first time the markets don't bounce back, at least for several years, until all the bad debts have been purged and wealth creation is not outsourced to China?

None of the stimulis is aimed at making anything, rather repairing the things neglected after years of underfunding in order to get the golden surplus? Once all is said and done, we will be back where we started, only several 10's of billions more in debt.

 

[Aussiejeff]

Much has been made of the comparitive 'worseness' of other countries, but if the global economy is to even start to look healthy, wouldn't these consumer countries like the US, UK & Japan have to start consuming ie going into more debt? With public debt to GDP of these countries between 70-110%, they are hardly in any state to start consuming our raw materials again in boom qauntities any time soon?

It's still a problem of debt and it still hasn't been adressed.

Maybe this will be the first time the markets don't bounce back, at least for several years, until all the bad debts have been purged and wealth creation is not outsourced to China?

None of the stimulis is aimed at making anything, rather repairing the things neglected after years of underfunding in order to get the golden surplus? Once all is said and done, we will be back where we started, only several 10's of billions more in debt.

I suspect sometime in the future, the as yet unborn Oz generations are going to pose the question "What WERE they thinking?" in relation to current monetary policy.

If I'm wrong?

Tough.

I'll be pushin' up da weeds...

 

[moXJO]

1. "We will not have any more crashes in our time."
- John Maynard Keynes in 1927

2. "I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

"There will be no interruption of our permanent prosperity."
- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

3. "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding."
- Calvin Coolidge December 4, 1928

4. "There may be a recession in stock prices, but not anything in the nature of a crash."
- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929

5. "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
- Irving Fisher, Ph.D. in economics, Oct. 17, 1929

"This crash is not going to have much effect on business."
- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

"There will be no repetition of the break of yesterday... I have no fear of another comparable decline."
- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929

"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices."
- Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929

6. "This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."
- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929

"Buying of sound, seasoned issues now will not be regretted"
- E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929

"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom."
- R. W. McNeal, financial analyst in October 1929

7. "The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin."
- Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929

"Hysteria has now disappeared from Wall Street."
- The Times of London, November 2, 1929

"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before."
- Business Week, November 2, 1929

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..."
- Harvard Economic Society (HES), November 2, 1929

8. "... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
- HES, November 10, 1929

"The end of the decline of the Stock Market will probably not be long, only a few more days at most."
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929

"In most of the cities and towns of this country, this Wall Street panic will have no effect."
- Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

9. "I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929

"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929

10. "For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930

11. "...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

12. "There is nothing in the situation to be disturbed about."
- Secretary of the Treasury Andrew Mellon, Feb 1930

13. "The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."
- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

"... the outlook continues favorable..."
- HES Mar 29, 1930

14. "... the outlook is favorable..."
- HES Apr 19, 1930

15. "While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930

"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

"Gentleman, you have come sixty days too late. The depression is over."
- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

16. "... irregular and conflicting movements of business should soon give way to a sustained recovery..."
- HES June 28, 1930

17. "... the present depression has about spent its force..."
- HES, Aug 30, 1930

18. "We are now near the end of the declining phase of the depression."
- HES Nov 15, 1930

19. "Stabilization at [present] levels is clearly possible."
- HES Oct 31, 1931

20. "All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933

 

[Aussiejeff]

**Lots of uber-optimistic political & economist quotes from just before the big downleg in the Great Depression...**

Hahaha! Good one moXJO.

Talk about dejavu.

If you had swapped the dates & names with the complimentary "market makers" from NOW, I could have sworn I was reading through a fistful of quotes from today's uber-optimists over the past few weeks.

What goes around comes around, eh?



PS: *Scary thought*. Oh. Maybe todays spruikers actually DO have the same speeches and are just mindlessly reading from the same old optimi-script?

 

[Wheep0]

For me double bottom already clearly been played. November lows and lower low in March. The pace of that dewarfs what happened in Depression and yet now the ubber bears saying we are following that to even greater lows.
Rubbish...
We are in for a rocky period I reckon ,could go both ways, however I do view that unless something unprcedented and unforeseen happens of global proportions, Market has everything factored in... including bankruptcy of GM, Slower recovery and negative growth for a few months.
unfortunately many people are bordering clinical depression, bought about by unprecedented global pesimism and media hysteria. They only see the worst..and when recovery happens they will still be in denial!

Small recovery will be PROVEN to be under way from Q3 09, stabilisation into Q4,
upticks of growth by Q1 10.. thats all the sentiment the market needs, as has already been proven..

Guess many people got to have faith in the stocks they hold, and clearly ask yourself what will the SP be in 12-18 months time....if you dont need to sell, why sell ?
If you do not have that faith and think the sky is going to fall in further, sell up ,go to cash, go to the hills, whatever.. We will see you back in 6 months time bitchin about missing this opportunity.... when you are paying another 15%- 25% to get back in..

I bought all my stocks from October 08 to recent and have pretty sizeable profits already in place for my long term sentiment, Im going to take profits and sell down approx 1/3 or my portfolio this coming week and see which direction we are going....
One thing for sure is I will not miss the turn when it eventually happens, a turn is a given not a possiblity!
wheep0

 

[CanOz]

For me double bottom already clearly been played. November lows and lower low in March. The pace of that dewarfs what happened in Depression and yet now the ubber bears saying we are following that to even greater lows.
Rubbish...
We are in for a rocky period I reckon ,could go both ways, however I do view that unless something unprcedented and unforeseen happens of global proportions, Market has everything factored in... including bankruptcy of GM, Slower recovery and negative growth for a few months.
unfortunately many people are bordering clinical depression, bought about by unprecedented global pesimism and media hysteria. They only see the worst..and when recovery happens they will still be in denial!

Small recovery will be PROVEN to be under way from Q3 09, stabilisation into Q4,
upticks of growth by Q1 10.. thats all the sentiment the market needs, as has already been proven..

Guess many people got to have faith in the stocks they hold, and clearly ask yourself what will the SP be in 12-18 months time....if you dont need to sell, why sell ?
If you do not have that faith and think the sky is going to fall in further, sell up ,go to cash, go to the hills, whatever.. We will see you back in 6 months time bitchin about missing this opportunity.... when you are paying another 15%- 25% to get back in..

I bought all my stocks from October 08 to recent and have pretty sizeable profits already in place for my long term sentiment, Im going to take profits and sell down approx 1/3 or my portfolio this coming week and see which direction we are going....
One thing for sure is I will not miss the turn when it eventually happens, a turn is a given not a possiblity!
wheep0

Next low in October

CanOz