Recovery or Dead Cat Bounce?

[MRC & Co]

Foreign investors in the US are still underwater due to the exchange rate so if there is the slighest hint of a faulter in this dead cat bounce then there could be another swift sharp sell off? Getting irrational again?

But are foreign investors in the US hedging their currency exposure? I would imagine so. Know where to get figures on this?

Haunting, the meeting of Tim and the Chinese will be paramount for US Treasuries and the USD IMO and it appears the Chinese are extremelly worried. But I guess, under these circumstances, they will make an effort, if only for the ability to dump into a rising market.

 

[Uncle Festivus]

But are foreign investors in the US hedging their currency exposure? I would imagine so. Know where to get figures on this?

Haunting, the meeting of Tim and the Chinese will be paramount for US Treasuries and the USD IMO and it appears the Chinese are extremelly worried. But I guess, under these circumstances, they will make an effort, if only for the ability to dump into a rising market.

The assumption is that they will continue to buy, but they have already indicated that they are willing/wanting to diversify OUT of US treasuries. The 10 yr bond will be crucial to the future of the US? And the down grade from a ratings agency?

 

[MRC & Co]

The assumption is that they will continue to buy, but they have already indicated that they are willing/wanting to diversify OUT of US treasuries. And the down grade from a ratings agency?

Yeh, they have already indicated this, hence the meeting now. Last ditch effort by the US Government to alter this, or even perceptions of this, so bonds may perhaps rise in the short-term, and China can liquidate some positions......

A down grade from a rating agency would be BRUTAL, but how much control over this does the US have.........

 

[wonderrman]

A down grade from a rating agency would be BRUTAL, but how much control over this does the US have.........

Haha yes I highly doubt that any US ratings agency, which are the ones that count (S&P, Moody's etc.) will be downgrading the US anytime soon. We must remember that there is so much corruption within financial markets and governments. While the US are still the global powerhouse I doubt we will see any downgrades to their government bonds.

w.

 

[haunting]

the meeting of Tim and the Chinese will be paramount for US Treasuries and the USD IMO and it appears the Chinese are extremelly worried. But I guess, under these circumstances, they will make an effort, if only for the ability to dump into a rising market...

In many ways the Chinese had already given him enough of hints, that is, they will keep their currency RMB stable and will not be adjusting the exchange rate higher as he has requested. They will stake to export as a partial solution to their overall approach as well as continuing their stimulus spending in infrastructure. As for increasing domestic consumption, much as the Chinese would like to oblige him, the consuming power of the Chinese are no way near that of the Americans or the Europeans, so, it's a waste of time for TimG to remind the Chinese.

As for his request of changing their internal system, ie, more equitable distribution of wealth (thru' increasing the middle class for eg), I think the Chinese leadership will be very cautious here because there is an implication and impact to their long term control of political power, so it won't happen overnight, and probably won't happen while TimG is in China. The Chinese are getting more assertive with their position and I can almost imagine what they will tell him - big smile with their hand behind their back with the middle finger sticking up - there is simply no reason for them to change just so the Americans can issue more debt at the same time debasing the currency these debts is valued on.

The Americans had yet to learn this hard fact - there's no short cut in rebuilding a shattered economy. QE may provide a short term relief but longer term they still have to go through the hard yakka, learn to be productive, learn to save and learn to live within their means. Right now, they are still finding it hard to wean themselves of this free-loading, the- world-owes-them-a-good-life attitude, until that changes nothing will change for them. The only people that can help them Americans are the Americans themselves. The Chinese won't. Nor will the Europeans, the Russians, the Indians, the Japanese, etc...

At some point, the world will turn its back to them, if it has not already happened.

The Chinese will not dump their US$ based assets. It doesn't make sense for them to do so because this would only hurt the overall value of their assets if that creates a market panic. Most likely they will slow down their purchase of the US debt to keep the market confidence going.

Many economists in my view don't realise the power of this trillion+ US$ reserve - it is probably more powerful than all the Chinese military power combined. Just imagine how much the US had spent thus far to fight a war in Iraq just so they can get hold of the oil field over there? 250 bln? Or more? After so many lives lost, billions spent, Iraq is still not completely in their pocket - war can be a costly and messy affair.

Take a look at the Chinese, thus far they had spent(invested) about 1.5 trillions, without a loss of life, and they got a country that is many many times bigger than Iraq, almost at their mercy. Of course they have no intention of conquering the USA at this point, but from a politically view point, the Chinese in many ways are in control, a much better way than actually going for a real war! (But who can blame George W Bush? since the Americans elected him twice, not once, to be their president!)

When you borrow a million from the bank, you have a problem. But if you can borrow a billion from the bank, the bank has a problem. Politically though, especially in global politics, this may not hold true. If you borrow a trillion from another country - you have a serious problem because you have just handed them a nuclear option to wipe your economy out. Right now the Americans are slowly finding this out, but, it seems they still don't have much of a clue on their vulnerability. The Chinese won't be reminding them of this, nor will they move in a hurry to reduce their US$ asset as it is serving them quite well in terms of political leverage.

... let's hope the Americans can wake up in time, or this world will never be the same again.

 

[haunting]

...
Assuming the view expressed is spot on, I think there is a fair chance that the US$ might see a boost in its value due to some "unofficial" agreement between the USA, China and Japan. Those who have large bet on the US$ should keep an eye on Tim Geithner and his Chinese counterpart.

A follow up. Best summed up with a chart.

One might call this a coincident, a fluke, or blah blah blah. No matter and it's not important if China has really ganged up with the USA to cook the market, chasing up the dollar, etc. The fact is this - TimG's trip for some reason has spooked the speculators into profit taking. Or is it? Well, watch further and see if the DXY index would improve. At this point, betting the US$ all the way down might not work out to be a sure bet, doubt has begun to creep in... follow by volatility.

For a "steady" economic recovery, the USA needs a stable US$. For that matter, the whole world needs a stable US$ to facilitate international trades. Raising debt to reflate the economy, using QE as a means to raise debt will only serve to destabilise the US$ and the general investor confidence. For as long as QE is the preferred modus operandi in rescuing the economy, the US$ will remain volatile, leading to its eventual loss as the defacto reserve currency of the world. But until that happens, which will take a long time, a sustainable global economic recovery is unlikely to happen. And in between from now till then, there will be many "dead cat bounce(s)" in the stock market... like the one we are in right now.

 

[Pythagerous]

Some are saying that this is still a dead cat bounce, and that the market still has to drop down to 2800.

Anyone have any thoughts on this?

 

[Gundini]

Some are saying that this is still a dead cat bounce, and that the market still has to drop down to 2800.

Anyone have any thoughts on this?

Sounds pretty fair to me, although I would think 3100 would be the first stop.

Then again, I hardly ever get it right in the short term. So much global manipulation, anything could happen!

I have been stocking up with Gold for a while now and it hasn't done me any favours yet. I still believe this play will pay off longer term, if it doesn't liquidate me in the interum...

 

[MrBurns]

Sounds pretty fair to me, although I would think 3100 would be the first stop.

Then again, I hardly ever get it right in the short term. So much global manipulation, anything could happen!

I have been stocking up with Gold for a while now and it hasn't done me any favours yet. I still believe this play will pay off longer term, if it doesn't liquidate me in the interum...

Costello has said today that inflation will hit hard when the recovery finally gets here, so your gold will be ok in the end.
Did you take shares or physical gold ?

 

[Gundini]

Costello has said today that inflation will hit hard when the recovery finally gets here, so your gold will be ok in the end.
Did you take shares or physical gold ?

Both, that's if you class GOLD ETF's physical, backed by bullion in the London vault (apparently, though I haven't seen it). Also Newcrest stock, but both have been causing me grief... Not worried though, the truth has to come out in the end....

 

[Sean K]

Eeeeek,

Sensing some faith like statements here and in the gold thread.



All based on the same fundamentals and emotions that drive the overall market.

Nothing is certain.

Only perceptions of reality.

 

[MrBurns]

Both, that's if you class GOLD ETF's physical, backed by bullion in the London vault (apparently, though I haven't seen it). Also Newcrest stock, but both have been causing me grief... Not worried though, the truth has to come out in the end....

I was about to get into gold but I'm largely uninspired by anything at the moment but also sick of watching money just rot in the bank.

 

[haunting]

And in between from now till then, there will be many "dead cat bounce(s)" in the stock market... like the one we are in right now.

I like to correct myself with the above, ie, replacing "dead cat bounces" with "market corrections" because I was not being very precise with the term. If there is further pull back in the market, my expectation of the worst case scenario is at 35-3600 in the XJO.

To argue for a dead cat bounce in my view is to argue fundamentally the concerted efforts by all the major central bankers plus their respective governments had failed in rescuing the global economy from a depression had failed. At this point, even the gloomiest of them economists, Roubini is reported to have told Reuters that the recovery in the US economy is on its way. It will be meek but it won't be dead.

So what is the chance that 3100 will be revisited? Ask, what is the new driver(s)? What is the new fear factor? The recent low of 3100 was achieved through a series of severe fear factors - subprime, bad banks, write off, credit crunch, credit freeze, export freeze, economic meltdown and wholesale global panic. Currently most people in my view are quite well conditioned by all these bad news, the chance that they will get into some kind of panic attack and dump their shares, frankly is quite low.

Do a self test, just ask yourself - will you dump all your equity now if Roubini is telling you the USA is going to have a double dip recession? If you are not, then, chances are, others are reacting like you... no fear.

 

[Glen48]

29- 30 had the same thing markets going up for 5 mths and then a crash just a repeat it won't happen over night but it will happen....as she said.

 

[White_Knight]

1929-30 =/= 2009-2010

 

[gfresh]

Conditions are quite different to the 1930's.. going into, during, and coming out of this recession.. I definitely agree with haunting's thoughts.

If nothing else, pull backs like these are a great opportunity to re-examine the current situation and have a bit of a think whether these are really the signs of recovery.

Recovery is not going to be immediate, but for it to get worse from here you'd have to continued bad news, whereas for the last few months it's been more positive news. Even the US housing starts, housing being the very trigger for this crisis, are starting to improve. This was only yesterday, how much has really changed?

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPWDH98FdnVI

 

[Gordon Gekko]

Conditions are quite different to the 1930's.. going into, during, and coming out of this recession.. I definitely agree with haunting's thoughts.

If nothing else, pull backs like these are a great opportunity to re-examine the current situation and have a bit of a think whether these are really the signs of recovery.

Recovery is not going to be immediate, but for it to get worse from here you'd have to continued bad news, whereas for the last few months it's been more positive news. Even the US housing starts, housing being the very trigger for this crisis, are starting to improve. This was only yesterday, how much has really changed?

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPWDH98FdnVI

Yeah great news...
They have a 10 month supply of existing housing that they can't sell, but the good news they are building more, great news indeed.

How much new debt has been issued since even the March low?

Whats improving other than media spin?

Intersting times coming with the 2nd quater US reporting season soon. Seems like a pump and dump to me!

I'm looking to re-enter but not before a drop below 3300.

Just my

G

 

[gfresh]

Come on.. sentiment is changing with the general population, and that is what *very* important. Even if it's media spin, it's spinning on what people want to believe themselves.

Likewise could well be a nice dump to scare the precious punters, and make them think worse is still to come, meanwhile setting their bots to accumulate all the way down. Just as likely.

 

[Gundini]

Eeeeek,

Sensing some faith like statements here and in the gold thread.



All based on the same fundamentals and emotions that drive the overall market.

Nothing is certain.

Only perceptions of reality.

You are right Kennas, but perceptions of reality are misconstructed imo...

The froth and bubble, smoke and mirrors, emotional drive to some sort of reality is flawed, and while nothing is certain, the party can't last forever.

 

[Gordon Gekko]

Come on.. sentiment is changing with the general population, and that is what *very* important. Even if it's media spin, it's spinning on what people want to believe themselves.

Likewise could well be a nice dump to scare the precious punters, and make them think worse is still to come, meanwhile setting their bots to accumulate all the way down. Just as likely.

Well general sentiment could be changing but not for me. I'm a bear, how do I know?
I had a sharp pain in my stomach this afternoon so I went to the toilet and a bloody cub came out.
I won't always be a bear but for know I'm cashed up and happy to wait.

G