Recovery or Dead Cat Bounce?

[gfresh]

Falling dog? I think we'll correct back to about 3400, possibly retest the lows at worst.. But there is going to be a ship load of buyers when it does turn around.

 

[MACCA350]

Falling dog? I think we'll correct back to about 3400, possibly retest the lows at worst.. But there is going to be a ship load of buyers when it does turn around.

I think there is a lot of selling off prior to end of financial year to lock in losses/profits and we may see some aggressive buying back in next month, just a guess

cheers

 

[Uncle Festivus]

"Here, kitty, kitty..... got a nice surprise for ya!"

*BLAM*

*Meee-ooooowwwwwwccchhhh!*

Does a dead cat pay any more attention than a live one - you'll be trying till the bulls come home to roost. Sorry, mixing puns again

The 'V' recovery turned into the 'L' rebound, which turned into the 'U' second half recovery but now we have the 'h' reality?

 

[Sean K]

Does a dead cat pay any more attention than a live one - you'll be trying till the bulls come home to roost. Sorry, mixing puns again

The 'V' recovery turned into the 'L' rebound, which turned into the 'U' second half recovery but now we have the 'h' reality?

Too early to call W's or L's or U's I think.

Quite happy with the V to date. If the top shoulder falls over too much I'll be well positioned to make the most of the next bottom of the W. Looking forward to it.

Trade the fear greed boys, the market is not the economy.

(PS, not saying you all aren't, it's just so negative at times I have a feeling everyone is on the fence)

 

[Agentm]

"Here, kitty, kitty..... got a nice surprise for ya!"

*BLAM*

*Meee-ooooowwwwwwccchhhh!*

lol


right between the eyes i think!!!

 

[drsmith]

Perhaps the market is reacting to World Bank's statement about an era of lower growth. This of course translates to an era of lower real corporate profitibility growth. When added to EPS dilution from capital raisings to restore balance sheets it is difficult to see markets going significantly higher on a sustainable basis.

I remain of the view that for the next few years at least there will be no or little real growth in share prices although there will obviously be fluctuations in between.

 

[jonojpsg]

Perhaps the market is reacting to World Bank's statement about an era of lower growth. This of course translates to an era of lower real corporate profitibility growth. When added to EPS dilution from capital raisings to restore balance sheets it is difficult to see markets going significantly higher on a sustainable basis.

I remain of the view that for the next few years at least there will be no or little real growth in share prices although there will obviously be fluctuations in between.

Which makes picking the gems from amongst the rubble all the more important IMO - if we are only looking forward to bumping along sideways for the next two or three years then getting on to potential winners in the resource or technology sectors is where there are big gains to be made.

 

[Nero64]

For us to get down to the lows again we need another crisis.

Last year it was the credit crisis and inflationary bubble.

This year the credit crisis persists, but we need another Lehman Brothers collapse or an escalation in unemployment, or deepening recession. Last year we saw fear and hedge fund redemptions. Many people buying in now will hold out unless they lose their jobs.

Will the banks still fall though. Can't see CBA sliding back to it's lows of $25. It has outperromed the index in the last few months.

 

[Gordon Gekko]

For us to get down to the lows again we need another crisis.

Last year it was the credit crisis and inflationary bubble.

This year the credit crisis persists, but we need another Lehman Brothers collapse or an escalation in unemployment, or deepening recession. Last year we saw fear and hedge fund redemptions. Many people buying in now will hold out unless they lose their jobs.

Will the banks still fall though. Can't see CBA sliding back to it's lows of $25. It has outperromed the index in the last few months.

A new crisis??
The old crisis was never resolved.
There was a band aid put over a mortal wound.
Now there are leaks all through the dam and its about to burst.
We have the same problems we did six months ago except added to that we have incresed debt and increasing unemployment.
Swine flu may not be as bad as first thought but it is going to cost a fortune in an economic evrionment that is strained already.

July will be very interesting!

Best

G

 

[Sean K]

A new crisis??
The old crisis was never resolved.

How much of a fall on the stock exchanges do you need for the damage to be factored in?

101%?

 

[Uncle Festivus]

A new crisis??
The old crisis was never resolved.
There was a band aid put over a mortal wound.

Correct. A bit like putting lipstick on a pig, only the pig turned around at the last minute, but they still all said it looks a lot better than it did before

How much of a fall on the stock exchanges do you need for the damage to be factored in?

101%?

Very simplistic analysis, company earnings down 35% YOY, Dow down from 14k to 8k. Another season of lower earnings/downgrades, more downside for Dow?

The 'too big to fail' mantra for companies was a comforting thought before the crisis, that was before they did fail. Now, it's government's that are 'too big to fail'. Most people have not even contemplated that yet.

If the USA cannot support it's debt internally ie income taxes etc then it is stuffed, simple maths. Follow the trail from plunging income (inverse to employment?) and you see it's going to get a lot uglier for them and everyone else down the consumption line, like China & Australia?

 

[Temjin]

We are still tracking the last great depression (or worse) in many ways.

http://www.voxeu.org/index.php?q=node/3421

A V type recovery? I highly doubt it. Just wait till the Option ARMs get RECASTED in 2010 and one will find subprime problem was really insignificant in comparsion.

As the author of the article suggest, it's not good enough just to listen to the greenshots who only see it from a US perspective. Yes, the economic data from there has gotten less worse and was not as "bad" as the last depression, but from a global perspective, it's equal or worse.

 

[derty]

I wonder why he starts the comparison of the current crisis with the Depression in April 2008?

 

[surfziggy]

Sitting on the fence ready to pull the pin but....

Great depression surely lasted so long because of the protectionist policies of the governments at the time and the initial effects of WWII. Plus it was a learning experience for all the policy makers involved. This time we have the benefit of not making some of the same mistakes again.

There is a similarity in the above charts of course, because now is a period where the economy is going backwards. But I'd like to see how the charts compare to 1987, 1991, 1997.

I also think that there are a lot of people ready to buy the dips. A lot of people will have missed out on the march uptrend and won't want to miss out further. For the moment I wonder if greed has the edge over fear.

But like I said I'll keep my mind open, go with the flow dudes.

 

[haunting]

Here is what Morgan Stanley has to say about the global economy on June 19... it's a bet both ways but frankly my gut feel is the bear case is probably slightly stronger short term. The bull case of 5% growth by 2010 is a little rich by anyone's imagination. Similarly the argument for a depression like economy moving forward is equally "wild". If you get sucked into this, just consider this simple fact - with QE in full swing with no end in sight until 2010 by most expectations, what's the chance that the western economies would go into depression where there's abundant money circulating in the system?

(Btw, what is the major contributing factor to the 1930 depression?)

Here is the link.

After the deepest recession, the weakest recovery: While global bottoming is now happening, we continue to believe that hopes for a V-shaped global recovery will be disappointed. Consumers are likely to be cautious in the face of rising unemployment (labour markets lag), companies will hold back on capex in the face of high excess capacities, and construction activity is unlikely to rebound sharply with house prices still falling in many countries. Thus, final demand growth is likely to be sluggish in the foreseeable future, despite the strong support from fiscal and monetary policies. In our baseline forecast, we see global GDP expanding at quarterly annualised rates of only 2-3% between now and the end of 2010, unusually low for early recovery phases. This would take full-year 2010 GDP growth to 2.9% (from -1.6% this year), still well below the 4.7% average annual growth rate in the five years preceding the crisis. Given the downdraft in activity over the last few quarters, our forecasts imply that it would take until the middle of 2010 for global GDP to return to its previous peak level reached in 2Q08. In the G-10 advanced economies, which were hit harder than most EM economies by the credit crisis and which we expect to show a very anaemic recovery, only about half of the total GDP peak-to-trough loss of some 4.5% during the recession will have been recouped by the end of 2010.

Could we be wrong? Yes, easily, because of the unprecedented combination of a hugely negative shock to the financial system, whose effects are still lingering, and a massive monetary and fiscal response. All available models are estimated using data on ‘normal' business cycles and policy reactions, and are thus of little help in gauging what lies ahead. That's why we continue to emphasise the risks on both sides of our base case and regularly construct a bull and a bear case that should each have a ‘reasonable' outside chance (of about 20% each) of occurring. In our bear case, we assume that policy finds very little further traction in the advanced economies in the remainder of this year, risky assets tumble again and EM recoveries falter as global risk-aversion returns. Global GDP would shrink by 3% this year (against -1.6% in our base case) and grow by only 1.4% next year (base case: 2.9%). Conversely, in the bull case, policy finds strong traction, asset markets rally further and the financial sector recovers quickly, translating into a V-shaped recovery that produces close to 5% GDP growth in 2010.

 

[Buckeroo]

A new crisis??
The old crisis was never resolved.
There was a band aid put over a mortal wound.
Now there are leaks all through the dam and its about to burst.
We have the same problems we did six months ago except added to that we have incresed debt and increasing unemployment.
G

Oh so true Gekko - its very simple, its always been the debt, can't run from it, can't hide from it

People are in debt
Companies are in debt
And now Governments are in debt

Recovery comes from people, companies & Governments spending money.

How long until recovery? I think it may have something to do with how long it takes to pay off our debts (10-15 years?).

A quicker way out of this would be the total collapse of all we know - bankruptcy wipes debt fast, but there would be an awful price to pay.

Cheers

 

[Temjin]

I wonder why he starts the comparison of the current crisis with the Depression in April 2008?

Because data show that the rate of decline for a lot of those economic statistic has been much faster than any of the past recessions. If you understood the depression, you would find alot of similarity between back then and now.

Heavy public and private debt over GDP, credit boom with raging stock/property market, speculations everywhere, extreme relax of credit borrowing, etc. It's striking similar when you read the history and it only took 80 years for people to FORGET the lessons.

Sitting on the fence ready to pull the pin but....

Great depression surely lasted so long because of the protectionist policies of the governments at the time and the initial effects of WWII. Plus it was a learning experience for all the policy makers involved. This time we have the benefit of not making some of the same mistakes again.

No, they are MAKING THE SAME MISTAKES AGAIN. Not in the way they try to get out of this "depression", but the actions they took that lead to it. They never learnt what caused the depression in the first place, and never knew why the GFC came so suddenly.

Like I said above, it's the credit boom assisted by massive bank leveraging, ease of lending criteria, securitisation, and massive government interventions that caused it. They did exactly the same thing from 1970s to 2006, but fail to see what that might lead to.

There is a similarity in the above charts of course, because now is a period where the economy is going backwards. But I'd like to see how the charts compare to 1987, 1991, 1997.

I don't have the charts for it, but my readings thus far tell me that the rate of decline (industry output, capacity lost, stock market crash) has been MUCH HIGHER than any of the past recessions since the great depression. This may varies between countries and certainly not as true in the US. (at least for their industry output) But it's certainly widespread across all other countries, which is the main argument from the author of that article.

You can't just look at it from a single country's perspective. You need to look at it from a global one and it's much worse than any of the past recessions.

I also think that there are a lot of people ready to buy the dips. A lot of people will have missed out on the march uptrend and won't want to miss out further. For the moment I wonder if greed has the edge over fear.

But like I said I'll keep my mind open, go with the flow dudes.

Yep, the bullish sentiment is still quite high at the moment and most think the bottom is already in and everyone is expecting a V-type recovery. The stock market has an innate ability to suck people back in with false hope and then kick them down all over again.

Short term wise, if you can trade and make appropriate position and profit, you may do well from this. But anyone expecting to buy the dips and hope to make a killing (or rather, hope to recover the lost) and expect the stock market will return to its previous high again in 12 months time, they would certainly be disappointed.

Here is what Morgan Stanley has to say about the global economy on June 19... it's a bet both ways but frankly my gut feel is the bear case is probably slightly stronger short term. The bull case of 5% growth by 2010 is a little rich by anyone's imagination. Similarly the argument for a depression like economy moving forward is equally "wild". If you get sucked into this, just consider this simple fact - with QE in full swing with no end in sight until 2010 by most expectations, what's the chance that the western economies would go into depression where there's abundant money circulating in the system?

The bear case is MUCH STRONGER in the longer term.

Yes, the QE is in full swing but has it really helped at all?

The only way to return to the pre-bust growth is with people continue to borrow and spend beyond their means, and accumulate debt at a faster rate than the GDP/private income. Do you think this is possible again?

We may not experience the 1920s depression style and see people lining up for food stamps and mass people living on the street, but you certainly will NOT SEE a fast recovery soon.

A lot of economists who predicted this crisis WAY BEFORE the mainstream ones did are claiming there is an extremely high chance for a L-shape or W-shape type recovery. The recovery would take so long and so mild that it feels almost like a depression, but not a full blown one.

(Btw, what is the major contributing factor to the 1930 depression?)

As explained previously already. Credit boom and massive private debt.

 

[haunting]

As explained previously already. Credit boom and massive private debt...

1) I could be wrong here... but I believe a major cause was the tightening of money supply by the government then. That caused a contraction in the economy that spiralled into a severe recession or depression. This probably explains why currently QE is being chosen to combat the slowdown. In most economists' eyes, deflation is a scourge much harder to control than inflation, at this point, QE seems to have done its job with most distraught economies reporting some sort of bottom and are expecting smallish growth by next year.

Is this good enough to remove the argument that the global economy is heading towards a depression?

2) Back in 1930, the USA was a very dominant economic power, when it got into trouble, it dragged everyone with it. This time around, it is quite clearly shown that there are other "balancing" economic power providing help or leverage to the declining US economy, namely China and some other creditor nations. By totally ignoring these countries' influence in the global economy and arguing for a depression by focussing on the US+EU economies only I think is less than convincing.

3) The possibility of decoupling in global economy. There is every chance that the global economy will move in two different tracks - the US+EU may be moving in an "L" shape in the next few years, whilst the BRIC+Australia and other commodity economies may very well be moving in a "V", "U" direction. Right now China is reporting to be heading for a 6.5%(?) growth the World Bank, whilst ADB is reported to be forecasting a 9%+ growth.

The argument for depression really does not stack up in my view.


Cheers.

 

[gfresh]

No, they are MAKING THE SAME MISTAKES AGAIN. Not in the way they try to get out of this "depression", but the actions they took that lead to it. They never learnt what caused the depression in the first place, and never knew why the GFC came so suddenly.

Of course.. but history also shows through the worst crisis come the largest rallies, doubling, or tripling.. even from about 1933 to 1938 (in the US) there was a massive stock market rally before a further large correction.. but it still didn't reach the lows of 33.

After World War II the world was carrying massive debt, and the 50's were a massive boom. Has the human race forgot the wild optimism after these crashes too? Doubtful..

 

[MRC & Co]

Cheers guys, some good discussion here. Food for thought.