Sep 23

Dead Cat Bounce

If you were to drop a cat from a twenty storey building it would actually bounce as it hit the deck, despite using up all of its remaining lives on the way down; hence the stock exchange expression, “a dead cat bounce”.

So the markets fell and bounced as the incredibly predictable and yet uninspiring politico’s in the USA come to the rescue with their voters tax money. But what a week that was! The world’s most overconfident pack of wolves lie dead and bleeding in the forest clearing and those few who survived have been caged and turned into tamed zoo exhibits!

I talk of that lovely bunch of fellows called the Investment Banks. This pack has torn flesh and gorged on the remains of many companies, markets, currencies, as well as their own feeding troughs, otherwise known as bonus schemes, for years.

With little or no care they attacked companies, drove down their value through short selling the shares (you simply sell shares you don’t have, drive down the price and then buy back shares at a lower price, delivering these shares to the party you sold the more expensive version too only days, hours or minutes earlier! The difference is pure profit for the bank and a few more quid on the bonus!) They also used rumour, conjecture and false information to manipulate and create conditions they were uniquely placed to capitalise on.

They were the ultimate killing machines and in the end they almost ran out of targets, that was of course until they turned cannibalistic and decided to eat each other. Within hours their own stocks collapsed and they were seen for what they had become, bloated, ignorant and lacking in anything other than self interest. The world shouted The King has no clothes as it realised it was they who had sold the commercial banks trillions of dollars of securitised junk that turned out to be toxic waste dressed as AAA debt; yes indeed Investment Banks selling subprime debt (until recently called crappy loans) to commercial banks, a real example of dumb and dumber.

But please don’t gasp or be shocked, don’t listen to all the worst in 100 years hindsight hero’s. The investment banks did this to us all before when they created the junk bond fiasco of the nineties, the commercial banks did it all before when there were savings and loans companies. Many of us went along with the massively bloated share prices of the IT boom and others caught colds with the Russian and later Asian contagions.

There will be more in years to come and mostly it is because of one simple word, GREED. Let’s face it cars run on petrol, markets run on FEAR AND GREED!

That all said, however, I also feel there needs to be another word of warning. Markets do not like being caged, even if we should control and limit the activities of some of its participants. Traders are not all human scum, but while they are awake they are not doing anyone but themselves a favour. If, however, you try to control a market too strictly it will react in a way you never expected, ever seen a cornered rat? Me neither, but apparently they are not nice.

So my friends, remain calm and do the thing that defeats all of these doomsday peddlers, be patient, stay in the quality investments you have or get some. Take the medium to long term view!  After all as we sit here today the market has still given us 300% over the last four years!

Finally, to all pet lovers, no animals were hurt in the making of this article, although the kids have hidden Patches the cat in case I decide to test the bouncy cat theory.

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