Upside Bounce in Bear Market Expected|
by Peter Cherry
Johannesburg, South Africa ~ The current US economic
rebound scenario could develop for a number of months.
Ultimately we are skeptical, since this is simply another
potential bubble on the carcasses of many old ones (Y2K,
etc.). Equities are still way overvalued and in a long-term
bear market, but the upside bounce potential is so great
from a trend analysis and model forecast perspective (like
+60% for the Nasdaq) -- that shorts and under-invested
longs could get crushed by underestimating upside risk.
If you print enough money (or credit) you can usually get
some sort of bull market going. That is what the US is
doing. A deliberate, concerted push to expand credit and
devalue the Dollar.
This may look good in the short term but remember that in
the long run bubbles burst, investors get injured and
economies contract. But in the meantime, if the Fed and
Administration are dead set on inflating a new credit
bubble, they will probably succeed for a while. Therefore,
investors should pay attention to measures of credit
inflation and watch for spillover effects in financial
Many months of negative real interest rates and money
pumping seem to be finally getting the economy going. This
is simple economic stuff; pump enough helium into the
balloon and it eventually lifts off.
Of course there are risks out there (North Korea in
particular) but the probabilities favor a cyclical US
economic bounce. Competitive currency devaluation pressures
the ECB to get off its rear end. European interest rate
cuts should soon be in the headlines. That should bolster
global economic and market sentiment.
An economic rebound would ultimately impact the bond
market and housing -- where the Fed has deliberately lured
everyone into major bubbles. That is where the next
disaster probably lurks -- but in the meantime the US
economy and equities could have a meaningful recovery.
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