A Dead Cat’s Bounce

Posted on August 6, 2009
Filed Under General Insanity |

A Dead Cat’s Bounce, a term used on the stock market since around 1985, describes a temporary rise in a stock after a large decline. Immediately after the bounce, the stock continues its downward trend implying a similarity to a cat falling from a great height, hitting the ground hard and then bouncing into the air before falling back to the earth once again. (http://en.wikipedia.org/wiki/Dead_cat_bounce) A dead cat’s bounce is what it looks like with the current surge in the DOW, NYSE and other stock markets. Don’t let the current price rise in stocks fool you, just because the cat is still flying through the air, does not mean it is still breathing. The fundamentals for our US economy are still pretty pathetic and there is that huge bailout hanging out there that was virtually paid off in fabricated money.  Those trillions of dollars can only lead to massive inflation. It will be like the days of Jimmy Carter again only 10X worse.

I have been thinking about this quite a bit and have been trying to decide how to protect my family and friends from what I see is a coming economic disaster that will dwarf anything seen to date in this country. The biggest problem I see right now is the mainstream media proclaiming that the worst is over and that the recession has bottomed out. I am sorry, but I have to respectfully disagree with this economic diagnosis. It is like we are sitting on a leaking lifeboat where we have water pouring in but someone says, “Its ok, I think I can see the ocean bottom.” We have a saying in the little Lake Michigan community where I am from, “you can’t drown if you don’t go out on the water.” Unfortunately, here we all are sitting out on the water in a sinking lifeboat.

Real unemployment now is running around 20% and it would not surprise me if that rose to 40% by next summer. The government says that unemployment is really only 10%, but virtually everyone sees that it is much worse simply by talking to friends and neighbors. “As the national unemployment rate nears 10 percent, more and more people are turning to food banks for help keeping food on their plates. Feeding America, the nation’s largest domestic hunger-relief charity, reports that demand at food banks across the United States is up 30 percent from last year.” (http://www.huffingtonpost.com/2009/08/05/demand-at-food-banks-up-e_n_251338.html) I have trouble understanding why this type of issue comes up with most unemployed being able to collect 79 weeks of unemployment and the government proclaiming there is only 10% of the country unemployed. More and more people are going hungry from what I can see and the real inflation has not even settled in yet. Clearly the national unemployment in this country is much higher than 10%.

Banks are still getting sicker. (http://money.cnn.com/2009/08/05/news/economy/banks.gruesome.fortune/index.htm?postversion=2009080514) “The accounting rule changes that matter most for the banks came on April 2, when the Financial Accounting Standards Board gave companies greater latitude in how they establish the fair value of assets…Along with that change, FASB also let companies recognize losses on the value of some debt securities on their balance sheets without counting the write downs against earnings. If banks plan to hold the debt until maturity, they can avoid hurting the bottom line.”(http://www.business-standard.com/india/news/bank-profitsaccounting-rules-masking-looming-loan-losses/360374/) The end is coming for a lot of major banks because hiding true losses only makes the cat bounce higher. It will still be dead and smell bad in the end.

Now, being a simple farm boy, I have seen many a dead cat in my day leading me to tell the story about Ol’ Stump. Ol’ Stump was a orange, tiger, farm cat we had that loved to go out into the nearby woods daily and hunt. One day when he was still a young cat, Stump went missing for a few days. Then one morning I saw him staggering up the driveway with his tail dragging on the ground, stripped of hair and flesh and bleeding profusely. My guess was he managed to get his tail caught in one of the neighbors muskrat traps. It appears that the trapper had released him when he was making his rounds. I took one look at the mess hanging from the back end of Ol’ Stump and realized there was little I could do to fix his tail. So I took a pair of tin snips out of my toolbox and cut it off leaving him with a one-inch stump. I barely had time to splash peroxide on his wound before he took off in a screaming flash. From that point on two things occurred: Stump and I became good friends (which is peculiar as I am not a cat lover by nature) and Stump became the toughest old tomcat on the farm.

As time went on, hardly a day would go by without Ol’ Stump coming home with some new wound. Soon, his face was all scarred and slashed, one of his ears was shredded and hung over and he had permanent spots of hair missing on his side and back. I applied peroxide to many an open wound on him over the years. Ol’ Stump was afraid of nothing and fought with everything he came across including fox, dogs, or any wild critter that came into his territory. Once I saw him turn up a deer with a fawn in the backfield. The deer lowered its head and charged but Ol’ Stump just held his ground, hunched down and scuttled back and forth in front of that deer like a crab before he charged back at it. I had to send my daughter out to chase off the deer to end the fight. Yep Ol’ Stump and I became good friends. He could always get a wound patched up and a friendly scratch behind the ears when I was around.

Stump was killed by a Pontiac. He had finally met a critter that was tougher than he was. I found him dead out near the road with his head bashed in pretty good. He did the dead cat bounce when he died. The moral to this story is I guess that it does not matter how good you are, or how tough you are because sooner or later you will meet your match. Just like with Ol’ Stump, the US economy has already been hit and it is now flying through the air. Unfortunately, this bodes ill for the average working man that does not take steps for self-protection.

I think the following things are going to occur before 2009 is done. First, major banks are going to collapse requiring government intervention despite the fancy new accounting rules they are all playing to. Second, I think the dollar will then devaluate in relation to other foreign currencies causing hyperinflation to kick in. Add to that a miserable wheat and rice harvest as the third disaster this year (as I have covered this in other writings on this blog site) and you have a formula for a perfect storm.

The only reason to have a Bank Holiday is to stop a run on banks. Predictions of others that a Bank Holiday looms for September of this year, is a real possibility. The chance the government will then form a National Treasury Bank to consolidate all this bad debt owned by these dead banks is also likely. (http://www.msnbc.msn.com/id/32309615/ns/business-washington_post/) I guess the best indicator that this is in the cards is that the Fed is set to end purchases of $300 Billion of US Treasuries. (http://www.bloomberg.com/apps/news?pid=20601087&sid=adSZxT_ApEsI) Telling me the Fed is doing that because the economy is getting better runs counter to the concept of the Dead Cat’s Bounce. I think the real reason for this move is the Fed knows that by September, the bounce is over.

So, more than ever, I need to reiterate what you can do for the short term to protect yourself:

1) Stock up on food. Try to get at least one year’s worth of canned food and staples like flour and sugar. When bread is at $5.00 per loaf and milk is at $10.00 per gallon, you will thank me for this advice.

2) Buy silver and gold with any spare cash you have. Do not put money into savings or 401k’s. Again, I recommend the 2009 American Silver Eagle coins, but any pure silver or gold coinage is a good option. It will hold value during inflation and it protects your principle assets. Right now this is imperative.

3) Take your money out of the bank in cash immediately. Do not wait until September to do this. Buy a good fire safe and put your silver and cash in it. If there is a Bank Holiday your cash will no longer be available to you. Also, clean out any safe deposit boxes and put that into your fire safe as well. If I am wrong on this, you can always spend this cash on Christmas gifts. But if I am right, you will have cash for food and gas when you need it most.

Several people have asked me about buying firearms to protect your homes and family. This is a tough question. It all depends on your local laws as far as owning firearms as well as your self-confidence in actually using a firearm without hurting yourself. My grandfather was a US Marine in WWI and fought in France. When he came back from the war he absolutely refused to have a firearm in the house. So quite frankly, as with my grandfather I think owning a firearm becomes a personal matter of choice. For my money, it is hard to beat a big old dog that barks a lot when anyone comes near the house. The nice thing about a dog, they love to watch cats bounce.

Clayton

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