Profiting From Stock Market Sector Dead Cat Bounces
Stock-Markets / Sector Analysis Jul 02, 2009 - 05:17 PM GMTBy: DeepCaster_LLC
To profit from Sector Dead-Cat Bounces one must first determine which Sectors do not Dead-Cat Bounce.
Gold and Silver do not Dead-Cat Bounce because their inherent quality as Monetary Metals, that is, as The Ultimate Stores and Measures of Value, propels them upward. And insofar as they suffer significant declines, those declines are typically caused by The Cartel* Takedowns described below.
For those Sectors which are subject to Dead-Cat Bounces (most of them), there are at least two ways to play “Sector” Dead-Cat Bounces. One can initially go long to ride the bounce up (but must exit in time to avoid the subsequent crash.)
Or one can go short prior to the subsequent Dead-Cat Crash, ideally, at the top of the bounce.
But the key to success using this Strategy is to pick which Sectors may just Bounce from lows, and which will likely Dead-Cat Bounce with the Bounce ending in a Crash.
In making this determination (and in addition to making traditional fundamental and technical analyses, which we will not address here) consideration of Certain “Deep” (i.e. poorly or non-reported) Macro-Market and Macro-Economic Factors – that is to say, consideration of The Deep Fundamentals -- is in order.
As the Summer, 2009 begins, the Fundamentals for most, but not all, Sectors are Abysmal (see Deepcaster latest Alerts at www.deepcaster.com and click on ‘Alerts Cache’ for a fuller discussion of the Sectors for which The Fundamentals are, and are not, Abysmal. Consideration of one Sector, the Real Estate Sector, will allow us to lay out guidelines for profiting from dead-cat bounces.
The intermediate and long-term Fundamentals for commercial and residential Real Estate, for example, are particularly abysmal. Indeed, those same Fundamentals make the prospects for many other Sectors Abysmal as well.
Consider:
- 70% of U.S. GDP is the American Taxpayer/Consumer and often, Mortgage Holder. But this huge Sector has not been significantly helped by the ostensible Stimulus Bill and Mega-Bank Bailouts. Unemployment is still rising and credit is still tight and tightening for this huge Sector.
Until this Sector gets healthy, the Residential, and Commercial Real Estate Sectors cannot get healthy. Pinched Consumer Wallets mean Trouble for the Malls, Stores, and Mortgages for the foreseeable future.
- The Trillions of Dollars of U.S. Taxpayers’ Borrowing incurred in recent years, and especially in recent months, has entailed and continues to entail the printing of Trillions of Dollars in Federal Reserve Notes by the private for-profit Federal Reserve and the issuance of Trillions in U.S. Treasury Securities. This Fiat Currency and Treasury Securities Gusher -- Monetary Inflation - - virtually guarantees downstream Price Inflation. It also virtually guarantees higher Interest Rates and thus a continued Real Estate, as well as a general Economic Slump - - a fact which will become especially apparent when the temporary Stimulus of the Stimulus Bill has dissipated, in only a very few more months. We thus anticipate hyperinflation, and soon.
- The claim is often made that Real Estate is a “good inflation hedge”. Well, whether or not that is true depends on the circumstances. And given present circumstances, prospects for the Real Estate industry for the next few years indicate that it will not be a good inflation hedge. That is because Real Estate, or any other Asset class which has underutilized capacity, is not a good inflation hedge.
Demand for residential, office, retail, and industrial space is contracting, and will likely continue contracting for a few years.
Thus Real Estate is not a good Inflation hedge at this time.
- We are already (as of early July, 2009) seeing higher yields on U.S. Treasury Securities. And, given the Fiat Currency and general Monetary deluge of recent years (and particularly the past 12 months) yields over the intermediate and long term should continue to rise. Short term is a different story.
But higher yields tend to increase the minimal capitalization rate (“Cap rate”) that Property Buyers will demand in order to invest.
(“Cap Rate” is a measure of the yield a commercial property investor is getting on his property.)
Thus the Real Estate Profit Machine of Recent Years in several advanced industrialized countries (and especially in the United States of America) is likely halted for the next several years.
Our conclusion: Real Estate is a likely Dead-Cat Bounce Sector. And even if it bounces, a Dead-End Crash is likely to Follow. Of course timing is the key here.
Disclosure: Deepcaster has already recommended a “directional” Real Estate Fund to his subscribers, based on this analysis.
Two other considerations are essential (in addition to the aforementioned ones) in order to profit from Dead Cat Bounces: one must monitor The Interventionals and the Real Statistics as opposed to the Bogus Official ones.
Indeed, it is essential to consider the Real Statistics rather than Bogus Official ones. That is because Key Statistics continue to be gimmicked by Official Sources much to the detriment of American Citizens and Investors Worldwide.
Indeed, the True State of the Economy is much worse than the Official Figures suggest.
As the Real Numbers mentioned below demonstrate, our ongoing economic and financial crisis is not merely a “normal” business cycle Recession, but a System-Threatening Crisis. Indeed, we have entered into a Depression. (see below)
It is thus another Naïve and False Assumption that the Official Figures accurately reflect the state of the Economy and Markets - - for example, that the current Recession is merely a normal “business cycle” phenomenon.
In sum, Investors and citizens-at-large are misled by Official Statistics which have been gimmicked, as shadowstats.com demonstrates. All of the following Genuine Numbers are calculated by shadowstats.com, which calculates them according to traditional methods used in the 1980s, and early 1990s, before The Political Adjustments currently being utilized began.
Consider the following Real Numbers from shadowstats:
U.S. Consumer Price Inflation (CPI) actually averaged about 11% annualized for much of 2008, rather than the 5% to 6% figures which have been reported as Official Statistics. Thus, the consumer must cope with diminished purchasing power in addition to the threat or reality of job loss and wage depression.
Though Official Figures show CPI dropping to 0% in early 2009, the June 17, 2009 Shadowstats report revealed that CPI was still about 6% annualized.
U.S. Unemployment has (according to Official Numbers) been ranging from 4% to 6% from 1995 to 2007, spiking “only” to about just under 7% in late 2008 and 8% in early 2009. In fact, Real U.S. Unemployment is (for June, 2009) about 20.6% and is still increasing. (shadowstats.com July 2, 2009 Report) Contrary to the Official 9.51% Number Shadowstats describes the real Unemployment Situation in its July 2, 2009 report as follows.
“Instead of the headline jobs loss of 467,000, consistent application of seasonal factor bias (CSFB) – would have shown a more-severe monthly jobs loss of about 513,000. This pattern has generated an upside headline-number bias of 1,210,000…
…ongoing indications of deteriorating U.S. employment/unemployment conditions in June, with a worse-than-expected 467,000 drop in June payrolls, but a narrower-than-expected rise in unemployment to 9.5%. (The Official Numbers – ed.) Net of the Concurrent Seasonal Factor Bias (discussed below) and net of distortions built into the reporting by the birth-Death Model (discussed below), the June jobs loss likely exceed 700,000.”
Shadowstats summarizes the Employment Reality by stating that the “Payroll Employment Growth Overstatement Could Top 2.5 Million Per Year with Birth-Death Modeling”.
Thus the U.S. consumer (70% of U.S. GDP, we reiterate) is increasingly unemployed, under-employed, and indebted.
As well, the Delusion of Economic Growth claimed by Official Statistics is just that - - a Delusion. Real GDP growth has been negative since 2004. Indeed, 2009 GDP “growth” is a negative 5% per the June 25, 2009 report. (shadowstats.com) Thus the consumer is faced with a deteriorating economy, as well as diminishing job prospects and purchasing power.
Knowing such Real Numbers facilitated Deepcaster’s recommending “Opportunities in the Impending Perfect Storm” - - the title of his early September, 2008 (pre-Crash) Article warning of the impending Crash (available in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com) and his making five short (and subsequently quite profitable) recommendations to subscribers at about that time.
Indeed, the aforementioned numbers virtually ensure that the current Bear Market Rally, is just that, a Bear Market Rally. We have much lower to go before we bottom. See Deepcaster latest Letter and Alert at www.deepcaster.com.
And regarding The Interventionals, The private for-profit U.S. Federal Reserve is the Main Culprit behind our current crises. See our January 2008 letter “Market Intervention, Data Manipulations, Increasing Risks, the Cartel End Game & Latest Forecast” in “Latest Letters” Cache and our July 3, 2008 “Profit from Fed-Catalyzed Crisis” in the “Articles by Deepcaster” Cache at www.deepcaster.com.
Indeed, there is compelling evidence that a Fed-led Cartel* of key Central Banks and their agents, allies and favored financial institutions is regularly involved in Overt and Covert Manipulation of a Variety of Markets (and especially the Precious Metals, Equities, and Strategic Commodities Markets) and Key Statistics.
Regarding the suppression of Gold and Silver prices, the Motivation is clear. The Cartel takes down their prices periodically to prevent their being even more widely recognized as the ultimate Stores and measures of Value, which would further delegitimize The Cartel’s Treasury securities and Fiat Currencies.
*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Key Central Bankers and favored financial institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Overt and Covert Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2008 Letter entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”
Thus, Monitoring the Interventionals is the final consideration essential to estimating approximate Tops and Bottoms of Dead-Cat Bounces.
Best regards,
By DEEPCASTER LLC
www.deepcaster.com
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