Friday, May 29, 2009

Eye Of The Storm and Dead Cat Bounces

I hate to admit it but I am "in the market". Not directly so much but I am in Funds and have about 33% in Bonds, 33% in Precious Metals and 33% in Equities which is the market. They say I am "well diversified" but even my Precious Metals are in gold mine stocks and such and this not at all like having a couple of bars of the yellow stuff hidden under the floor boards. I did not get out when I should have and by the time I realized what was happening, it was too late. My money has been on a roller coaster since 9-11 and I am a white knuckled passenger along for the ride!

I went to see my Financial Adviser the other day and he did his best to reassure me. He tells me the market will rebound as it always does and that patience is a virtue here as in other things. He described what is happening now as "the eye of the storm" and that, in his opinion, the graph of the market will eventually come out shaped like a "W" and we are approaching the half way point (or the eye of the storm) now. He believes things will take one more fall before starting the final climb out of the abyss. The USA's credit rating will likely be reduced because of their massive debt, more banks could fail and the American auto industry will experience bankruptcies. He suggested I could take some profits out before that happens but the "profits" he refers to are not really profits at all but merely the partial recovery of what I had in there to start with. I am still a long way below my high point and I am not about to start selling dollar bills for eighty cents if I don't have to.

In his opinion what we are seeing now is a "Dead Cat Bounce", a market term derived from the notion that "even a dead cat will bounce if it falls from a great enough height".

I am actually in a pretty good position to ride out this storm as I do not need the money that is in there for daily living. I have a very good Union pension which will become even better by another four hundred and some a month when I turn 65 next year and Canada's Old Age Pension kicks in. Meanwhile there are a few things we have to delay, like a trip to Europe, but things could be worse and for many, they are. Right now I have a good excuse to not go out for expensive dinners....


  1. The market crashing the way it did really affected my financial plan for my year off. It's shocking to see my investments worth about a third what they were worth a year ago! My financial planner told me to just hang tight and let time work its magic. I am seeing some improvements, but the best thing I can do for the time being is pretend that money doesn't even exist. I invested it for the long term so I'm riding this out.

  2. We are both doing the same thing Rae except my "long term" is a little shorter than yours! Lets hope it starts the long climb out sooner rather than later.

  3. I'm happy to hear that you aren't pulling out of the markets. I agree with your advisor that change is constant; the market that goes up will come down and vice versa. The problem is when time is your enemy rather than your friend. Still, I'm staying pretty aggressive; I'm hoping to still be traveling when I'm ninety so that money needs to last another thirty years!

  4. The REALLY irritating thing is it goes down fast and recovers so slooooowly - what's the deal with that!

  5. Croft, thanks for sharing your insights. I had never heard the
    dead cat bounce terminology. It unfortunately seems pretty appropriate at this time. A big fall from unreasonable highs. Of course there is a little bounce now. Just before auto bankruptcies and more layoffs.

    Luckily you aren't using that money so the long term is a reasonable horizon for you. And if you would have gotten out, where would you have put your money. Into real estate or bonds just in time for their falls.

    Enjoy your time up North.

  6. You are right Paul, where would I have put it. Bonds are paying a whole 1% and GIC's 1.5%, only a reasonable option if you could time your exit perfectly. At least we know the Market will eventually recover.

  7. The market is going to take a long time to recover, and I'd agree that this is a dead cat bounce. Check the chart of the Dow in 1930. After the crash in October 1929, the bounce took the market nicely higher by the end of April 1930. However after that was a long 2 year slide till the market finally reached the bottom. Fortunately, Canada is much better off than the US, and your precious metals fund will do well in the next couple of years. But most Americans have no idea of the financial pain they will feel in the next couple of years. I just bought some HXD for the ride back down.