Upside Bounce in Bear Market Expected
by Peter Cherry
http://www.investmentwarehouse.com
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 markets.
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. Visit http://www.investmentwarehouse.com for more information
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