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Discuss this article (0 Comments)Watching a dead cat bounce
by This email address is being protected from spam bots, you need Javascript enabled to view it on Thursday, 26 March 2009
In Japan, cats are ridiculed and treated sarcastically in idioms and proverbs, while inconsistent people are often described as having the eyes of a cat.
It comes as no surprise, then, that traders in Tokyo have happily applied the phrase "dead cat bounce" to reflect the downward spiral of the Nikkei index.
Literally, the "dead cat bounce" derives from the idea that if you take a dead cat up to the top of a very tall building and fling it off, then the cat – when it lands – will bounce. But it’s still a dead cat.
Traders use the phrase figuratively, to describe a pattern where a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise, before resuming its downward movement.
The connotation is that the stock’s fundamentals have not changed; it’s still the same sad corpse that was hurled off the roof, perhaps just a little flatter.
In Japan, it has been one of those weeks. Stocks rose sharply for the second day Tuesday as investors welcomed the US Treasury’s plan to rid banks of troubled assets, only to drop again Weds as everyone realised that things hadn’t really changed – the economy is still massively over-dependent on global economic growth, and when that stagnates, all that’s left is one very dead cat.
Of course, this type of bear market head-fake is by no means exclusive to Tokyo, and has been seen all too often in the Gulf in recent months. The difference between Gulf bourses and the JSE, however, is that Japan has only just struggled to its feet after the horrendously drawn-out recession of the 1990s.
When Toyota first overtook GM to become the world’s biggest car manufacturer in April 2007, it appeared a symbolic passing of the industrial torch – the mighty US could no longer keep up with its sleeker, more dynamic counterpart in the Far East.
Today, as those Toyota plants crank out more and more unwanted vehicles, destined for an interminable wait on the forecourt, or immediate scrapping, it is symbolic of an economy out of time and out of options.
While Gulf economies have enjoyed unprecedented economic growth over much of the last decade, and Gulf governments have the surpluses to ride out the worst of the slowdown, Japan has been brought swiftly to its knees again.
For Tokyo traders, the brief thrill of watching a dead cat bounce, is likely to be as good as it gets for some time.
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