Beware the Dead Cat Bounce

by | Oct 16, 2008 | Archives

Could the sudden recovery on Wall Street and elsewhere be a dead cat bounce creating that creates an environment for a long tail shock? There are a number of reasons why global equity markets may recover (shared in our multi currency course) but here is the news about two important phrases and risks you should know.

The first is the “Dead-Cat Bounce”. This is a temporary recovery from a prolonged decline or bear market, after which the market continues to fall. If you drop a dead cat from a high roof it will bounce but this does not mean it still is alive.

The recent best day for European stocks and the biggest rebound for US markets since the 1929 Great Cash must be kept in context. After the 1929 crash, the Dow Jones industrial average gained 18.8% in the next two days. The Dow’s bounce earlier this week was 19.2%.

The second phrase is “Fat Tail Shock.” This phrase is all about predictive ability.

In finance, most investment markets are affected by normal bell shaped curves ending in a thin tail. The rise, leveling and falls of most markets are predictable.

Fat tails are considered undesirable because they introduce additional risk…because markets become less dependable. For example, an investment strategy may have an expected return. In normal times the likelihood of its failure (negative return) is less than one in a million. Normal distributions that emerge in finance generally do so because the factors influencing an asset’s value or price are mathematically “well-behaved.” In ther words markets are based on fundamental value. However, traumatic “real-world” events (such as an oil shock, a large corporate bankruptcy, or an abrupt change in a political situation) are usually not mathematically well-behaved. Human emotion dramatically outweighs fundamental logic. This causes investments to become less predictable.

This is where we are now…markets crashing, dashing, rising and even exploding/imploding. As markets move more and more dramatically so too does the daily news…Headlines become bolder… pictures more horrid and announcers increasingly grim.

All this is at the expense of our nervous systems.

Merri and I use a different method of news casting!

Here is the Merrily Farms morning news. You’ll find it a little different…and hopefully more refreshing…then CNN, NBC, CBS or ABC

Please walk with me around the farm. We have no TV at Merrily Farms so we take a walk North, East, West & South to get our morning news. First, we start by looking east from my office to see the first broadcast of the day.


We’ll I’ll be darned. The sun has risen again! The sky isn’t falling after all.

Then I look south…


just because the view is pretty to see. This is not a bad thing to do…to see something of beauty first thing.

Then I amble out and open the goose pen.


This is really handy. They are the watch dogs here. The geese let me know if any real problem is coming. This means I can focus on the day without worry. Handy things…these watchdog geese.

Then we head out for a morning walk.


We break for an important announcement at this waning autumn view…


The view is very different from the same spot in the blooming spring.


Yet both have beauty…and these seasons are required. We would really be in a fix if everything just kept growing.


Somewhere along the way we head up a path where the going starts getting dark.

Sometimes the way becomes quite dark.


Yet every dark path always seems to have a light at the end. Just when we begin to think it will never brighten, a meadow opens…


with we see views that seem like they’ll never end.


Of course they do end because every meadow has a beginning and an end.

Every walk is filled with beauty.

That is the news. Every walk has it dark and bright moments…but there is beauty and necessity every step along the way. There is a reason for the open woodland…


and the dark forest.


The meadow.


Every day the news here is different…always wonderful and in some ways exactly the same.

Basically the news is really simple….saying that life is filled with wonder…


if you stop and take long enough to look for it.

You can find beauty in the quiet glens.


You can enjoy the long views.

multi-currency-long views

You can be patriotic or not.


You can like where you are or not. You can stay put or follow a meandering stream.


Whichever the news will be the same…the daily message is…keep walking…this incredible event we are undertaking is a journey and there will always be a new path that is perfect for you.


Tomorrow’s message looks at how this message of continual change has opened a new exciting opportunity for us to share with you.

Until then, thanks for sharing this little hike and the news from Merrily Farms.

Fade out…play the Merrily Farm theme song…

“Row Row Row your boat. Gently DOWN the stream.

Merrily Merrily Merrily. Life is but a Dream.


These shots show the glory of the Blue Ridge leaf change. They also hint rumors of colder days ahead…time to head south.

Won’t you join us…in the sun…for the Ecuador news?

Join Merri, me and Jyske Global Asset Management at one of our courses. We review economic conditions, Ecuador real estate, my entire portfolio and natural awakenings to health and wealth with investing and business ideas for the months ahead.

International Investing and Business Made EZ Ecuador

Stay on for the real estate tour Cotacachi and surrounding areas. We’ll see real estate for sale on this lake.


Plus we’ll see homes at San Miguel and Prima Vera II.


Primavera II $46,000 condos.


Nov 10-11 Cotacachi-Imbabura Real Estate tour

Then travel to the coast and enjoy this Pacific surf that in November is warm!

Ecuador real estate for sale .

Salt or fresh water

Ecuador real estate for sale

November 12-15, 2008 Ecuador Coastal Real Estate Tour; Quito Real Estate Tour

See discounts for two or more of these courses and tours


Recent Posts

Featured Courses