Property Grunt

Saturday, February 17, 2007

The Dead Cat Bounce

The Dead Cat Bounce defined by Wikipedia.

A dead cat bounce is a term used in market economics to describe a pattern wherein a moderate rise in the price of a stock follows a spectacular fall, with the connotation that the rise does not indicate improving circumstances. It is derived from the notion that "even a dead cat will bounce if it falls from a great height".
The phrase has been used on the trading floors for many years. However the earliest recorded use of the phrase dates from
1985 when the Singaporean and Malaysian stock markets bounced back after a hard fall during the recession of that year. The Financial Times reported a stock broker as saying the market rise was a 'dead cat bounce'.
The reasons for such a bounce can be technical - investors may have standing orders to buy
shorted stocks if they fall below a certain level, to cover certain option positions, or for speculation. Since bounces often occur, investors buy into what they hope is the bottom of the market, expecting a bounce and thus make a quick profit. The very act of anticipating a bounce can create and magnify it.
A market rise after a sharp fall can only really be seen to be a "dead cat bounce" with the benefit of hindsight. If the stocks starts to fall again in the following days and weeks, then the bounce was for technical or speculative reasons. If the stock remains steady, then the bounce is merely a correction to over-selling.

I bring up the dead cat bounce because I think Manhattan is probably experiencing it right now. In a previous entry I wrote about the Lazurus scenario that was occuring in the Manhattan market.

Mind you, I am not back pedaling on what I have written, but I am just bringing up another possibility that this just another aspect of the market entering its normalization phase. What got my wheels turning was the drastic drop in home prices on the national front.

This part probably got a lot of people choking on their breakfast.

In addition to weaker sales and declining prices, the number of homes on the market has been climbing. That suggests, economists say, that prices may have to fall further for sales to pick up and the overall housing market to recover. In the fourth quarter, the vacancy rate for owner-occupied homes was 2.7 percent, up from 2 percent a year before and the highest it has been since the Census Bureau started compiling the data in 1956.
“That means we have got a while before this thing fully adjusts,” said Edward Leamer, an economist at the
University of California, Los Angeles. Mr. Leamer noted that individual sellers often preferred to wait rather than cut the price to a level that would be agreeable to most buyers. That gap between seller and buyer is reflected in the decline in sales and the buildup in the number of homes sitting vacant.

With the rest of the nation crashing and burning, is Manhattan simply the last candle to burn out? Are we the dead cat bounce of America?