get ready for the second leg down .. jp morgan

Buckle Up For Phase Two Of The Bear Market


Morgan Stanley's European market strategists fired off a loud warning shot yesterday, predicting that what we have been experiencing over the past week has been nothing but a bear market rally and now, yes now, it's likely to be all over again: prepare for the second round of losses for global equities.


How come I hear you ask? Aren't we close to having this financial system crisis sorted out soon? After all, the Reserve Bank of Australia has just joined its peers in the UK and the US by temporarily swapping $1.1bn in mortgage backed securities for bonds and cash? Surely, that's gotta be the beginning of the end?


The key theme throughout the strategists' call for a repeating exercise of what we shall now conveniently call Round One of the Bear Market, is "earnings risk". Strategist Teun Draaisma and his team believe too bullish market earnings forecasts will now come back and haunt equities where it hurts most: in the valuations of assets. In other words: this is when subdued global economic growth, and a recession in the US, will be reflected in forecasts, and subsequently in valuations, of global share markets.


US strategist Abhijit Chakrabortti tends to agree with his colleagues in Europe. And what about Australia? Well, In Australia Morgan Stanley employs Super Bear Gerard Minack. Dow we need to elaborate further on this?