forgot the link this morning: worth a read

http://www.businessspectator.com.au/bs.nsf/Article/markets-Wall-Street-European-debt-crisis-US-jobs-e-pd20111008-METCU?OpenDocument&src=sph

Are we experiencing a classic so-called ‘dead cat bounce’ or is this the start of a major rally reversing much of the declines of recent times? That is the question everyone wants to know but no-one, including me, can give an answer with any certainty. But, as you would expect, I have a view.

The optimists in Australia point to the fact that there is clearly strong demand from China for iron ore and coal. Given the hammering that BHP, Rio Tinto and other resource stocks have received, this is good news.

In addition, there are signs that the worst is over for the Australian economy and the US is holding.

The bears say that the European problem has not been really tackled (A nasty market curveball, October 6) and there is no great joy out of the US. The latest US jobs report looked fine in headlines because the US added 103,000 jobs in September, an improvement from the month before. However the total includes 45,000 Verizon workers who were rehired after a strike and were counted as job gains.

(The US requires about 125,000 jobs a month to keep up with population growth.)

On top of this, the August drop in US borrowing was the largest since April 2010. Clearly American consumers are very nervous.

The trouble is that genuine share buyers are very much in a minority, whether it be in the US, Europe or Australia. What we have is a gigantic casino-style trading operation. The traders act in herds to drive the market down by shorting, hoping to force out weak holders like those who have bought stocks on margin.

Then they go in the opposite direction and drive the market back up again, hoping to drag in investors or more margin speculators. When they have finished that process they go back to shorting it down.

This is an absolute nightmare for long-term investors because they are seeing huge fluctuations which can be very disturbing.

At the Australian Leadership Retreat on Hayman Island in August, the global traders declared that this enormous volatility would continue until the politicians and central bankers came to a sustainable solution for the world’s economic problems, of which the biggest was Europe (A road map for extreme volatility, September 3). As yet they have not come to a sustainable solution so the casino-style games continue. Movements up and down can be greater than you expect but on the basis of our Hayman road map there is no reason to expect that there will not be another big fall when the traders are finished with the up movement. As I will explain on Monday this volatility is having bad long-term effects on our market.