Our lab this week will allow you to enter into one such scenario which I have called the Dead Cat Bounce. Assume it is now 2015
The Dead Cat Bounce
Assume the following 2012 – 2015 Scenario comes true:
- in late Q 4 2012 the global economy falls back from recovery and re-enters a recessionary period. Massive government stimulus fails to re-ignite consumer spending and industrial investment, leaving most governments without the fiscal resources to provide further stimulus. Government services are cut or transferred to the private sector in many nations during 2011- 2014.
-major global stock markets fluctuate wildly between 2012 and 2013, then enjoy a relatively stable upward trend during the first three quarters of 2014. September 2014 marks renewed volatility, with swings of 300-400 points on a daily basis becoming the new normal. High speed trading accounts for over 80% of total trading volume on global stock exchanges by 2015.
-by Q1 2013 the US economy begins to show signs of recovery from the worst global economic downturn since the Great Depression and has rapid growth projected for the next two years. However, most of Europe and particularly Japan remain in a near recessionary state with no short term prospect for recovery. Emerging economies such as Russia and India remain mired in recessions because of continuing low export sales to Western consumers. After suffering negative growth in 2013, the Chinese economy slowly begins to recover and experience slightly positive rates of growth in Q 1 2014. Analysts differ on whether this is actually a genuine recovery or the result of massive government spending in China to stimulate domestic consumption. Inflation remains a major concern in China and has been pointed to by outside observers as the catalyst for dozens of demonstrations and riots in some Chinese cities and villages.
-in Q3 2012, the state of Illinois receives a bailout of $500 million from the United States government. In Q 2 2012, the International Monetary Fund undertakes a bailout of the Spanish government. In Q 4 2014 the state of California privatizes most of its post-secondary education system, citing its growing annual deficit.
-in Q4 2012, the United States government issues $2 trillion in bonds to the Chinese government. This move, which amounts to the USA borrowing $2 trillion from China, marks the largest single bond issue in US government history.
-in Q 1 2014, the Russian government defaults on several bond obligations held by international investors, primarily because of lower oil prices
-the Canadian dollar is worth 88 cents $USD as of January 1 2015 ( i.e. one Canadian dollar will buy 88 cents $US). It has moved up and down from 72 cents $USD to $1.15 $USD between 2011 and 2015.
-the BC and Alberta economies are in recession by Q2 2013; the Ontario economy begins to show signs of growth in Q1 2013.
-the price of oil is $65 a barrel as of January 1 2014 and has moved up and down between a high of $143 a barrel and a low of $55 a barrel in the years between 2011 and 2014. Percentage of total global transportation fuel provided by oil as of 2014 = 98%. Alternative fuels fail to make any significant inroads to displacing petroleum as a transportation energy source in the 2011- 2014 period; several hydrogen cell and electric car start ups fail during this period. Global oil supply increases because of new discoveries and new reserve exploitation technologies, while global oil demand falls as emerging countries such as India and China experience slower than forecast increases in demand for fuel.
-after a period of