The “Sucker Rally” Will Come to an End

It’s refreshing to come across the sucker’s rally concept again. It has been a long time now. It’s slipped so far from all the headlines of late it seemed like we were the only people who still recalled that it’s what we’re seeing taking place.

The talented person with the sucker’s rally insight? No less than Rick Rule, founder and chairman of Global Resource Investments and regular Agora Financial Investment Symposium speaker, who recently shared his current thoughts on the economy.

Here’s a highlight from The Gold Report:

“Bottom line, though, Rick calls it “a bear market trap, a real sucker rally…driven by liquidity rather than valuation. And when the inevitable shock to liquidity hits—from additional foreclosures, a collapse in commercial real estate, implosion of municipal markets or wherever—this bull market will be over in a tremendous hurry.

“He sees a variety of potential catalysts that could take this market down. There’s no way of knowing when it will happen and how bad it will be, but he compares the likelihood of it happening to walking through a minefield. The odds are you’ll step on a mine and it will explode. ‘This is a minefield that it would be helpful if you were extremely drunk to stagger through. I do not like the probability of us getting through this without a couple more ugly, ugly, ugly shocks. The idea that we’re going to get through this unscathed just doesn’t make any sense.

“What could go wrong? Leveraged buyout loans in a weak economy. Additional reset loans in the residential market. Commercial real estate lending and commercial real estate capitalization rates. Municipal bond markets. Fundamentally, over the next 12 months Rick says, ‘I think we’re due for extraordinary volatility—volatility with a downward bias in equities markets in general.'”

As Rule indicates above, it’s not obvious what will trigger the necessary collapse. Or, for that matter, when it will happen or how bad it will be. It’s just clear that the fundamentals are not in place to support the market on its current trajectory.

You can read the rest of Rule’s insights in The Gold Report’s coverage of how systemic shock will kill the sucker rally.


Rocky Vega,
The Daily Reckoning