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Responses to the US mortgage mess

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Published on: Thursday, October 21, 2010

With reports of a mortgage mess in the US that could scuttle the American banking system, Woodhall Investment Research’s Ron Bewley and Herston Economics’ Clifford Bennett join Peter Switzer on Sky News Business Channel’s SWITZER to test out this new threat to our financial health.

The mortgage mess

Despite fear purported by media in the US, Bennett believes their mortgage mess will be moderate, compared to the hype.

“We have the subprime debacle kicked off the recession 2008 and 2009, so any new wave of fear about US mortgages is certainly going to rattle a few nerves here and there but I think it’s probably being a little exaggerated. I don’t think it’s going to bring down the US banking system,” says Bennett. “This time what’s different is that it will be really contained to the United States … It will pull down the overall market perhaps a touch but I don’t see it derailing the rally.”

“It’s very well-behaved at the moment,” adds Bewley. “Everything today has just been taken in the stride. It’s not like the old days at all. In fact, it’s almost good.”

The rally
As to the rally, does it have legs?

“Definitely,” says Bewley. “This rally is like six other rallies and, in particular, the one after the Great Depression and the one after 1973-74 was similar.

“They went down at the same rate and they were coming up at the same rate so there’s a lot in common. This thing has happened a few times before. It doesn’t mean it will happen again but since that was shown four months ago … it’s still on track.”

In fact, Bewley sees full recovery (that is, back to pre-GFC market levels) by 2013. “We’re on track to be back at the top within less than three years from now,” he says.

The job recovery

Interestingly, despite negativity in the media, new data indicates that the jobs recovery is on track. In fact, jobs recovery in this recession has been quicker than the one after 1990 and the 2000 dotcom crash.

“It was flat for a while but then when it did improve, it improved quite quickly than those two previous recession so we’ve still got time for that to happen,” says Bewley.

The difference this time, notes Bennett, is the gap in the rate of recovery in Australia and US.

“We didn’t really have high unemployment at all, we didn’t have a bad scenario and the US still has that stubbornly high unemployment which is probably going to persist for some time,” says Bennett.

The market

“One of my feelings is that the market is going to catch everyone out and accelerate from current levels higher,” says Bennett of anticipated market movement. “I think we’re about to get that flow of capital back out of the US. The US dollar is about to collapse but in terms of equity markets, there’s plenty of room, we haven’t even begun to overshoot yet.”

Bewley and Bennett agree there is still value in the market for those seeking buying opportunities.

“Not all the sectors are in line, because finance is a little bit low, telco is low and health is low … health is six per cent under,” says Bewley.

Check out Peter Switzer’s SWITZER on Sky News Business Channel, Monday to Thursday from 7pm.

Watch Bennett and Bewley discuss the markets on SWITZER TV.

And, read Bewley’s further analysis of the issues here.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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