Business News

All we have to fear

| More

by Peter Switzer

At the height of the Great Depression, the US president Franklin D. Roosevelt made the “all we have to fear is fear itself” line famous. But as the global economy emerges out of the Great Recession, I suggest all we have to fear is p-rnography or more precisely — pessimistic p-rn!

The media can’t help dealing in disaster. As an experiment, I once tried to read the newspaper for a week to search for positive stories — it was nearly an impossible task in the news sections of the papers. Thanks God for the sports section — at least success goes hand in hand with failure on the football fields, cricket grounds and racetracks of the world.

Disaster scene

Despite the wonderful stock market bounce back in 2009 from a disastrous crash across late 2007 ending in March 2009, the AFR’s US man Anthony Hughes recently pointed to the purveyors of ‘pessimistic p-rn’; those who keep flashing images of disaster.

New York University economics professor Nouriel Roubini has become 'Mr P-rn’ when it comes to promising disaster scenarios ahead. He says the liquidity that has been pumped into world economies is heading into risk assets such as shares and other speculative assets, which is bound to end in a bubble-bursting event!

However, he could be wrong. He could be right or he could be crazy.

Smart, though he might be, Roubini’s warnings would have stopped a lot of his devotees enjoying the latest rally, which has seen the S&P 500 index in the US rise by more than 60 per cent since the March lows. Such a rapid rise sets up the market for a correction — that’s believable but not generally expected.

On a positive note

Anyone regularly reading what’s happening in the US can’t help but see the readings moving more and more to the positive. Let me run through some of the more bullish developments and views from people who are definitely as smart as Professor Roubini.

Try these:

Deutsche Bank’s chief economist in the USA, Joe La Vorgna, thinks the US unemployment rate could be close to peaking, which will surprise p-rn pessimists.
US economic growth is now at 3.5 per cent.
Initial and continuing jobless claims are now falling faster than expected.
The IMF managing director Dominique Strauss-Kahn said he doesn't see a double-dip recession.
Many key retail stocks continue to trade near 52-week highs because gross margins are improving, which suggests the US consumer is still alive and shopping.
Ten out of ten key S&P sectors finished higher last week, which says the market is not suffering buyer weariness yet.
Most US companies that have reported have beat expectations on the revenue as well as the earnings side and outlook statements were largely positive.
Over the full year so far, the Dow is up 17 per cent, the S&P 500, 21 per cent, and the Nasdaq, 37.5 per cent.
And the VIX or fear index is at 23.4, which is down 41.55 per cent over the year!
American Express said card spending improved in October, to the highest level since last December.
China’s latest readings on retail spending and industrial production were up over 16 per cent, which is important not only for China but the global economy.

I could go on but that’s enough for now. There are plenty of economically positive and wholesome stories we in the media can flash before your eyes. It doesn’t have to be all pessimistic p-rn.

Rise of the S&P 500

One final point to put all of this market stuff into context: CNBC recently pointed to Jordan Kotick, who is Barclays Capital's global head of technical strategy in New York. I have often followed this guy’s predictions. He said recent selling in the market was a typical month-end move, like those seen in the past five months and he tipped that the S&P would reach 1,200 by year's end.

"We still think stocks will get a bid in to the end of the year, and risk is doing ok," he said. "November and December are two of the best months for the stock market, and you've just come through September and October, two of the hardest months. You don't get a counter-trend move at the end of the year."

Correction ahead?

Despite this positive attitude for the end of the year, he still remains a realist and his observation prevents us from being excessively positive.

He suspects there will be a correction in the first three months of 2010.

"We ideally would see a 10 to 15 per cent correction," he told CNBC.

However, the likes of Macquarie think our S&P/ASX 200 will go to 5,500 next year and that would be a rise of around 17 per cent. Roubini is smart but so are the millionaires down at the millionaires’ factory and I prefer their more positive p-rn!

For advice you can trust, contact Switzer Financial Services.

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.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Monday, November 16, 2009