Business News

Armageddon? Don't think so!

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by Peter Switzer

After a massive run up on the stock market which was over 50 per cent but is now up around 44 per cent since the March lows, the bears are coming out of their caves, again, to warn that Armageddon is just around the corner.

To this negative speculation I have just one reply — don’t think so!

Buffett move

In this regard, I am at one with Warren Buffett who is regarded as one of the shrewdest investors in the world. Overnight, he made a big bet on the American economy paying US$26 billion for the Burlington Northern Santa Fe rail business.

He already held some 23 per cent of the company and now he’s got the whole box and dice.

This is Buffett’s, and his company’s, biggest buy and it was cash to boot!

Buffett has been an optimist on the American economy and he certainly is putting his money where his mouth is.

Gloomsday merchants

This is in contrast to a lot of ‘gloomsday’ merchants who are either propelled by questionable theory as it confronts the real world — a less than homogenous reality — or the harbingers of doom who hold up their charts of mass destruction.

One chartist from Perth, Simon, called into Tony Delroy’s program Nightlife on the ABC across the country, and predicted a massive stock market sell off.

Delroy recalled Simon got the Crash call right and some listeners claim to have been ‘saved’ by Simon’s good call. He confessed to missing the upswing in early March this year by four weeks and my reaction was: “You’re a dud, Simon!”

Always hard but fair — that’s the Switzer motto.

One thing Simon did say was that he didn’t understand the economics of it all and that he simply follows the charts. (I will avoid the Simple Simon insult because plenty of chartists admit to being a one trick pony and they can still be really important contributors to anyone trying to guess the future.)

I don’t reckon Buffett makes his multi-billion dollar plays without a massive range of inputs into his decision process. I bet you he gets the view from the chartists, just as Julius Caesar would have heard out his soothsayer.

Differing views

Similarly, Tony Brennan, the chief equity strategist from Deutsche Bank, who I had on my SWITZER program on Sky News Business Channel, would also have at least one eye on what the charts are saying when he worked out where to put his clients’ funds.

Brennan’s core analysis was on the role of the growth of GDP or economic growth and the impact on company earnings and then share prices.

His economic analysis had him in the optimist’s camp with Buffett and for that matter Macquarie.

The millionaires’ factory’s Martin Lakos, also on my program, said they expect a 1000-point gain on the share market over the next year. Now, call me a guess artist, but I have a hunch that Macquarie employs a chartist or two that could have had some input into this call.

Pre-Christmas rally

Sure, these are vulnerable times for the market but we have had a big gain since March. Fortunately the economic data is solid, better than expected and improving. And while there could be some down days, I think we could see a pre-Christmas rally, as is often the case on Wall Street.

Very lucky

One final point about Simon. Lots of people thought a sell off was on the way as the market had gone up way over 20 per cent for four years on a trot and the year before was a double-digit gainer.

One well-known economist called the Crash in 2000 and he wanted to claim it, even though he called it virtually nine years too early. That’s not a big call, that’s a wrong call and he should be embarrassed to even talk about it, let alone crow about it.

We have had a glimpse of economic Armageddon and we have been lucky — very lucky.

For advice you can trust, contact Switzer Financial Services.

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Published on: Wednesday, November 04, 2009