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Bazooka needed

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by Peter Switzer

Wall Street was up over 100 points earlier in the trading day but it finished in negative territory after the US central bank’s Federal Open Market Committee meeting failed to produce a bazooka. This followed the failure of a bazooka turning up in Brussels at the EU summit and it comes when potential stock market investors need a bazooka to get them out of cash and bonds and back into shares.

The Dow ended down 66.45 points, or 0.55 per cent, to 11,954.94, while the S&P 500 was off 10.74 points, or 0.87 per cent, to 1225.73.

Stocks just can’t break out of their current trading range and that’s because there’s no positive shocking reason for that to happen. The flipside is that there’s no negative shocking reason to selloff right now and so we’re in a waiting-game situation.

That’s why a bazooka is needed and the most logical one isn’t the US Fed doing more QE, which some traders were hoping there would be hints of today. It has to come from Europe.

Now that the EU has got 26 countries signed up for future fiscal restraint, minus the Poms, we need to see some monetary stimulation in Europe. Generally, the Germans are against it fearing inflation but the Yanks are imploring the Europeans to print money.

US banking expert Dick Bove of Rochdale Securities thinks there could be a mini-bazooka on the way. CNBC reports that he reckons “a move starting December 21 that will allow European banks to borrow at low rates and in turn buy up sovereign debt looks ‘suspiciously like quantitative easing’".

If this happens it would take pressure off bond yields for PIIGS countries and generally help European interest rates fall.

As I say, we need a big positive bazooka to blow up the negativity and to generate some positivity to get stocks to head up. Let’s hope Bove is on the money.

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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Published on: Wednesday, December 14, 2011

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