Business News

Believe it – the US gets stronger

| More

by Peter Switzer

When the US central bank boss speaks, market players listen and today we learnt that the American recovery was slower than the Fed expected but Ben Bernanke is sticking to his “it’s temporary” line. However, it didn’t help stocks.

(The Dow lost 80.34 points, or 0.66 per cent, to 12,109.67 and the S&P 500 was down 0.64 per cent to 1287.14.)

That said, the sell-off was weak and part of that has to be linked to QE2 ending at the end of June. Ben made no hint that QE3 is being considered.

For my part, the whole Bernanke story today made me think of Amanda Vanstone and it made me feel positive! More on that later.

News overnight

Let’s quickly sum up the take-outs from the Bernanke utterings and reactions, plus what else happened overnight:

Temporary factors best explain the US slowdown but Bernanke conceded there could be other slowness in the economy.
Citigroup’s lead economist, Steven Wieting, says the Japanese carmakers in the US basically went down to nothing because of tsunami disasters but they have doubled up production in the past two weeks! He expects a significant economic comeback in the second half and it should start showing up soon.
The Europeans know how important it is to solve the Greek debt issue.
Goldman Sachs’ economist, Jan Hatzius, has cut his economic growth figures for the second quarter from around three per cent to two per cent but the prospects for second half look brighter.
The door is not shut on a QE3 but Bernanke didn’t hint that it was in the mix right now.
With no stimulus suggested, the US dollar rose — our dollar fell to 105.72 US cents and commodities fell, taking stocks with them.
FedEx reported better than expected today and raised its forecast for future earnings, which is a positive sign for the overall economy.

Two final observations are worth making. First, this US recovery has been good for companies’ profits but not for jobs. Recessions like the one the US went through often result in slow jobs growth.

So where did the three trillion dollars worth of stimulation go?

Some went to repairing the economy and a CNBC report says S&P 500 companies “are sitting on about $800 billion in cash and cash equivalents — the most ever”. That was the finding of Birinyi Associates and they argue many companies are still spooked and are reluctant to hire.

Vanstone connection

This brings me back to the former Howard government minister for employment, Amanda Vanstone. I recall her comparing herself to a farmer waiting for the rains to break when she expressed her disappointment that the economy, which was doing well, was still not creating jobs.

Now, the Howard Government was elected in 1996 and these complaints from Vanstone were at least 1997 but the recession was in 1990!

I think the US economy and the stock market can go up without jobs but they will surge when they do. But, it could be a bit of a wait.

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.

Watch more from Peter on SWITZER TV.

Peter Switzer will be hosting an event with BT chief economist Chris Caton on self-managed super in Brisbane on 20 July. For more information, click here.

Published on: Thursday, June 23, 2011

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.

Kill QE, kill rally? Nope!

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!

When do we dump stocks?