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Big call Bennett

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by Peter Switzer

One of my favourite big call merchants is Clifford Bennett from Herston Economics. And last night on my Sky News Business Channel program SWITZER, he reasserted his belief that this would be a great week for the stock market — in fact it will be a very good year! — that gold would go higher and best of all the Reserve Bank will stop raising interest rates.

To put Bennett into context, while everyone talks about the likes of Nouriel Roubini, the Harvard professor who apparently called the Crash — I would like to test out that claim — Bennett actually called the rally.

He sent out emails to the media and boldly declared on 11 March that the bear market was over. He got it right and I have watched him ever since.

Crystal ball

Of course, no big call merchant is infallible but this one has a good crystal ball and it’s showing some pretty pictures.

He sees the stock market heading up to around 5,100 to 5,600 over next year and this is fairly close to Macquarie’s call of 5,400. A few months ago, I bought an ETF on the ASX 200 for my self-managed super fund and so these calls, if right, should be good for the fund’s bottom line.

Bennett thinks gold will go higher from here but not in a straight line. He links the inevitable success of China and India, the two biggest gold buyers in the world, to the fact that the gold price will remain high.

He also believes in the resources boom that will be great for the Aussie economy and will take the Oz dollar over parity next year and to around $US1.15 the year after.

The new norm

But the best news was saved for anyone who can’t believe that the Reserve Bank is raising interest rates so aggressively so early in the recovery phase of the cycle. These same people can’t believe how quickly bank economists think the cash rate will go to five per cent.

The reasoning is that the normal cash rate has been around five per cent and it’s now 3.5 per cent. Well, Bennett thinks the new ‘normal’ cash rate will become, wait for it, 3.5 per cent!

He says inflation will not be a problem in the post-GFC economy and therefore there will be an adjustment of thinking of what the cash rate should be.

This is his wildest, and some might say wackiest, call. Banking economists, who spend their lives watching the Reserve Bank and second-guessing their every move, would scoff at the suggestion. However, no well-known economist picked this rally early — I know because I was a lonely optimistic economist, aside from CommSec’s Craig James, until Bennett came along.

Personally, I think the cash rate goes higher than 3.5 per cent but I have always asked if the dollar is to go so high and this slows the economy and reduces inflation, then why should we have to go back to a cash rate of five per cent?

The wild and wonderful world of Clifford Bennett might not come to fruition in all its predicted glory but it certainly is worth praying for!

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, November 10, 2009