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Could The Hamster Wheel guys be wrong?

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by Peter Switzer

Wall Street gave up its panicky, post-election, fiscal cliff anxiety ways — well to a lesser extent — but the most important observation to make is that there isn’t a big appetite for investors to sell off their portfolios. Another important observation was that The Hamster Wheel guys on the ABC read the switzer.com.au website, but this kind of unrelated matter will be referred to later.

Back to this reluctance of the market to really dump stocks. I reckon this is the best assessment of what is going on in the heads of investors: "We're in consolidation mode, and the good news is that most of the gains made since the summer, especially in the banking sector, are holding on despite the absence of positive newsflow," Francois Chevallier, strategist at Banque Leonardo, in Paris told CNBC.

"The absence of a big wave of profit taking shows that people are starting to think that the systemic crises are over. The US housing market is recovering and Europe is now dealing with its debt problems."

The best bit of this is that it was a view expressed from Europe, which still remains the biggest threat to our stocks defying gravity. Sure the fiscal cliff is the most immediate threat but I’m punting that even the self-interested bunch of pollies in the US Congress won’t be so silly as to tip the USA into recession.

Won’t happen overnight…

If I’m wrong, stocks will plummet and so I would have to go back to my B-plan of buying great companies at great prices, but there would be a significant wait until the rebound happens. And as Rachel Hunter once argued when talking about the restorative powers of a certain shampoo: “It won’t happen overnight, but it will happen.”

As an economist, I have a love affair with models — usually ones expressed as charts or equations — but Rachel has been one of my favourite models as the famous line actually sums up how you make money out of stocks.

The good and the bad news

Regular readers know I used this argument before March 2009 when the stocks rebound started. In those days, I actually started a “good news” section on our website to just prove that there was actually some good economic and market developments which were being ignored amidst all of the doom and gloom stories dominating news outlets.

Some of the bad calls by some the biggest names in finance here and overseas should be news today, but thankfully for them, not all of us are into reprisals, while most of us have bad memories.

On global markets

Overnight the Greeks passed their austerity measures and Spain got away a 4.8 billion euro bond auction when they only wanted 4.5 billion. And the Poms did not cut interest rates and that could be a good sign that the UK economy continues to show some economic greenshoots.

Wall Street was again negative, but the panic is being contained and US business experts were adding European fears to fiscal cliff concerns, which means the ‘cliff’ issue, while potentially threatening, is seen as something that will be solved before New Year.

For the record, the Dow was 121.41 points or 0.94 per cent lower to 12,811.32 and the S&P 500 dropped 17.02 points or 1.22 per cent to 1377.51.

The timing game

I think we will be in market limbo with a bias towards the downside before Congress and Barack Obama sort out something before Christmas. I’m waiting for the time to buy stocks I like at lower prices between now and then, but this is a tricky timing game.

Against that, if I get it wrong, it won’t matter much as I think we see another rally once it’s recognised that the fiscal cliff has been averted.

Making economics accessible

Now to The Hamster Wheel, and a skit bagging economists, money market experts and politicians who are dumbing down economics and especially interest rates stories. Happily the wise guys used a website page from www.switzer.com.au, which really excited my team who put this website together.

And while I love the work of the Hamsters or CNNNN team, I have to remind them that they were lucky to grow up in a news world where economics has become increasingly more accessible.

When I started doing economic and political reports for the then great Triple M network, which featured Doug Mulray in Sydney and the D-Generation team in Melbourne along with other greats such as Richard Stubbs, interest rate stories were boring, inaccessible and usually refined to business pages.

I thank Paul Keating and Bob Hawke for pushing Australia down the deregulation road of the banks and the exchange rate, which has meant that Australians are one of the most savvy money people in the world.

Yep, I know the money stories have become weirder and wackier, but when I taught economics at the University of New South Wales, and before that at smarty pants schools like Sydney Grammar School, where Chas Licciardello of The Hamster Wheel actually went, even the smartest people needed stunts and jokes to keep them awake long enough to teach them stuff!

The fact that interest rates can be the subject of irony and sarcastic jokes actually shows how far we money guys have come in making economics and market stuff accessible.

Go Hamster guys!

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.

Published on: Friday, November 09, 2012

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