Cup Day – bet on Europe!
by Peter Switzer
I know I should be in 'Melbourne Cup and interest rate cut' fever mode but I can’t help but focus on the main game for my and my clients’ investments — Europe!
Let me say, don’t get too stressed about the stock market’s pullback because you have to remember that the Dow Jones has had its best month since 2002! Meanwhile, as the experts’ eyes have poured over the EU’s rescue plan, questions are starting to be raised.
However, I don’t think we have come to a Homer Simpson-like “Doh!” moment, just yet.
(For those who aren’t Simpsons fans, when Homer makes a mistake and it comes back to bite him he yells — “Doh!”)
For the record, overnight the Dow was down 2.26 per cent, or 276 points, to 11,955.01.
For the historians, October can be a tough month but November and December can be a great time for investors, so keep you fingers crossed.
We have a big week for US economic data ahead culminating in the jobs report on Friday but Europe and how the rescue plan will work is the main game for financial markets.
The markets had to deal with the filing for bankruptcy protection by MF Global, which will be one of the biggest failures in history, and also the Greek PM has proposed a referendum on the EU’s reforms.
Meanwhile, the actual bailout package is now seen by some as inadequate. This is typical of these reactions and the same was said about the US TARP program. The critics could be right or wrong or crazy but we won’t know for, say, six months, when we see how the plan pans out.
Personally I think the 50 per cent haircut on Greek bonds for lenders and a trillion euros for the EFSF — the actual rescue fund — is a good start.
Doomsday merchants such as Bob Janjuah, the co-head of cross-asset allocation strategy at Nomura Securities International in London, argues: "This latest round of euro zone shock and awe is, in my view, nothing more than a confidence trick and has possibly even set up an even worse financial outcome."
He thinks the S&P 500 is heading to 800 or 900!
"I strongly believe that we have begun, or (are) about to begin, the next major risk-off phase, which should culminate in my secular targets being hit in 2012," CNBC reported. "The sharpness of the rally from the October risk lows suggests strongly to me that what I thought would be a process that plays out over a year may well now be a process where the timeframe has been accelerated by a quarter, maybe two quarters."
I think this guy is over-the-top and short-sellers and hedge funds trade on the kind of fear that can be created by these big call merchants. I think he’s wrong but a lot of people don’t and they will keep their money on the sidelines until the Europeans prove them wrong.
We remain in the hands of European officials but I only wish they had hands better than Homer Simpson!
Ironically, I do like two European horses in the Cup — Americain and Dunaden — with the latter looking like a great each way bet. And I’m putting my money on a rate cut as well.
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Published on: Tuesday, November 01, 2011
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