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Dirty Harry concerns

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by Peter Switzer

Once again investors find themselves in a Dirty Harry-style predicament where they have to ask — do they feel lucky?

Instead of a long-barrelled handgun being held to their head, it’s a bullet in the form of a sovereign debt problem that has spooked but has not rocked stock markets, at least yet!

US unemployment rate falls

So, how worried should an investor be?

Over the weekend, the Yanks saw their unemployment figure drop from 10 to 9.7 per cent, however they lost more jobs than was expected. That worried the market and that’s why I woke up on Saturday morning and found that the Dow was down 167 points. Thankfully, it finished up 10 points, which was a good omen.

Right now, the debt problems with the PIGS — Portugal, Italy, Greece and Spain — is putting a cap on market enthusiasm just when US earnings have been close to sensational.

Buying opportunity

With 314 companies out of the S&P 500 index reporting, 74 per cent beat expectations on earnings per share and 71 per cent beat on a revenue basis. This should be a buying opportunity as the US recently showed it was growing at a 5.7 per cent pace, which is also close to sensational.

Clarity required

But the worries of the unknown always spook the cautious investor and play into the hands of the wily short-seller and hedge fund manager.
What is needed is some strong clarity out of Europe that the big economies — Germany and France — will see the ‘holiday economies’, especially Greece, Portugal and Spain, get their debt and budget policies together.

One commentator used the analogy of it being like swine flu at a school and so mums pull their kids out of school. This debt problem, in the minds of some, is like a potential contagion and they are not taking chances.

Reasons for a correction

I reckon, and I have been saying this for a while, that a correction could come and the debt issues plus Obama’s attack on greedy banks plus China’s constructed slowdown are good reasons to have a correction.

However, for a long-term investor this still looks like a buying opportunity but it’s still dangerous territory for the nervous. The question you have to ask is: “Do I feel lucky?”

For advice you can trust, contact Switzer Financial Services.

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: Monday, February 08, 2010