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Do not panic

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by Peter Switzer

It had to come — another big Wall Street sell-off — and I should have predicted it when my charts guy Lance Lai called me yesterday and asked whether I saw anything positive that could make a lie out of what his wriggly lines were telling him.

I agonised for a few minutes talking about some good stuff down the track but I ended up answering him with a 'nope'.

Here’s the overnight summary of misery:

The Dow was down 391.01 points, or 3.51 per cent, to 10,733.83 but it was down more than 500 points at one stage.
The S&P 500 gave up 37.2 points, or 3.19 per cent, to 1129.56.
The Oz dollar has tumbled to 97.56 US cents.
Even gold fell around US$45 to US$1735 per ounce.
NYMEX crude oil dropped over US$5 to US$80 a barrel.

There was nowhere to hide and reflects the fact that there’s no positive news to counter fears of a global recession. The spark was again Europe and it follows the Fed warning that there was “significant downside risk” for the US economy.

Down the track

Despite this hard-to-digest news, I’m telling my clients not to panic as there will be better news down the track, Europe will come up with an overdue, credible rescue plan and the US will dodge a recession. That’s when stocks will rebound.

I’m not saying it’s a buying opportunity just yet but we’re getting close. When the Europeans utter something believable that will underpin their banks, which are exposed to the likes of Greece, then shares will head up.

By the way, there are great companies like CBA at great prices for the long-term investor.

Not helping were weak factory readings in China and Europe. There was also talk of the recapitalising 16 European banks that did poorly on previous stress tests.

Good news

My favourite economics commentator is Larry Kantor of Barclays Capital. He says the US isn’t heading for a recession. He thinks growth will be around two per cent in the second half and if he’s right, US economic data will start to show it.

But the main game is Europe and if they can’t impress the market, we will see bad days like these. I’m still telling my clients that we will finish the year strongly and September is always the worst month, as I warned, but the December quarter is often a ripper.

My advice is — don’t panic!

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, September 23, 2011

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