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Down big time, but why?

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by Peter Switzer

Regular readers might have noted that on Monday I underlined Share Wealth Systems’ Gary Stone predicted a sell-off, which happened on Tuesday. Good call Gaz, but what next?

I interviewed him last night (you can watch the interview here), but the bottom line is he doesn’t know! Knowing why markets go up or down and what will happen going forward are very hard things to nail with confidence but his system basically tells you when to get out and when to get in.

Of course, you can miss the first legs down or up, but the goal is to get the trend to be your friend.

Global concerns

In case you missed it, our market dropped big time with the S&P/ASX 200 index down 68.2 points or 1.53 per cent to finish at 4379.8.

Why did it happen? No one knows, but my list looks like this in order of importance — US fiscal cliff fears, European Union worries over Greece and then Spain, Japan looking to head into its fifth recession in fifteen years and the smarty pants behaviour of short-sellers and hedge funds when they sniff a bit of market vulnerability.

The fiscal cliff matter has sure created that!

Wall Street falls, Europe rises

Now on that basis you might have thought that overseas markets would have followed suit but this is what happened:

The Dow lost 58.9 points or 0.46 per cent to go to 12,756.18 while the S&P 500 dropped 5.5 points or 0.4 per cent to end at 1374.53. Over in Europe the DAX in Germany was flat but just up while the UK’s FTSE was up 0.33 per cent.

It looks like our fear was not infectious but it should be said that there was some progress on Greece and what the eurozone finance ministers want from the Greeks, which helped investor confidence.

In reality, the fiscal cliff is the main game and will sustain this volatility on markets until something comes out of the Oval Office that the Congress can ink.

Doomsday merchants

Meanwhile, Doomsday merchants such as Marc Faber, who has been wrong for most of this year predicting doom and gloom, is still foretelling a 20 per cent collapse in shares. One day he will be right and probably short-sighted, no memory media types will tell us how smart this prophet is!

As Billy Joel might have sung: “He could be right, he could be wrong, or he could be crazy!”

My bet is a fiscal cliff solution comes as stocks spike, but 2013 will be a battle between an improving world economy and low company profits, especially in Europe, which will keep a lid on stock-buying enthusiasm.

Faber says it will push stocks down 20 per cent, but we will need some really big bad news for that and these events are hard to predict.

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: Wednesday, November 14, 2012

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