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Forget double dip

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by Peter Switzer

If a fear of a double dip recession is holding back your enthusiasm for shares right now, you should know the chances of this happening are lengthening. And best of all this is a view I share with my favourite female forecaster — Abby Joseph Cohen.

Not only is she a hotshot on Wall Street, she is officially the chief market strategist for the world’s most formidable investment bank — Goldman Sachs.

Like all big call merchants, she’s not always right but you don’t hold down a job like hers at a place like Goldman Sachs unless your bosses think you have what it takes.

Rally continues

Cohen recently was interviewed on CNBC and said she thought the rally still had legs and made the point that the chance of a double dip recession was becoming less likely.

"The stock market is almost always a discounting mechanism that almost always moves in advance of the economy, but we don't think it has moved too far at this point," she said.

Market forecast

For those who like forecasts to be put into numbers, she has the S&P 500 pencilled in to finish the year around 1,300 against a level around 1,140. So that translates into a 14 per cent gain and that ignores the potential dividend income which if we add three per cent means a 17 per cent return is on the cards in the US if Abby is on the money.

She sees a gradual shift of money from the relative safety of mutual funds to stocks. Also the more risky corporate bonds have more supporters over the safe but low yielding Treasury bonds.

Return to normal

This is a normalisation process that indicates as fear is being replaced by more confidence in the US economic recovery, it increases potential for companies to make higher profits and for share prices to head higher.

A crash crushes confidence and this takes time to come back but the more it is believed that a double dip is no chance, then the quicker the stock market starts to surge.

Cohen likes the fact that companies are increasing dividends, jobs are coming back and industrial production orders are coming back.

Two crucial factors

Julia Lee from Bell Direct, told me on my Sky Business program — SWITZER — that the smarties at Bell Direct think our S&P/ASX 200 is heading to 5,800 this year but in America they are looking for two economic problems to right themselves.

First, US housing has to start heading in the positive direction and second, the improvement in the job creation process has to be more convincing.

When that happens the stock market will definitely be off to the races and so these two crucial factors will be always be on the Switzer radar screen. So watch this space!

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: Wednesday, March 10, 2010