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G20 gives it to the Germans

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by Peter Switzer

It has been my contention for a couple of years now that we will only beat these stock market challenges if the good news beats the bad news. Well it happened overnight and that’s why Wall Street was in positive territory for most of the US trading sessions.

Three good pieces of news helped stocks trade higher with the S&P 500 finished at 1367.59, up 1.85 points or 0.14 per cent, but the Dow lost 1.44 points or 0.01 per cent to 12,981.51.

The first was better-than-expected housing figures with pending home sales up two per cent to a reading of 97 and that is a two-year high! The experts had tipped a one per cent rise.

Meanwhile, the second positive piece of news was the Germans voted to support the Greek bailout and that was a big plus as there were expectations that they could have played much harder ball, though it should be added that the G20 actually refused to give the EU anymore funding unless the Europeans stumped up more funding for itself.

The lie of the land now is that the Europeans will relook at their funding for debtor countries and if they deliver then the G20 is likely to give more funds to the IMF to add more weight to the overall rescue plan. The G20 have taken a paternal rod to the naughty Europeans and it looks like it has worked.

Generally, optimism for shares is being driven by the expectation that the European Central Bank will throw more liquidity at EU banks via its longer term refinancing operation (LTRO) on Wednesday.

Stocks have soared since the ECB played copycat of what the Fed has been doing in the USA – that is, throwing money at the problem.

The third and final help to Wall Street was Warren Buffett coming out and tipping housing was a good bet, particularly as a landlord or property investor. This along with the housing report helped US building stocks.

Remember, an economic recovery becomes entrenched when housing really kicks in.

The one black cloud was oil, which did drop a bit in price but the key ingredient for global growth has seen its price jump close to 15 per cent recently and that does not help the world’s economic outlook.

The next few days should be interesting as both the Dow and the S&P 500 indexes could close with the best gains in 14 years!

Of course, I am a cautious optimist but you would have to expect a bit of a sell-off has to be around the corner. The question is – how big is this current corner?

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: Tuesday, February 28, 2012

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