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Hang tough

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by Peter Switzer

Waking each morning in Shanghai this week I’m two hours behind my usual Wall Street play and it has meant I have been two hours late in saying what I have said all week when I have jumped out of bed: “What the...?”

And while I don’t like to see the market head down, I still see this as a buying opportunity, because great companies I want to hold for 10 years are now at better prices than they were three weeks ago.

Nervous market

What we’re seeing is what happens when the governments destabilise an already nervous market. Our market mess was started by the ill-conceived resource super profits tax and over in America they started their witch-hunt too early with the Goldman Sachs charges being another trigger for a sliding market.

Now how dumb is that? Well, it’s dumber than you think, as many of you might not know but the US Government has been selling down its stake in Citigroup, which is a good thing as it shows that the bank is getting onto its own two feet. However, rattling the foundations of banks would have been best done when the foundations were deeper and more stable.

More doubts

The Yanks are also voting on more financial regulation, which is needed, but the timing is not helping. If there were no Euro debt concerns, maybe the market could take these proposed changes more in its stride.

Politicians really need a lesson in stock markets 101. But we already know that, following the resource tax’s devastation of our resource stock prices, which has been made worse by the failure of European politicians.

Germany’s sensible banning of something that was already illegal — naked short selling — has made investors more jumpy. That’s because it has raised doubts about the strength of some banks at the moment, which might have exposure to the dopey debtor nations of Europe.

This is all understandable but at the core of the problem is naïve and immature policymakers who have rocked investor confidence.

Market moves

Mind you, this is the overdue picnic for the hedge fund operators and short sellers, who have been waiting for an opportunity like this since March 2009 when the market rebounded from the GFC-created slide.

Today’s slide was only 0.51 per cent on the S&P 500, which was not too disastrous but the VIX or fear index is at 35. At the height of the GFC it hit 80 or so!

Not helping are the rumour mongers who are suggesting that Greece would leave the EU, which has been denied by the Greek Government. Matters weren’t helped by the German Chancellor Angela Merkel saying that the euro was in danger.

That was a big help Frau Chancellor!

Oz dollar and confidence drop

Locally, our fearless politicians are still stonewalling on the resource tax with the Oz dollar today at 84.33 US cents. Now I know this is good for many small businesses but it says that our mining and export outlook is no longer as promising as it was when the Reserve Bank raised interest rates six times in seven meetings and the Budget was framed.

It didn’t surprise me that consumer confidence fell seven per cent this week, which was the biggest fall in 19 months. Business confidence has already turned and is set to fall further given the recent market madness.

The positives

Fortunately the macroeconomic performance of Asia, the US and Australia keep me positive and that’s why I see great value in lower-priced stocks but we do need some dumb politicians to lift their game — big time.

I can hang tough with a little bit of help from my political ‘friends’.

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: Thursday, May 20, 2010