Ignore doomsday merchants - markets are!
by Peter Switzer
There’s no reason to turn negative on stocks unless you want to take some of the profits you’ve made off the table. And over the next few weeks we will probably see some professionals do exactly this. However, there is a nagging doubt in the minds of many of these pros that they could miss out if this market continues to climb.
Overnight, Wall Street went higher powered by the news that Japan’s central bank was also getting into the bond-buying trick we saw from both the European Central Bank and the Fed. This was a key factor in pushing our market up 0.54 per cent yesterday.
The Yanks also got a good housing sales report and only sight-challenged Freddy could have missed the stats that are saying that the US housing sector is getting better. And this important growth generator is critically important for the economic recovery that the Fed is looking for in promising to buy $40 billion worth of bonds each month until jobs show up in the US economy!
The Dow was 13.32 points or 0.1 per cent to finish at 13,577.96 while the S&P 500 index was up 0.12 per cent to 1,461.05. Over in Europe, the good news from Japan outweighed the worries about Spain and so the French CAC40 was up 0.54 per cent while the German DAX put on 0.59 per cent despite the President of the Bundesbank calling bond buying “devil’s work”!
Don’t worry about these dinosaurs. Letting the market solve the problems of the GFC, which the likes of the Bundesbank did little to discourage in the first place, would have created 20 per cent unemployment in the USA and 10 per cent joblessness here in Australia.
Sure there would have been less debt and the problems would have been solved more quickly but we all would have lived through life-devastating experiences.
We have selected the ‘muddle-through, shoulder-the-debt and then pay it off later’ approach, which will prolong the slow economic conditions but we will get out of it.
This is why I ignore Doomsday Merchants — they appeal to good sense and modest behaviour but when you think about it, most households borrow at least $300,000 nowadays while even if we say average incomes were $100,000, and they are in fact lower, households have a debt to income ratio of 300 per cent.
The US Government debt-to-GDP is 103.5 per cent while ours is around 23 per cent!
For those who like to know the numbers, the sales of older houses was at levels not seen since may 2010 while the new houses that got started in August was up 2.3 per cent and this continues three-quarters of a million new home constructions will kick off this year in the USA.
As a long-time watcher of markets I know some left-field bad news could knock five to seven per cent off this market, especially in the USA, but where in May we had a run of bad news that took stocks down, now we are getting a run of good news and more and more nervous investors who have remained ion the sidelines will be worrying if they have waited too long.
I hope they have but I am not 100 per cent sure of that. One thing I am sure of is that the worst is getting behind us but we’re not quite there yet and so we could still cop a knee-knocking jolt, though I am punting against it. However, I am not putting the house on it!
Published on: Thursday, September 20, 2012
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.