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Market dive drama

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by Peter Switzer

Hold your breath and brace for a bad day on the markets with even the Oz dollar now slumping into the 86 US cents band. And the two reasons for drama today were the two concerns I outlined yesterday — US unemployment figures and the sovereign debt worries in places such as Greece, Spain and Portugal.

Stocks tumbled over two percent on Wall Street sending the Dow Jones index plunging towards the psychologically sensitive 10,000 level.

The CBOE volatility index or fear index has shot above 25, which indicates investors are spooked. And this is a great opportunity for short-term traders with a preference for short-selling.

The challenges

The big issue is the concern over the debt predicaments in Portugal, Spain and Greece. And the questions are, can these countries access the money it needs and can the Governments make their payments?

The challenge is also relevant for other big government borrowers such as Arnie’s California and the Big Apple — New York City.

In my column yesterday, I made the point that I thought US job numbers, while worryingly high, would come down — as an economist I get that. However, as an economist I don’t fully get the potential problem of sovereign debt. And the point I made was that I seldom invest when I don’t understand the product, the company and the risks.

To placate my concerns I concluded that the experts I regularly talk to from big institutions would have experts on the subject and these outfits are bullish on stocks. I hope this proves to be sound thinking.

I must admit today, I’m not worried and suspect this is just a great opportunity for short-sellers and short-term traders to make a bit a profit.

Two experts

That said, two experts on my Sky News Business Channel program — Charlie Aitken from Southern Cross Equities and Dr Manny Pohl from Hyperion Asset Management — indicated that the market might not go all that much higher this year. They think picking stocks rather than playing the index might be the best way to make money this year.

Aitken said the debt issues, oil speculators and China’s slowdown all could take steam out of the market. We agreed that the Oz dollar looked under pressure and this morning it has dropped nearly two cents in a couple of days!

Market maker or breaker?

Making market matters worse was US initial jobless claims, which went up 8000 last week to a seasonally adjusted 480,000. A 10,000 drop was expected and so that didn’t help the bulls on Wall Street.

Tonight, the Yanks get an important jobs report from the US government and the non-farm payrolls figure could be a market-maker or market-breaker for the New York Stock Exchange early tomorrow morning.

End of the holiday

On the debt issues, I suspect the big Eurozone countries such as Germany and France will help orchestrate a rescue for Spain, Portugal and Greece. But the laidback ways of these ‘holiday’ economies might have to change, with fiscal responsibility and productivity being given a lot more status than they have historically had. This could create some political backlash in the more left-wing quarters of these countries.

This will test the bonds of the European Union.

Good omen

On the good side, John Chambers, the boss of Cisco — a huge company that reported brilliantly — has declared that a strong recovery was in train for his company. By the way, ahead of the close, Cisco was the only Dow component that headed up over night and this could be a good omen. I hope so!

For advice you can trust, contact Switzer Financial Services.

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Published on: Friday, February 05, 2010