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No bull, I can’t bear being bearish
by Peter Switzer
Wall Street went a tad negative and it comes as the bears are warning that Armageddon is just around the corner and the fact that gold is at record highs is proof that danger is imminent.
By the way, worrying investors overnight was another earthquake in Japan and oil went over US$110 a barrel. So the Dow Jones Index’s fall of only 0.14 per cent was a pretty fair effort, underlining that there are a lot more stock market supporters this year than last year. However, we’re approaching May and the market will be tested by the old US cliché, “Sell in May and go away”, which worked out last year until about September.
Helping a sell-off is the upcoming end of QE2, when the US economy will have to see if it can grow without the Federal Reserve’s Ben Bernanke pumping money into the system.
Generally bullish
Southern Cross Equities’ Charlie Aitken, told me on my Sky News Business Channel program that he thinks the Fed will keep on adding money into the economy after QE2 ends and therefore has reworked the cliché to the following: “Buy in May and stay!”
He’s generally bullish but locally knows industrials will find the high dollar will hurt many bottom lines, though he believes that resources will rock along and even the banks could surprise by doing better than expected.
Tony Brennan, head of equity market strategy at Citigroup, is also bullish but believes some industrials, particularly discretionary retail, will benefit from the high dollar.
Like last year, it will be a year for stock picking, though Aitken says the index will be helped by resources, the banks and even Telstra, which he says is a “buy”!
Differing views
Earlier in the week, Dr Manny Pohl from Hyperion Asset Management said he thinks a 19 per cent return — that’s capital gain and dividends — is on the cards from playing the stock market but Wilson Asset Management’s Matthew Kidman thinks it’s the year of the bear.
He thinks the US economy will head south without QE3 and he believes a China slowdown is on the way. He also think the local currency won’t help local stocks and you must remember the high dollar was a big part of the story of why our share market index was down around 2.5 per cent for the 2010 calendar year.
(However, on a financial year basis, we were up around 14.5 per cent, which is a lot more bullish than the bearish year.)
The bear list
- Oil prices heading up due to Middle East and North Africa concerns
- European debt woes are still hovering
- The end of QE2
- The US Government might have to close down on a budget impasse
- Japan and its earthquake, tsunami and nuclear reactor trifecta of terror
- The fact, that many economies have to embark on fiscal restraint to beat their burgeoning debt challenges.
I could find more but many of these could easily rock bond and stock markets and bring on another financial Armageddon, however, I still believe we’ll muddle through all of these dramas.
Economic growth could be slower than expected and stock market gains could be lower than expected but I think the power of China and the emerging economies puts a safety net under the dramas in the Western economies.
Data watch
I don’t think Bernanke is a nincompoop — I think he’s helped avoid a Great Depression and the experts on the sidelines who bag him often have credentials you could write on the back of a bus ticket.
Company balance sheets are in great shape and even a bank such as Citigroup, which was bailed out by the Fed, has paid back its debt and is standing on its own two feet.
Overnight, retail sales data was better than expected in March and jobless initial claims fell 10,000 for the week, which reinforces a positive trend for this important indicator.
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: Friday, April 08, 2011
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