Business News

No Cup Day win, but a US dividend

| More

by Peter Switzer

The Reserve Bank (RBA) played tightwad on rates on Cup Day while Wall Street went strongly positive on the US election outcome. And regular readers and Switzer watchers were given the quinella in the Cup if they took the tip!

Last week I interviewed Tom Waterhouse on my Switzer program on the Sky News Business Channel, and we put it on this website, and the son of Gai gave us these tips — Green Moon was his but he warned us that his mum’s horse Fiorente had a great chance!

I backed the winner and my wife was on Fiorente each way and it underlines the proposition that I always subscribe to — go to experts who know more than me so they can show me stuff I can’t see.

Another cut ahead

To more important hip pocket matters, and while the RBA did play a cautious accountant’s or public servant’s game, which isn’t surprising — though I would have preferred them to be entrepreneurial and gamble a bit — there will be at least another cut down the track.

Also, home loan interest rates are really getting down there and so all we need to see is some more confidence building pieces of news to really get things growing again.

My local view is that the overall growth story has been OK with the economy expanding around three per cent, though a big chunk of it is in the slow lane growing much slower. I think the next gross domestic product (GDP) reading will show that the pace has slackened off and unemployment could be heading up. However, there are some positive signs that could only be boosted by another cut. It would have been great to get a cut yesterday, but as long as we see another cut soon, the economy should be OK even with mining going off the boil.

Wall Street gains

The good news dividend on Cup Day came from Wall Street where the Dow was up 133.24 points or 1.02 per cent to 13,245.68 while the S&P 500 put on 11.13 points or 0.79 per cent to finish at 1428.39.

So, why so confident?

Well for starters, Election Day is historically a bounce day, but this is bigger by a factor of two. It suggests that the market thinks it will get what it wants out of the election.

Recall yesterday I pointed out that markets do better after an election when there’s a Democrat president and a Republican-controlled Congress — this is the expected outcome. By the way, the S&P 500 is up around 70 per cent since Barack Obama took the White House! The Nasdaq is up more than 95 per cent!

Of course, an end to uncertainty is always good for stocks but if this becomes a cliffhanger, stocks could do a U-turn.

Obama or Romney?

US news agencies say Romney is doing better than expected and so there’s some support for sectors that will do well under a Republican administration, but this is purely speculation.
Ohio is a key state and eight out of nine polling stations were heading towards Obama. This could be a telling trend.

Ironically, an Obama win could eventually hurt stocks because he has plans for bigger taxes on dividends and capital gain.

Personally I think the short-term movements are always controlled by rumour-monger traders and those who pay the ‘shorts’ game.

Volatility concerns

I believe an end of uncertainty and eventually a solution to the fiscal cliff threat will help stocks go up another leg, but we will have to deal with volatility for a few weeks.

To be fair to the RBA, having a rate cut up our sleeves in case the fiscal cliff issue works out negatively, or in case the Europeans do something stupid, might prove to be a good idea.

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: Wednesday, November 07, 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.

What is it with ‘Greeks’ and cash?

Who’s afraid of QE3?

Ignore stupid recession headlines

So what happens this week?

Suddenly, Wall Street went positive – what just happened?