Not another crash!
by Peter Switzer
I read a commentary on what’s going on right now which added problems in the oil countries to spiking oil prices to Bill Gross of PIMCO getting out of US bonds and the likelihood of inflation to virtually warn that we stand on the doorstep of another dive into market oblivion.
Obviously, he wrote the column and put it to bed or he might have linked the terrible Japanese earthquake and tsunami to the bad economics of Ben Bernanke and his bloated money supply.
All I say to that is — it’s a big call and what you would expect of someone who has to fill a big column in a newspaper. And as I always say to these big call merchants — he could be right, he could be wrong or he could be crazy, or maybe lazy!
Lazy journalism shouldn’t unfairly spook investors.
What we have right now is a pullback, which I said was on the cards given how much Wall Street had climbed from September. Now the big issues of a high oil price, a possibly slower China — though not really slow — the ongoing debt concerns in Europe and the possibility of these oil country protests turning into civil wars could go on for some time has worried stock markets. And why wouldn’t it but it doesn’t mean we are heading for GFC MkII!
In fact, on Friday in the US, and even with the knowledge of the Japanese horror story, the Dow Jones Industrial Average put on 59.79 points or 0.5 per cent to close at about 12,044.4 and for the week was down only 1.03 percent.
It looks like the market is more measured than my journalist buddy. To prove the point, the VIX or fear index is only around 20, which indicates low levels of concern right now.
For those worried that China would have to cut back more on demand because of inflation, the 4.9 per cent reading that came out on Friday was better than expected.
In other good news, US retail sales went up one per cent in February and was better than January’s 0.7 per cent rise.
And business sales rose two per cent in January, which is the best result in nine months. Economists had tipped a 0.7 per cent rise and so the US economy is actually getting an economic lift from Bernanke’s QE2 and we’re now seeing jobs in the US.
Let’s get real for a moment. The US stock market has gone up around 100 per cent in two years — that’s enormous and a pullback is to be expected. And one day, they will have to deal with their debt issues but that said, they and therefore we avoided a Great Depression and we should be grateful for that.
This year will end up positively provided the oil country problems don’t turn into a US$150 a barrel oil price for six months or more. If that happens I would start to worry but I don’t think it will happen.
One final point, the reconstruction of Japan will economically help the country and provide more demand for resources. You can see why economics is described as the dismal science.
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.
Published on: Monday, March 14, 2011
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