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Not Europe again

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by Peter Switzer

Euro-worries have again spooked Wall Street with the Dow Jones off 162.79 points to end at around 10,620.16 — that’s 1.5 per cent — and the more important S&P 500 dropped a more concerning 1.88 per cent to 1135.68.

However, for the week the Dow put on 2.31 per cent and the S&P 500 added 2.23 per cent, while the Nasdaq whacked on 3.58 per cent. So, keep the nerves in perspective.

But sure, you have to admit investors are fearsome with the VIX or fear index up to 31.4, which is always better when it’s under 20 and closer to 15.

On Friday I was happy to see US economic news was centre-stage over the Euro-mess but on Saturday morning our time, the Yanks were Euro-spooked!

US vs. Europe news

In fact, US consumer sentiment was up a bit in May and retail sales rose 0.4 per cent in April. It was OK but nothing that wowed the market. Also industrial production added 0.8 per cent in April.

In total it was all good stuff for the US economic recovery.

However, Europe’s woes aren’t just the domain of speculators in shares but the worries have sent the dollar to an 18-month high versus the euro and oil went under $US72 a barrel. Also gold hit a record high last week.

We are at a critical turning point where the short-sellers, the bears and the hedge funds will have a go at shorting this market. It’s vulnerable but the underlying strength of Asia and the USA have the power to keep it more positive than negative.

Watch the LIBOR

I don’t like the LIBOR rate rising as it says banks are coming to doubt the strength of their ‘brother banks’ and this will have to be watched.

In case you didn’t know, LIBOR means London Interbank Offered Rate — which tells you what rates banks charge each other for short-term loans.

This is all very understandable with the debt concerns at the moment but there was a wrong rumour suggesting that French banks were in for a downgrade. That’s what markets are dealing with right now. I would love to see a rumourmonger get caught and jailed as it is akin to stealing and fraud.

News from China

There are also China doubters but I’m writing this column from Shanghai and this place is alive and growing. Bubble concerns are being peddled by short-sellers.

These China bears send newsletters to influential people and these influentials take up the view but I reckon it’s a subtle form of market-rigging. I’m putting my money on the Chinese as they don’t depend on foreign money and they can more easily affect their economy.

This is an unbelievable place that has knocked me out. The capitalist genie is out of the bottle and lots of capitalist wishes are being granted by the Chinese rulers.

This week we need Euro-rumours to be scotched and then the stock market will head up. Once again we’re in the hands of the less than inspiring leadership of the European Union. Maybe these capitalists need a lesson or two from the Communists in capitalist China!

For advice you can trust, contact Switzer Financial Services.

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Published on: Monday, May 17, 2010