Pesky Greeks again
by Peter Switzer
Local market guess merchants think our stock market will open down with a cloud hanging over investors’ hopes for their shares, and that cloud hails from Greece. Funny that.
And this slight negativity prevails despite the fact that the Dow and S&P 500 ended up in positive territory.
In a nutshell, the Greeks are battling with their private creditors who a few months ago accepted a 50 per cent ‘haircut’ on the lending to the Greek Government, but now as the economy is heading into a deeper than expected recession, the debtors are asking the creditors to accept a 70 per cent haircut!
Already the banks in question will be swapping short-term debt for long-term debt with an interest rate of around four per cent, so the Greeks are getting a great deal, but these new negotiations are halting the progress the Europeans have been making. And all up, this could de-vibe markets locally until they see how the Yanks will react to these developments.
The Dow was up 96.5 points or 0.76 per cent to 12,720.48, which means it is now up 4.12 per cent this year. The Nasdaq has put on 6.97 per cent for the year while the S&P 500, which only just ended higher on Friday, is at 1315.38, up 4.59 per cent for 2012.
This is a solid January effect and history says that as the market goes in January, so does the market go for the year! A good sign, but history’s little rules can be frustrated by special events and European debt is a pretty unique event.
Another good omen is the VIX of fear index now around 18, which is a sign that investors feel more comfortable about stocks.
What’s ahead this week?
This week could determine the market’s direction with EU finance ministers meeting Monday in Brussels. Earnings from key US companies will also be watched closely and economic data on durable goods orders, jobless claims, new home sales, leading indicators, GDP and consumer sentiment should keep the market ticking up but the continual fly in the ointment will be those pesky Greeks and the overall EU debt drama.
On the local front, on Wednesday we get the latest inflation read and if it comes in on the low side, it will increase the chances of another interest rate cut on the first Tuesday in February.
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, January 23, 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.