Business News

Positively cautious

| More

by Peter Switzer

Believe it or not but there’s a strong case to believe that the Australian stock market can go up by 20 per cent this year but it sure doesn’t look like it right now.

Of course, I would be happy with 10 per cent and so should anyone, but there could be greater returns out there provided we sidestep the worst-case scenarios.

Global concerns

Right now we’re all a bit spooked by Japan, the Middle East and Libya and then there’s European debt worries which will be under the spotlight over the next few days with the minority government in Portugal possibly heading for defeat as it tries to push through its fiscal policy bill aimed at helping out the debt-laden status of the country.

This could re-ignite worries about European indebtedness and it coincides with reports out of Germany that the population isn’t keen on bailouts for the problem debtor nations in the EU.

Fortunately, Portugal is a small fry country in the EU and the world but just like the contagion concerns with protests in oil-rich countries, debt concerns contagion could also rock markets.

Market to rise?

Against these reasons for investors not to sleep restfully at nights CNBC reports Bill Miller, the head honcho at Legg Mason Capital Management, thinks the US stock market is 20 per cent short of its true value!

As you can see, despite all of the market challenges out there, this guy is bullish with a capital B! He supports his views with some pretty complex market mathematics but the point is there are objective reasons to believe that stock markets can go higher.

US housing crisis

Against this the US housing mess have some analysts predicting a double dip dive for the sector.

Home sales data out this week has not been encouraging, in fact, they have been shocking.

This follows new home sales in the US dropping 16.9 per cent in February. The annual sales rate is now 250,000, which is the lowest reading ever! A Reuters survey expected a number of 290,000.

This housing crisis, I believe has to show improvement over the next six months or the Yanks could see another disastrous outcome for housing.

However, the job picture in the States is improving and this gives a chance for a better housing sector outcome.

The long-term investor

Clearly, there are many challenges out there for investors but I like the mathematical analysis of Bill Miller. If all of the big threats to the market’s rise end up being only half as bad as the alarmists would have it, then Miller’s 20 per cent rise might also be halved but as a cautious, long-term investor, I would be pretty happy with 10 per cent return for 2011.

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: Thursday, March 24, 2011

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.

Why Aussie stocks lag Wall Street

Kill QE, kill rally? Nope!

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!