Business News

Put on your stocks seat belt

| More

by Peter Switzer

The US economy will grow strongly if the Yanks can sort out their fiscal cliff matter and stocks will mirror an improving economy. However, if the Republican-controlled Congress and President Barack Obama can’t sort out their differences, then the opposite happens — the economy goes backwards and stocks slump!

And so until this problem is solved, I advise you put on your seat belt, because the ride should be bumpy.

Wall Street had its worst week in five months last week and Gary Stone of Share Wealth Systems emailed me over the weekend to tell me the technical signs are saying it’s time to cash up. This sounds a little dramatic but he could be on the money.

Mind the cliff

My view has been that a buying opportunity is ahead while the fiscal cliff fight is played out in the press, but I haven’t anticipated a big dumping of shares.

Where I sit now, Europe — Spain and Greece — are a little worrying but I did say “little”, and China is definitely on the improve. So the real risk between now and the Santa Claus rally I expect in the second half of December, is this cliff business.

Of course, short-sellers and hedge funds will try to leverage this controversy for all its worth and so short-term traders should play it that way, but long-term investors should see it as another buying opportunity.

On Friday the Dow rose 4.07 points to leave the index at 12,815.39, while the S&P 500 was up 2.34 points at 1379.85. Over the week, the Dow was down 2.1 per cent while the S&P lost 2.6 per cent. And since President Obama won, Wall Street has given up more than three per cent!

While Obama did say he was open to new ideas, he’s playing hard ball on the tax cuts for the rich — he won’t save these from the fiscal cliff’s automatic doing away of these GFC measures.

Magic words

A few months ago, words that were music to the ears came from European Central Bank president Mario Draghi with his “whatever it takes” pledge. US market experts have told us what the opposite is that could smash shares and it’s: “There’s a line in the sand”.

If either party utter these words, then stocks will be dumped on Wall Street and the effects will reverberate right around the world, meaning our stocks will cop the backwash!

So, why am I positive that a fiscal cliff solution will be a forerunner to a good 2013 for the US economy and stocks?

Well, US housing is on the mend and we’re seeing readings such as the Thomson Reuters/University of Michigan consumer confidence report, which showed consumers were the most positive they have been for five years!

The big gamble

So it gets down to US politicians not behaving badly — that’s a big gamble but I’m prepared to risk it.

A seat belt will be required for a few weeks but there will not be a crash and we will get out of it unscathed once we hit the end of December.

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.

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.

Published on: Monday, November 12, 2012