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Thank God for positive Yanks

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by Peter Switzer

The Yanks showed why they’re seen as the world’s supreme optimists with stocks able to end in positive territory despite oil going above US$100 a barrel with oil country contagion not looking anymore under control.

At the moment there’s a tug of war between those optimists who want to get into a market that looks set to go higher over this year and the bears who have been heartened by the potential of oil prices to validate their downbeat views.

All Ords rise

In contrast, Ron Bewley, the founder of Woodhall Investment Research, thinks the All Ords has a capacity to pick up around 3000 points in three years.

Bewley has looked at past market retracements after a big crash or recession, and the current market comeback from the 2008 GFC slump very much resembles past experiences.

(Bewley’s column on all of this is on this website.)

Oil price threat

Against this market optimism, the pessimists see the oil price threat as the catalyst for a recession and another big sell off. Of course, these bears just can’t believe the markets rise with so much debt around and they will accept any negative trigger to see the market prove them right.

In reality, they can only really be right if it’s the debt that causes any future crash and I don’t think it will happen in the foreseeable future.

US recovery

Working against oil fears has been the US recovery and overnight the Federal Reserve's Beige Book showed the economy is ticking over nicely and business is even getting to raise prices a tad. Not bad for an economy worrying about deflation six months ago.

The big concern is the big fall on the Saudi stock market, which hit a 22-month low following people protests in this key oil supplier

Not surprisingly gold hit a new record of US$1437.20 an ounce and given the moves on both oil and gold, this positive close on Wall Street shows how the optimists are more committed nowadays to being in shares.

Not out of the woods

Bewley says the volatility or fear index shows that investors are less spooked and that can be good to fight to sell-offs.

We won’t be out of the ‘oil woods’ until these people protests are played out and that leaves market investors vulnerable. The troubles in the Middle East and North Africa make it hard to be an optimist but that said, in just about every period when markets have moved higher there were good reasons to doubt the rally. That’s why they go on for four or five years until everybody gets in and that’s when the rally becomes a boom, which ultimately ends in a bust.

I reckon we’re a good way away from the next bust but this oil thing does have me a bit nervous.

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Published on: Thursday, March 03, 2011