Business News

The Kath & Kim call

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by Peter Switzer

Barring anything from left field, as Kath from Kath & Kim might say, “I feel it in me waters” that a stock market run up is about to happen. It comes as the Dow Jones hit a 17-month high overnight.

In fact, the index is up seven days in a row, which is its best run since August last year.

Water views

Of course, you would always want an investment tip that had more credibility than an “in me waters” call but there’s actually a body of scientific, or at least quasi-scientific work that says gut feelings actually have a pretty high degree of accuracy.

I still kick myself at ignoring my “water views” when it came to the market crash of late 2007. I was doing a road show for a major bank and I was asked to use the economics of the organisation’s chief economist.

His views on the economy roughly matched mine and I was happy to run with his charts but I pondered how the stock market could increase by over 20 per cent four years in a row and not have at least a correction.

When I asked about his forward P/Es for the overall stock market, he explained that’s what his numbers were telling him. Unfortunately, the sub-prime loan mess and the credit default swap problems were off the radar screens of chief economists’ analysis.

How could that happen? I don’t think many understood how these financial products had undermined the solidity of the global financial system’s foundations.

How come? I don’t think economists could believe that the world’s top bankers, their risk managers and their boards could have ignored a threat of this magnitude, but they did. I should have trusted “me waters!”

Confidence report

Anyway, back to what has got me feeling confident.

My technical analyst guy, Lance Lai, came on the my show SWITZER on Sky News Business Channel three weeks ago and pointed to the charts indicating that the S&P 500 on Wall Street and the S&P/ASX 200 here were all saying markets are on the way up.
Mike Kendall from brokers JBWere, who does my market wrap on Wednesday nights on my TV show, told me that many smart market players seem to be positioning themselves now for the next reporting season. This is only a week or so after most of the latest company profit reports have made their headlines in the press.
Shane Oliver from AMP says March and April have a pretty good record for rises on Wall Street and as we all know, the Yanks still lead our stock market.
US economic data continues to indicate that the economy is improving and just overnight we learnt that Nike’s profit more than doubled on, wait for it, North American sales. That is a nice sign that maybe the US consumer is starting to approach normality.
We learnt that inflation is not a threat in the US with a good producer price number, while the US dollar fell and commodity prices rose, which implies a better global economic outlook. Also the fact that the Federal Reserve is in no hurry to raise interest rates should also help share prices.
“The news on U.S. inflation is positive as it adds up to the Fed yesterday reiterating that it’s going to keep rates low for an extended period of time,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, on Bloomberg. “The recovery is in place and by all evidence looks to be sustainable and at the end of the rainbow, that all filters down to corporate profits.”
Bloomberg pointed out that the Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt, fell indicating less concerns about big business going belly up.
Goldman Sachs bumped up its 12-month outlook for returns from commodities to 17.6 per cent, which has to help our stock market, which is heavily influenced by resources.

As you can see “me waters” come from some pretty good sources, which are not as weak as, you guessed it, water.

For advice you can trust, contact Switzer Financial Services.

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.

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Published on: Thursday, March 18, 2010