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Unrealistic expectations

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by Peter Switzer

You know the people who drive Wall Street, to put it nicely, have unrealistic expectations when the stock market is flat because the Federal Reserve chairman, Ben Bernanke said he has no plans to stimulate the economy if the dopey Congress sends the US economy over the fiscal cliff.

And to put it not so nicely, any US investor who seriously expected Bernanke would give America’s politicians an easy way out if they screw up in negotiating a new fiscal strategy to reduce the country’s deficit and debt were idiots.

Get real

This fiscal cliff is forcing US politicians to get real, to deal with their philosophical as well as their political differences and come up with a mature negotiated settlement for the long run benefit of the country.

If they can do this with the threat of the fiscal cliff looming, then this crop of politicians can build the platform for a steady recovery, which I think is happening over there. This will underpin another good year or two on the stock market — maybe more!

The Dow ended down 7.45 points or 0.06 per cent to 12,788.51, while the S&P 500 rose 0.92 of a point or 0.07 per cent to 1387.81.

I also think today’s trade tells me that yesterday’s spike was not a real McCoy rally, but it did prove to me that if and when the Congress comes up with a half-decent solution, then stocks will soar.

Housing sector comeback

Reinforcing my positive view on the US economy is the progressive improvement of the housing sector over there.

Overnight, housing starts were up 3.6 per cent to 894,000 — the best result for four years!

I have been arguing for years that when the economy comes good, so will stocks and housing problems because sub-prime loans were at the core of global financial crisis (GFC) issues. This sector had to come good for a meaningful comeback of the US economy.

2013 snapshot

It’s happening now and only the fiscal cliff stands in the way of that important piece of the economic puzzle, creating a pretty picture for 2013. Europe will be weak but will improve over 2013 while China will get stronger under a new leadership, lower inflation, and gradually with more stimulus being released.

Meanwhile the Organisation for Economic Co-operation and Development (OECD) tips the economies of South East Asia will help the global economy get back to pre-GFC levels of growth, despite slower Indian and Chinese economies.

If these predictions hold true, commodity prices will lift — though not excessively — and this will help our stock market. And if the Reserve Bank (RBA) can cut interest rates a couple more times, the dollar just might slip a bit, which would help both our economy and our stock market.

And these are not unrealistic expectations!

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.

Published on: Wednesday, November 21, 2012

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