Wait, buy, profit!
by Peter Switzer
Stock markets are becalmed with a little bit of movement up and down but there is nothing to disrupt stock prices in either direction for the foreseeable future. However, Goldman Sachs says beware the fiscal cliff and this has been an issue I have been warning about for some months now.
Overnight there was a new concern with German business sentiment losing ground for the fifth month in a row and there were reports of a German and French stand-off on plans for a banking union.
The German business reaction to the European Central Bank’s promise to add liquidity is no surprise as the Germans are not keen on more debt to save their EU buddies in Spain and Greece. Ultimately, until the extra money in the system creates demand that businesses see then skepticism about the central bank action will prevail.
I have been making this point for a few weeks that economic and sentiment readings in the short-term will reflect the poor economic conditions that made central banks take their recent actions to add to the money supply.
We are in a waiting game and I think stocks could slightly slide as fund managers take profits, which have been double digit since 4 June. If I am right there will be a buying opportunity, which is then where you could buy great stocks at lower prices. Then when the US economy responds to Ben Bernanke’s ‘QE infinity’, that is, $US40 billion a month until jobs turn up, stocks will go higher.
Bob Doll, who heads up equities at the world’s biggest fund manager – Blackrock – told CNBC overnight that he expects a double digit return from stocks over 2013 as interest rates will be low, making cash and government bonds less attractive.
The big worry that is holding back the stock market is the fiscal cliff with Goldman Sachs equity strategist David Kostin saying there is a 33 per cent chance that the Congress will have a stalemate after the US election on deficit and debt reduction, which will mean automatic tax increases and spending cuts will apply which could push the economy ‘over the cliff’ into recession.
Generally, the Yanks can’t help themselves and go for a Santa Claus rally but Congress could kill Christmas for share players this year!
I can’t believe the Yanks in Congress could be so stupid, but we are talking about politicians here!
Nonetheless I am maintaining a watching brief and will be a buyer on the dips, which has been my strategy all year, as regular readers will recall.
It’s a simple, long-term investment strategy based on great companies – wait, buy, profit!
Right now we are still in the calm period where the Dow lost only 20.55 points or 0.15 per cent to end at 13,558.92 while the S&P 500 lost 3.26 points or 0.22 per cent to finish at 1,456.89. However, we won’t be becalmed forever – wait, buy, profit.
Published on: Tuesday, September 25, 2012
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