If I wasn’t well-trained, well read, experienced and in possession of the two qualities I like in a financial expert – grey hair or no hair! – I might courageously ring the bell on the bear market proclaiming it’s time to go ‘long’ stocks.
Of course, for my part, I am already long stocks as I am a long-term investor and so I have been very happy since October, but I know some challenges lie ahead. However, while I think the worst is behind us, I have a nagging doubt and so I don’t want to allay the fears of the nervous Nellies out there who have been hiding in cash in case there is one more big slide, which could really hurt those with limited funds in their nest egg.
For the young and well-heeled, time is on your side and stocks will come back. But you have to have the balance and the guts to stomach the things that come from left field in the investing caper.
On balance, good news is outpacing the bad and that’s why the S&P 500 on Wall Street is up 8.7% since the start of the year!
The good
Let’s just recap the better news coming out of the wider world:
- The Dow Jones index is testing the psychologically-important level of 13,000.
- US consumer confidence hit a 12-month high at 70.8 in February compared to 61.5 in January.
- Unemployment fell to 8.3% in January, which beat economists’ expectations.
- Pending home sales in the States were up 2% to a reading of 97 and that’s a two-year high! The experts had tipped a 1% rise.
- Warren Buffett says property investors should look at investing in housing, and it’s a nice omen when this guy starts to see value in US housing.
- Another good sign is bond yields coming down in Europe.
- China easing monetary policy adds to my guarded optimism.
- US Stocks are up for February with the Dow rising 2.5%, the S&P 500 up 4.1% and the Nasdaq up 5.4%.
- The US Federal Reserve boss, Ben Bernanke, talked about a better labour market and he left an impression that there could be less QE3 (that is, monetary stimulation)!
- US gross domestic product (GDP) was up to a 3% pace and rising, which was better than expected and it means less QE3 is needed and the Yanks are closer to the day when interest rates start to rise.
- The Fed’s Beige Book painted a US economy showing good growth.
- The European Central Bank (ECB) put another 530 billion euro into the European Union’s banking system via low-cost loans to banks.
That’s the good stuff, so what about the bad stuff?
The bad and the ugly
I am concerned about the unreliability of European politicians, especially with elections looming in places like Greece and France this year, and the Iranian threat to global oil supplies that has seen the oil price head over US$108 a barrel, which could hurt global economic growth rates and spook stock markets.
Of course, I think the Reserve Bank of Australia (RBA) has hurt local stocks with its over-careful rates policy forcing the dollar up as well, again hitting stocks in the slow lane of our twp-speed economy. But that said, a sell-off breather is overdue, especially when the S&P 500 is up 8.7% since January. Meanwhile, our market is up 5.2%, which is a nice effort but it could have been higher with a less cautious central bank.
I think our economy will see some higher unemployment and the RBA will cut rates one or two more times. Also, if Europe improves, funding costs could come down for local banks, which should help the predictions of RBS Morgans’ chief economist, Michael Knox, who says fair value for the S&P/ASX200 is 5,300!
Blue sky lies ahead as soon as we can wave goodbye to some of the lingering dark clouds coming from Europe.
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.
Also in the Switzer Super Report
- Charlie Aitken: I’m very bullish on this Australian company [1]
- Ron Bewley: How to design your own ‘core-satellite’ portfolio [2]
- Andrew Bloore: Should I take out insurance using my SMSF? [3]