What comes after Greece?

Founder and Publisher of the Switzer Report
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Greece and its lenders couldn’t reach a 100% agreement on copping an unwanted ‘haircut’, so a credit event happened but it didn’t spook the market because it was pretty well expected. And so we can virtually say the Greeks have been sorted for now, but what’s next that could make or break the market?

The important list contains:

• The Iran issue and the price of oil, but I reckon this will get sorted. However, that’s assuming good sense prevails and that OPEC (Organization of the Petroleum Exporting Countries) would fight hard to avoid oil prices creating a global recession.

• The continuance of the US recovery, which was helped along by the creation of 227,000 jobs in February – 17,000 more than expected. Also, US imports hit an all-time high and that is seen as a good sign that demand is rocketing back in the States.

• The European recession, which increasingly looks like it will be a weaker than expected, will be a most important watch over the next few months. Macquarie Bank’s European economist has downgraded the severity of the downturn (on the Continent and if he’s right, that should underpin stock market improvement.

• China’s economic growth target of 7.5% will be monitored carefully, but Shane Oliver says the country has a habit of under-targeting and overshooting on growth, and if this happens, it will help stocks.

• The old saying “sell in May and go away” will be worth watching; if we get good news over that period, this cliché will be tested, but if there is bad news, then it could hold true. You have to remember that the S&P 500 is now up 103% since 9 March, 2009 and is up 25% since October and so there’s gotta be some testing of the market this year. That said, I like Laszlo Birinyi’s market call of a 24% rise, which has been backed by ‘exuberant’ analysis of Professor Ron Bewley who thinks markets are in for a positive year over 2012, although he also thinks 24% could be a tad too bullish.

• I’m watching the US housing sector; stocks of home-builders have been doing well lately as the industry gets more good news. When housing really gets on its feet again, then we could see a real US boom. I still think this is some time off yet, but the signs are better nowadays.

• A big worry is that Portugal could become the next Greece with a great deal cut on its debt. This could be another spook factor for the market.

• On the local front, I want to see two more rate cuts from the Reserve Bank of Australia (RBA) to kick-start the economy, which would help those stocks locked into the slow lane. I can see one, but I think we need two to lower the currency and get borrowers out there and buying again.

Plusses adding up

In sum, I think the pluses outweigh the negatives and I’m happy to position my portfolio to be more heavily exposed to stocks in 2012, but I’m realistic that playing the market is a risky game. Those risks are mitigated if you are in good stocks that you are prepared to hold for a long time.

As Warren Buffett advised: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

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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