In a big week when central banks could determine whether our share portfolio rises or plummets, the US Federal Reserve disappointed markets by pretty well repeating what it has been saying for months – that a third quantitative easing package (QE3) is on the table, but it’s not needed now. Fortunately, Wall Street bought it, with a small fall on the Dow of only 0.29% to 12,971.06.
Significantly, the Dow has dropped below the psychologically important 13,000-level, showing that optimism is being challenged. Against that, the S&P 500 held on to its crucial 1,375-level, but was only 0.32 points above it. This is a numerical expression of what investors are both thinking and hoping.
Talk the talk
The heart hopes that the Europeans will match actions to the “whatever it takes” war cry of the European Central Bank (ECB) boss, Mario Draghi, however the head asks, quite realistically: “Can we trust these non-gold medal winners?”
As a former, pretty reasonable swimmer, I know it’s hard to toss someone who is simply faster. It can happen in the 50-metre freestyle because everyone is so close on times. It can also happen in the 100 metres, as James Magnussen found out last night by one-hundredth of a second. But when it comes to the 200 metres breaststroke, you seldom get surprise packages.
The best show up and the also-rans swim to their times.
The European leadership wouldn’t even be selected for the ‘Olympic Games’ for leaders, but this week they have let their mouths do their talking. Tomorrow they have to show they can not only talk the talk, but also can walk the walk.
And while the ECB’s Draghi got the headlines with his “whatever it takes”, Jean-Claude Juncker, the Chief of the Eurogroup, which is made up of the eurozone’s finance ministers, also let loose.
This week he said:
- “We have come to a crucial point…”
- “There is no more time to lose,” and
- “No one should doubt the will of the involved forces to show determination.”
Even the German Chancellor Angela Merkel and French President François Hollande, have vowed to do “everything possible to protect the eurozone”.
So, that’s the talk; what about the walk?
Walk the walk
First, the ECB could start buying Spanish and Italian government bonds to lower the borrowing costs of these countries, which have been unsustainably high recently. Second, the eurozone’s temporary rescue fund – the European Financial Stability Facility – could also buy bonds.
Professor Ian Harper from Deloitte Access Economics says Europe needs money supply to encourage demand and economic activity, and that’s how the market will look at what the eurozone leaders say. If the measures will bring down the cost of borrowing for governments and they help stimulate economic growth, then our share prices will head higher.
If they don’t deliver, expect a big sell-off, which could be made worse if the US job numbers disappoint on Friday night our time.
Go for gold
My first memory of a gold medal-winning Aussie was Ian O’Brien, who won the 200 metres breaststroke event at the 1964 Tokyo Olympics. He was the best on times and he won like a champion, but by 1968 in Mexico, he was an also run.
Let’s hope the Europeans can go from loser to winner tomorrow, which would be an Olympic gold performance that will help our share portfolio.
These guys can either boost or butcher our bottom lines, so keep your fingers crossed.
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Also in the Switzer Super Report:
- Paul Rickard: Caltex comes to the hybrid market
- Charlie Aitken: Is Woodside headed back to $45?
- Ron Bewley: The chance of running out of cash before you die
- Andrew Bloore: Don’t be tempted to lend to members