A subscriber recently was annoyed that I didn’t warn about this market crash and he let me know about it. So, I thought I’d publicly apologize for not seeing his email until last week and answering it but I don’t find it easy to say sorry for not warning about the crash because I don’t think we’ve had a crash!
While I hate the fact that we have fallen from around 6000 to 4900, I have to argue that it’s not a crash. It really is a correction but I know we’re close to a bear market and that’s worrying.
[1]Source: Yahoo!7 Finance
This chart shows what has happened to the S&P 500 since March last year. It’s fallen from around 2130 to 1948, which is about 8.5% but it was down about 14%, which was a classic correction.
So, no crash on Wall Street is a good argument, which supports me and my usual argument that it’s a buying opportunity.
The chart below shows how we have copped it and we were down a tad over 20% in mid February but now we sit off 18.6%, so we could easily revisit bear territory.
Of course, we have faced a perfect storm of iron ore and oil prices being clobbered, China growing more slowly, a possible banking crisis and a team of hedge fund managers really testing out the vulnerability of our market. It’s especially so with our S&P/ASX 200 index so heavily exposed to banks and the big miners.
[2]Source: Yahoo!7 Finance
The next chart below shows a seventy year view of the US S&P 500 and what a crash looks like. Look at the big dive in 2008 and compare it to the little slip at the edge of the chart – clearly the Yanks have not had a crash!
[3]Source: Yahoo!7 Finance
What I’d look for in a crash — a sudden drop in the market index — is not there in spades but there are a whole lot of negatives that hedge fund managers are using to ramp up volatility.
I know it’s disappointing that your shares have fallen but on a five year basis, if your portfolio is as good as if not better than the index — and that should be your goal or you should be in an ETF — you have gone from around 4,000 to 5000 on average on the S&P/ASX 200 index and that’s a 1000-point gain or 25%. This is 5% a year plus say 6% for dividends and franking credits, which means 11% per annum, which is what I always say you should expect out of stocks each year over a decade, where you see about two or three bad years.
You know that if you’d gone term deposits over that time you would’ve averaged 3.5%, so sticking with stocks and being with team Switzer hasn’t really been such a bad decision.
In terms of this Report, I know there are always different outcomes, decisions and results but I received this from a retired farmer called Mick on January 19:
“Thank you Peter. I am still up 13% this financial year. No Bellamys or Blackmore’s. Across the board 50 stocks. Also if you gave me $100K 3 years ago I would have doubled your money.
All documented on Commsec mate. Not bad for a retired wheat belt farmer, I thought. Ok I’m showing off but the point I’m making is that there are some good individual operators out there running their own small operation. If I had my time again I would be a fund manager. Bloody darn site easier than farming, I can give you the tip. Great report Peter. Your cheerful and humorous approach is very refreshing and I look forward to it on your Foxtel show also.”
Right now, the index has copped it but as it reflects the best companies in Australia, it’s a great collective asset that has been beaten up by an irrational or shortsighted market. Sir John Templeton became a billionaire by buying quality assets during bad times when the majority was being shortsighted. I maintain that this is a buying opportunity and I’m not alone.
The SMH recently reported this pearl to support me: “Invesco, the manager of about $US741 billion of assets, is buying large miners’ bonds as the industry cuts costs and shareholder payouts to withstand a slump in commodity prices. The fund manager will increase holdings of debt from companies such as Glencore, Rio Tinto and BHP Billiton to above the level recommended in its benchmark from underweight, said Lyndon Man, a portfolio manager.”
That was good news for a bull like me but I liked this even more: “Whilst the global growth story is weakening and impacting base-metal prices, we believe that valuations are compensating for these risks, especially in high-quality names.”
If the US market crashes and we go down further, then I have misread the market but I think I remain a very good chance to be right and we will see markets head up again before we see a real McCoy crash.
One final point. On January 12, RBS told us to “sell everything.” The S&P 500 was at 1927 and it’s now at 1948! Our S&P/ASX 200 index was at 4925 and we are now at 4880, which is a 0.9% drop.
This alarmist call could yet prove to be right but at the moment, it remains an alarmist call, which I try to avoid but I know how risky it is out there, so I’m only very cautiously optimistic.
One additional point to understand. When we nearly reached 6000 points, the market consensus outlook was rosier but it’s now less rosy and so markets have adjusted downwards. If the outlook improves, then stocks can head up and, of course, if the recession-believers out there are right, then I’ll be wrong.
At this point I have most economists, most central banks and most finance ministers on my side but I’d like a whole lot of market smarties putting money behind my guarded optimism.
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