Wall Street was a tad spooked by North Korean threats and a weaker than expected ISM manufacturing figure for March but the sell-off was inconsequential. That was because most professionals are punting on a good year for stocks, though they expect volatility to pick up in the second quarter. But first I want to deal with the super cynical campaign being waged by Labor on super trustees before the Budget.
Don’t believe the hype
You will see plenty of newspaper articles talking about super and how the rich are rorting the system. These are fed to stooge journalists who accept Treasury’s figures and then point the finger of blame at the rich.
My basic point is that all Australians – rich and poor – have access to super and, if they follow the rules set down by government, they are not rorters. If the rules are stupid or inequitable, then the Government can change them, but they shouldn’t be trying to cast one group of Aussies as ‘super evil’ because they have money and they play by the rules.
I’m also worried whom Wayne Swan will define as rich in the May Budget as reports suggest it will be those with $1 million plus in super. If he tries that, the Government’s loss in the September election will be bigger than it is already set to be.
I don’t know exactly what Swan will go for, but he is likely to be looking at contributions tax changes for higher income Aussies, salary sacrifice, the transition to retirement pension rules and capital gains tax adjustments, especially pertaining to property.
Fortunately, if the proposed law changes are draconian, the Parliament could reject them, and we even have Simon Crean talking about voting against his own party!
Of course, the Switzer Super Report will closely analyse any changes and offer some ideas to combat the worst of them.
North Korean threat?
On North Korea, I suspect this is the annual rubbish these guys go on about and, while it seems hotter than usual, the market reaction suggests that experts on the madmen who run that country are not too fazed.
My main preoccupation is what will happen to stocks in the short-term and for the rest of the year. I’m strongly expecting a great year for stocks, despite the fantastic run up so far. In fact, this makes me even more positive. Check out some of the reasons for my pro-stocks view:
- The Dow is up over 8% in the first quarter and whenever this has happened historically, stocks have always finished up for the year.
- The Fed’s $85 billion a month addition to liquidity won’t end this year and so that keeps me positive on stocks.
- Inflation in the USA is 1.3% and that won’t worry the Fed.
- US consumer spending keeps on increasing – up 0.7% in February – and 70% of US GDP comes from the consumer.
- Both Deutsche Bank and Goldman Sachs have raised their targets for the S&P 500 for the year. Goldman went from 1,575 to 1,625!
- Sam Stovall from S&P Capital IQ, who has been on the money for a couple of years and gave me confidence when I was telling you to buy stocks during scary times, has also bumped up his 12-month target from 1,550 to 1,670. (CNBC)
- And while I think a pullback has to come, April is the best month for US stocks!
- That said, over the past few years we’ve seen second quarter pullbacks ranging from 10-20% and then there is the old “sell in May and go away” maxim but this does not always hold – it just has a good strike rate.
For this year I’m looking for great small cap companies that pay dividends. Small cappers often get left behind but they then play a good catch-up game. That’s what I’ll be searching for, for you, so watch this space.
I think Wayne Swan will be like any eventual pullback – he will only be a short-term threat.
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Also in the Switzer Super Report
- Paul Rickard: The best bank loans for buying property through your SMSF [1]
- Penny Pryor: Clearance rates – the lull before the perfect storm [2]
- Tony Negline: How to find the best landlord’s insurance [3]
- Andrew Nelson: Weekly broker report – Bluescope and Tabcorp upgraded to buy [4]