FYI | Aug 13 2013
By Peter Switzer, Switzer Super Report
There is no better time of the year than September to ask the question – is the market going up or down. Why? It's the dodgiest month for stocks and only a short-seller would hang out for it.
For the Yanks, this is the crash month, while here in Australia, October is the stocks shocker, so until we make November, I’m always on guard. Hence, this analysis today.
Before looking at what could rattle short-term confidence and hurt stock prices, let me cover off on my long-run thinking.
The future
Last week on my Switzer program on the Sky Business channel, I ran an equation by AMP’s Shane Oliver, which he approved of. It was to show why I was optimistic for the Oz economy for 2014, but it was also a proxy for why I think stocks will head up over 2014, despite the possibility a ‘sideways then dip before a recovery’ phase could lie ahead.
The equation looked like this:
$ + r + E + U + J + C + e = BEG (Better economic growth!)
$ = our dollar
r = interest rates
E = the early election
U = USA recovery
J = Japan’s recovery
C = China’s bounce back
e = Europe’s small recovery
Locally, the early election and the likely Abbott victory will help business confidence and business investment, which will help growth pick up in 2014, in turn helping jobs and then consumer confidence.
A lower dollar and low interest rates will mix in with a better economic global picture and power stocks along in 2014.
That’s my very optimistic 2014 or long-run view, and the run of good Chinese data last week, has helped me believe in myself.
China outlook
In case you missed it, in a nutshell we saw: inflation was a cool 2.7%, retail sales were a hot 13.2% higher — nearly the best for seven months and industrial production was heating up to an annual rate of 9.7% in July – the best read in five months! And exports were up 5.1% — economists expected 2% — and imports were up a whopping 10.9%! No wonder our Oz dollar is at US92c and I don’t like it.
Meanwhile in the EU, the Poms have not only creamed us at cricket, they have now grown for two quarters in a row and at a better than expected rate.
In Germany, the IMF expects the economy to grow 0.3% this year going to 1.3% next year. Even Greece is tipped to grow by the last quarter of this year!
The concerns
So, what am I worried about? I think it is the potential reaction to the FOMC meeting on September 17. If taper talk increases, the market could test out Wall St, which has been in record high territory since last week’s worst five days since June — off 1.5%.
Last week a number of Fed presidents wanted to go public with taper tantrums and they could be softening up the market for a reduction in the Fed’s bond buying program, or QE3.
This will be a test, and I expect the market to fall, but I also expect ‘the buying the dip’ strategy by bargain hunters to limit the downside.
Undoubtedly, we are in a precarious situation balanced between Europe, China and the USA, but my reading of the economics tells me that it makes sense to be an optimist rather than a pessimist.
As Sir John Templeton pointed out: “Bull-markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.”
I reckon we are in the scepticism stage, heading towards optimism, but we’re a long way from euphoria.
To borrow a line that Darth Vader might have used if he was writing for the Switzer Super Report — “buy the dips Luke, buy the dips!”
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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