FYI | Aug 15 2007
If you listen very carefully you can probably hear the prayers of the professional stockbrokers behind their desks: God, give us one strong rally on Wall Street, please God, one strong rally on Wall Street.
Those long enough in the trade know from first hand experience there’s nothing as bad as falling share prices. Negativity feeds on negativity, but if indications received today are correct, a strong rally on Wall Street may be just the cure needed to prevent this market from tumbling into serious trouble.
Those who have been reading the technical analysis stories provided by our own Tech Wizard will have noted that the market has sunk below its key support level today.
After the market closed I called the Wizard on his mobile. For the first time in four weeks he sounded remarkably subdued. Nothing’s lost, he assured me, tomorrow might still bring a bounce and take the index back above the support line. Maybe Wall Street can help us a little overnight.
Our Tech Wizard will be keeping his fingers crossed when Wall Street starts trading later today.
If today’s assessment by some local stockbrokers proves correct, a positive trading day on Wall Street would be the main, if not the only salvation left for the local share market on Thursday.
Today’s/Wednesday’s break below key technical support is expected to attract more selling by the opening bell on Thursday. However, the main selling pressure is expected to come from margin calls on retail investor market positions. Some predict tomorrow will see the market flooded with such margin calls selling.
It’s the same sort of selling that is believed to have greatly contributed to today’s 3% decline. If anyone knows, it would be the retail advisors at the local stockbrokerages.
Last week, before the real carnage set in, and before central bankers surprised the markets by providing additional liquidity to the global banking sector, a few of these retail advisors sent out emails to their clientele.
There was one in particular that caught my attention.
The Australian market is full of cash looking for a home, the advisor argued. Moreover, he seemed to blame independent internet news services, such as FNArena I assume, for most of the “confusion” among retail investors.
He wrote: “What we are really suffering from is a crisis of over-information. The web has enabled the transfer of information global and instantaneous. Unfortunately, it has made the transfer of misinformation just as global and just as instantaneous.”
Of course, 24 hours later BNP Paribas released its now infamous statement and the world changed in an instant. Investors in share markets never looked back and headed for the exits. The result is that we are now experiencing an official share market correction.
Up until the BNP Paribas statement, most stockbrokers kept their clientele entertained with claims that the turbulence in global share markets was opening up “buying opportunities”.
And what exactly did those “mis-information” spreading independent news providers do?
Alan Kohler’s Eureka Report advised its readers at the end of July not to jump into bargain hunting just yet but to wait and see how the global credit crunch would develop first. Up until today Kohler and the Eureka Report have kept to this advice.
Macus Padley, who is closely connected to one of the stockbrokerages but also runs his own daily newsletter, wrote in one of the national newspapers last weekend: Don’t buy for the short -or long term yet- unless you love gambling. If you are worried about individual positions, sell them. What do you sell? All the crap. The message is, THIS IS NOT OVER (his emphasis).
At FNArena we don’t engage in providing investment advice, but I would like to think that our warnings have been early, plenty and unambiguous. (And I regard the emails we received over the past few days from readers and subscribers thanking us for this as the ultimate proof).
So who has the bad scoring card here?
Which brings me to a comment made a few weeks ago by one observer whose name I don’t recall (yes, it was on the internet): if the financial system itself is unhealthy, how healthy can global financial markets remain?
What we are witnessing right now probably speaks for itself.
Two weeks ago I wrote a weekly editorial which can be accessed here:
https://www.fnarena.com/index4.cfm?type=dsp_newsitem&n=214B7BAE-17A4-1130-F55A9FCC099221D6
(If the link doesn’t work simply copy it in your browser)
The reason I am referring back to this story is because I have been receiving quite a lot of questions from subscribers about what exactly is happening in the markets and what is my view about it. Gradually, I came to the conclusion that most questions could be answered by re-reading my Rudi on Thursday story from the 1st of August. In fact, and balancing on the risk of being perceived as smug, I think my story from two weeks ago reads even stronger after the events that took place since then.
I’ll leave the closing remarks for this week’s story to one of the highly respected expert voices in the Australian market, CommSec’s chief equities economist Craig James.
“This shakeout is likely to extend over weeks rather than days, increasing the appeal of defensive investments.
“There is a tendency to call everything a “crisis”. And while we can debate whether the shakeout on credit or debt markets is a “crisis” or not, it does have further to go. While bank balance sheets are strong, at present worries focus on issues like liquidity and contagion. Markets have a tendency to overshoot and this appears to be a classic case with fear rather than fundamentals taking the driver’s seat.
“Simply, the good economic times bred over-confidence and investors are getting a new-found appreciation of the concept of risk. The change in mood is well demonstrated by the narrowing gap between the ASX 200 and All Ordinaries index. On August 1 the All Ordinaries index was 48 points above the ASX 200 – the biggest gap on record (15 years). But investors are swinging away from small companies to large companies, and the gap now stands at just 8 points.
“CommSec has upgraded the Utilities Sector to Overweight and downgraded Materials to Indexweight. The Australian sharemarket is expected to reach 6,400 by end-2007.”
Till next week!
Your proud to be part of one of the internet mis-communicators Editor,
Rudi Filapek-Vandyck
(As always supported by the absolute fabulous team of Greg, Chris, Terry, Pat, George, Joyce and Graham)
