Rudi On Thursday

This story features MACQUARIE GROUP LIMITED. For more info SHARE ANALYSIS: MQG

(This story was originally published on Wednesday March 4th. It has now been republished to make it available to non-paying members at FNArena and readers elsewhere).

The first time I made a man cry in Australia was two Decembers ago, in Broken Hill. At the bar I introduced myself to a man who said “hello, my name is Lucy”. Immediately after I asked the question he responded with “it’s better than Sue!”

A few pints later I asked him about his life in and around the birthplace of Australia’s two biggest mining companies. Before I knew it I was talking to a crying man sitting on a barstool. It didn’t take long before they threw him out.

The second time happened on Monday, in Adelaide where I was invited by the local branch of the Australian Investors’ Association to hold a presentation called “What have we learned from the past results season?” In between accepting the invitation and preparing my power point presentation I’d decided to change the theme. The new title became “Which Way Forward?” – it was centred around a somewhat longer term outlook.

Suffice to say, the words spoken plus the charts shown made an impression on the people present. A small group of enthusiasts came towards me afterwards, asking more questions and telling me they would have liked to hear me talk for at least another half hour, but the majority left the room in silence, realising that whatever had happened to their superannuation and to their long term investments, it wasn’t going to be fixed any time soon.

And so it was that, after I politely accepted a bottle of wine for my effort (Penfolds BIN 28, Kalimna Shiraz, vintage 2003), I suddenly stood eye to eye with a man who had tears in his eyes. Soon, stories were exchanged in a widening circle. Someone had called his financial planner in November 2007 only to be told everything would be fine. Another one had been advised the same, in August last year. How could stockbrokers still call Commonwealth Bank shares a buy at $61? How can the authorities allow shorters to constantly target Macquarie Bank? (That’s a large part of my super, the man said).

Most seemed to have developed a thicker skin and they’d moved on, but it was clear that some investors clearly hadn’t. To them, the burden of the financial losses endured remains an open cut, deep in their soul.

The problem is, of course, that what has happened is not necessarily anyone’s fault (or at least not deliberately), and even if it is, the fact remains there is no quick fix available. And it was my impression on Monday that even if most investors present would have already figured all this out for themselves, my presentation, market analysis and views once again brought home that same inevitable conclusion.

Yes, that hurts. One would have to have a heart of stone to not have noticed.

What did I do on Monday? Well, for starters, I gave my audience the scoop that I believed share markets appeared ripe for a big rally. Even though I haven’t spotted the catalyst yet, March has the potential to sow the seeds for the next rally; and it can potentially turn out to be a major swing upwards, similar to what happened last year… All this I wrote in my Weekly Analysis a day later on Tuesday, but with more details.

I also told them, there were lessons to be drawn from Charles Darwin, while showing everyone how silly the whole idea was that China would keep up world growth while all major economies were falling into crisis. Most of all, however, I told them any prospects about a quick economic recovery had gradually evaporated throughout this global crisis. This is not just my view, even the Federal Reserve Bank is now talking sub-standard growth for a protracted time for the US in the years ahead.

This does not mean that share markets cannot rally. In fact, we are likely to see many more rallies before this bear market is over. But what it does mean is that future earnings for companies are likely to remain under pressure. As this will continue to push lower forecast EPS (earnings per share) numbers, this will weigh on share price valuations. Hence why share markets can, and probably will, weaken further from already historically low index levels.

Equally, the odds seem increasingly in favour of a slow and gradual economic recovery in the years ahead. Instead of the V, W or U types of economic recovery, I talked about the “soup plate” variation; what the Fed calls “sub-standard growth for a protracted time” – see also my Weekly Analysis from last week.

None of this is “genius” or “unique”. Authorities still haven’t fixed the banking sector. Once this has been accomplished, economies will still be in dire straits. Solving the banking problems remains a high priority condition to fix the economies, but doing so won’t instantly fix them. Also, the longer these problems remain unsolved, the longer their negative impact.

What this means for the share market is that the odds continue turning in favour of two scenarios most investors are unlikely to embrace full-heartedly: we are either looking towards years of effectively sideways movement when share markets rally, retreat, rally, retreat, and rally and retreat again, just like happened between 1960 and 1984 – or we are in for a repeat of the 1930s.

Does this mean the future no longer carries any hope? Absolutely not. For all we know there’s still a chance we might all get out of this mess much quicker than we currently dare to consider. Nothing in life is predestined, predetermined, or irrevocably set in stone. But one has to consider that as time goes by, and major problems remain unsolved, the odds shift from more favourable scenarios to less favourable scenarios.

They all laughed when I showed the slide that links the US dollar to the Zimbabwean currency.

Despite two days of predominantly clouds and rain, my maiden visit to Adelaide has turned out a pleasant surprise. I got my shoes filled with dust at the Fringe Festival, where I saw a hilarious German magician, but also two absolutely bad performers on stage, I discovered a new beer (Fat Yak) and thoroughly enjoyed all my meals.

I’ll be back, no doubt. Especially if they decide to invite me again for another presentation…

I will also present at theAIA National Investors Conference – Markets 2009 – Strategies & Opportunities – from 26 to 29 July at theSurfers Paradise Marriott Resort. Title of the session is: “Opportunities in the Australian Sharemarket?“

For more information about this event (including purchasing your ticket) visit: http://www.investors.asn.au/G700GoldConf.asp

With these thoughts I leave you all this week.

Till next week!

Your editor,

Rudi Filapek-Vandyck
(as always firmly supported by Greg, Andrew, Chris, George, Grahame, Pat and Joyce)

P.S. It has become crystal clear over the past weeks that Macquarie Group ((MQG)) shares have become a toy in the hands of parties with a vested interest in seeing the shares either move upwards or down. FNArena has heard many rumours and stories, both from inside and outside the organisation, many of which seem plausible, many are absolutely not. We have consciously decided to not publish anything. Because we do not want to be part in any of the games that are currently being played.

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