FYI | May 11 2012
by Peter Switzer, Switzer Super Report
I would really like to concentrate on the Federal Budget and how it will help stock prices later in the year but I have to address some pressing issues for self-managed super fund (SMSF) investors pondering their exposure to stocks. The first is: can we trust Europe? And the second: will 2013 be the year of the big stocks spike or will we be hit by a pile of negatives that markets will cave into?
This week in Las Vegas, the world’s premier ‘doomster’ Nouriel Roubini has been talking about a 2013 “global perfect storm” that has sent a few anxiety-ridden shock waves through those investors who listen to this overrated forecaster.
Sure he got the global financial crisis (GFC) right, but if you were an American who has listened to him since 2008, you would have missed the S&P 500’s 100%-plus comeback. His excessive negativity would have imprisoned you in term deposits or bonds where you would have been lucky enough to get 1-2% interest!
Even here our S&P/ASX200 index got as low as 3,145.5 on 6 March, 2009. We are now at about 4,275.10, up 36% in three years and if we add, say a low 5% for dividends, that averages out around 18% a year, which compares to around 6.5% on average for those who played the term deposit game.
The doomster
But that said, let’s put Roubini’s argument in a nutshell and I emphasize ‘nut’ (though I do respect the fact that when you predict bad news every year eventually you will get it right). He argues issues in the USA, Europe, China and Iran will challenge the global economy and stocks will cop it.
So he sees more eurozone debt and political issues adding to a US slowdown after the generally positive election year as well as the Iran nuclear intransigence and finally China, which he says could be a train wreck. And this all totals up to a bad equation for stocks. He expects to see countries exit the eurozone, with Greece the favourite followed by Portugal and even Spain.
On the US front, he tips the S&P 500 falling to 1,300 and economic growth at 2% – that will be checked for his accuracy, I can assure you! The index is now at 1,356.96 but many analysts see it heading to 1,450 and 1,500.
My outlook
I think if the US scenario is right, the US Federal Reserve boss, Ben Bernanke would try a third quantitative easing stimulus package, which would help stocks, but I am hoping the US can beat the doomster’s predictions.
I am also confident that China is not a train wreck and if the positive forces outweigh the negatives by October or so and the Reserve Bank of Australia (RBA) here cuts interest rates as a response to the Government’s budget surplus goal, then a lower Aussie dollar will, along with lower rates, help our stock prices trend higher.
I have a number of highly respected forecasters who have been negative for a few years who are in the camp that a share price spike happens at the end of 2012 and getting into 2013. I’m putting my money on them, though, as I say, the doomsters who always tip market misery have to get it right three years out of 10 — that’s history’s lesson.
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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