FYI | Jun 15 2012
By Peter Switzer, Switzer Super Report
Trying to work out what’s happening on the stock market on a daily basis underlines how crazy it is to expect too much from the index readings nowadays.
The combined uncertainty of Europe’s debt problems, which now features Spain – one of the five little ‘PIIGS’ nations (Portugal, Ireland, Italy, Greece and Spain) – and the big unknown of what the Greeks might do on Sunday at their national elections, are over-influencing stock markets right now.
Brace yourself
Unfortunately for long-term investors, this has created a traders’ market where the smarties are making short-term profits by being positive one day, negative the next and then going back to positive. However, next week could – and should – be HUGE because we are likely to see either a big rally or a big sell-off, so brace yourself.
Sure, the market could confound us with so precious little, but I suspect if the Greeks vote in a coalition government that will support the euro and work with the current bailout package, then stocks could soar.
But of course, this is a double-edged sword and so if the Greeks play the socialist card, which will add to uncertainty for Europe, then we could see a crash like the one we saw last August and September.
Greek banks are reporting that some €800 million a day is being milked out of accounts as Greeks prepare for the worst, but if the election brings better-than-expected news for the euro, then this could be reversed.
I’m aware that a hell of lot has to be done in order for Europe to please the movers and shakers who determine the stock market’s direction, but week-by-week a firewall is being built around Europe’s debt and banking problems. Unfortunately, the work rate is akin to old-fashioned Aussie unions from a pre-Keating age.
Outlook
Some investors might worry about China’s economy, but I think that country will successfully re-stimulate itself. I also think the US economy’s slowdown will be a short-term issue as better news from Europe emerges.
Either way, what the Fed could do with a QE3 (quantitative easing package three) play would ensure economic growth stokes up, taking stock prices with them later in the year.
I know the US election and the so-called ‘fiscal cliff’ awaits the Congress and this could result in an impasse, meaning automatic cuts will be applied. All of this could be a new threat to the markets, but these are lower order concerns compared to Europe.
CommSec’s Craig James has the S&P/ASX200 index heading to 4,600 or so by year’s end, which would be a nice rise, but it could be higher if all of our market-worrying ducks end up flying.
My bets
So I’m gambling on the Europeans coming up with a better debt plan, the Greeks voting to keep the euro, China growing faster and the Yanks voting in a new president who will also control the Congress. This will power a Santa Claus rally, which could be a precursor to a big rally in 2013.
Now of course, a rally could come earlier, but that’s the kind of gamble we who punt on stocks will have to make.
Good luck with it and I really hope I’m right. The big test comes on Sunday as Greece goes to the polls. Go the Greeks!
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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