FYI | Jun 18 2013
By Peter Switzer, Switzer Super Report
After a trip away to Turkey and Greece, when the dollar dived and the stock market added to my hip pocket grief, there must be some investors worrying about whether we’re in for another period of big sell-offs like we saw over 2011 and 2012.
Frankly I can’t see big ones, though I have to admit that Wall Street will be tested when the Fed actually moves to taper and then end QE3.
In fact, the recent weakness in stocks has been linked to the end-insight belief on QE3, the failure of the Japanese central bank to stick to its promise of providing plenty of liquidity to its economy, a related fall in commodity prices, our cuts in interest rates and a belief that our economy is slowing.
Much of the above also explains why the dollar fell so hard in the past few weeks – though it was untimely for me overseas, fortunately the Turkey riots hit the Turkish lira more and it fell more than the Aussie!
Given the QE issue I think we will remain in a volatile period for stocks until we have a big circuit breaker, which will either send stocks up or down.
People like me are on economic data watch everywhere – from the USA to China to Japan and Europe.
What’s happening in America?
In the case of the USA we have a really tricky conundrum. It’s like this – very good economic news will mean smarties will sell stocks because QE3 will be on death row but then the very good news will be a reason to want to buy stocks.
I expect a biggish leg down when QE goes into a taper mode but then buyers will rush in to suck up the stocks at good value, which leaves us, in Australia, in a difficult bind.
Our market is down 8.2% over the past month while the Dow is down only 2.2% from its high of 15,409.39 on 28 May. So the Yanks have further to fall and I can’t see us not falling in sympathy when they do try a QE sell-off.
But then we’d really participate in the bounce-back because it could come post-election, which will be good for stocks and the dollar could actually be lower against the greenback.
The end of QE3 means interest rates will be rising in the USA, while ours will be at low levels for some time yet.
All of this will be great for our stocks. For the year so far, the Dow is up 15% while our S&P/ASX 200 index is up only 2.3%. We have plenty to make up and we have top reasons to make it happen, which explains why I remain bullish on our stocks for the rest of the year.
But I’m still optimistic
Making me doubly bullish is the fact that Nouriel Roubini, the NYU professor who tipped the GFC, is now bullish on stocks for the next two years.
Helping my optimism is better economic news for Greece, with the German Berenberg Bank tipping growth for the economy in the last quarter of this year – the first time this has happened in six years. And there have been good tidings from Spain too. Bloomberg headlined it this way recently with: “Spain’s crisis fades as business forced to go abroad…”. In fact, Spanish exports have hit a record of US$291 billion last year and undoubtedly a company such as Zara is a great example.
The point I’m making is that while there is worrying headline news, there’s also a growing, or creeping, amount of better news, that could easily justify a market surge later in the year.
So, when do you buy? That’s the hard bit but I am eyeing off stocks I like — especially dividend-payers – and even if they fall again with a QE correction, well I’d buy even more. I also like businesses that will do well with a lower dollar.
This is buying opportunity season, so get hunting!
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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