FYI | Jul 25 2013
By Peter Switzer, Switzer Super Report
There’s a guy who comes on a TV show — not mine! — a few times a year and he always tells the viewers that all this debt that’s driving stocks will end in tears.
Significantly, he is always dressed in black and if anyone had listened to him they would have missed the 80% plus that someone could have pocketed if their portfolio of stocks at least matched the capital gain and dividends of the S&P/ASX 200 index, since March 2009.
That’s a sound, sad reason to be wearing black!
The irony is all booms, which we are now in, end in a crash or major sell-off, along with a recession – it’s a cycle. And this one will end too, but it could go for a long time before it does, and I see it as my and my team’s job to ring the bell before the market crashes.
This is particularly relevant as the worst two months of all loom – September for the Yanks and October for us. And after a great lead up this year for stocks, a sell-off would be understandable, especially when tapering of QE3 talk is around.
Great expectations
Recently, the experts all thought it would be September that tapering would start, and a market slide was expected, but the Fed boss, Ben Bernanke, has virtually told market gurus “not so fast”.
In his mind, tapering starts when the economy is really strong. As a consequence, the sell-off will be small, because the bargain hunters will snap up stocks that will benefit from a stronger US economy, which will be the reason for the tapering and then the end of QE3.
The related sell-off, which I think will be smaller because Bernanke is delaying it until the time is right, will create a buying opportunity.
But this is just one BIG factor for sticking to stocks. Here are a few more:
- Over the weekend, the G20 signed up for policies to boost the world economy, with austerity on the outer and even Germany kept its mouth shut on the subject. “Growth and creating jobs remains our priority,” the G20 finance ministers said in their communiqué from Moscow.
- The taper delay will sustain the rally and when it ends, the economy will sustain the rally.
- Usually inflation and rising interest rates kill a stock boom, and that’s some time off yet.
- Bill Gross, of PIMCO, the world’s biggest bond fund player, is now getting into stocks!
- Hedge fund guru, John Paulson, who bet against sub-prime loans before the GFC and made a motza, has been a loser with gold lately but he has made money out of US housing. “The housing market has bottomed,” he told a conference in New York last week.
- Recently, US homebuilder confidence hit the best level since January 2006, which was before the letters GFC were even thought about! And it was big jump from 51 to 57 on the NAHB/Wells Fargo Housing Market index. A housing recovery underpins the overall economy’s comeback.
- Generally, US economic data is good with the Philly Fed business activity survey at the best level since March 2011. The index, which looks at what is going on in the mid-Atlantic region, went from 12.5 in June to 19.8 in July. That’s a huge rise and is another positive omen for the US economic recovery.
- Japan is getting its best economic readings in decades and the Nikkei has surged around 40% this year! Where there’s smoke, well you know the rest.
- Short-term technical analysis for the S&P 500 is positive for stocks. I have talked about a change of polarity where a resistance level becomes a support level.
- History suggests if you have a good first half, then the second half tends to follow through with the Dow and S&P 500 up over 18% for the year so far!
- Research firm GfK’s forward-looking consumer sentiment indicator for Germany rose in July, topping expectations.
- The Bloomberg monthly survey of economists recently concluded Spain would emerge out of recession in 2014.
- Berenberg Bank says Greece will come out of recession by the last quarter of 2013.
- China is talking about easing monetary policy.
Smooth sailing
It’s clear to me that only a curve ball, left-field event, call it an X-factor or black swan or whatever, will change this game, which says stocks are still good value.
Meanwhile, earnings season so far in the USA have been OK, with around 20% of the S&P 500 companies having reported. Thomson Reuters says 65% topped earnings estimates, and 51% did better on revenues.
I believe as long as QE3 keeps the US economy ticking up, and efforts are being made around the world to pump up growth, while inflation and interest rates remain contained, then it would be madness not to stick to stocks and to use any sell-off as a buying opportunity.
Note I have left out of my analysis the possibility that we could see some real economic improvements in Europe and Japan next year, which will then compound onto China and really set us for a big surge in our stock market. However, that’s when you will have to get a bit more cautious if you are a sell-out-before-the-crash type, and really, who isn’t?
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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