FYI | Apr 15 2015
By Peter Switzer, Switzer Super Report
Rodney Rude, the old ribald Aussie comedian, had a routine that went “You know what I hate?”
My routine
Well, I have a “hate it” routine and it’s linked to these paid advertorials, which are passed off as legitimate stories by journalists. They are positioned to scare people into reading them by creating a credibility link and then some kind of sell follows. It’s nothing more than a stunt to ultimately establish a transactional relationship.
They will have headlines such as “Market Set to Crash”. They don’t give precise times but state the obvious such as: “Beware the stock market will crash by 50% or more, according to respected market experts.”
They quote, or misquote, little known experts or manipulate legendary figures, such as Warren Buffett and gee, people fall for these pathetic stunts! In the interest of objectivity, and given my current bullish position, which I argue one day will change, what should we be worried about?
Of course, well-known market bears like Marc Faber have argued that there’s a huge “financial bubble” because of the US Government and Fed policies to avoid a Great Depression and that these should be watched closely.
What I’m watching is the economic improvement that stems from these policies in the US, Japan and Europe. Right now, optimism prevails as the following charts show:
The German Dax Over Six Months:
The Japanese Nikkei over a Year:
The S&P 500 over two years:
Clearly, the stock market believes the QE stories will deliver economic improvement, then profits follow, which should justify the share price spikes.
Right now, the Yanks have received some weak data. The question is: “Is it a cold weather effect or is QE under-delivering?” If it’s the latter, we have a “Houston, we have a problem” situation. Then Faber and his merry band of doomsday merchants will be right.
A level of comfort
Watching the key economies is one of my briefs and don’t worry, I’m on to it. Right now I’m comfortable with the run of economic data.
As a side note, these scary articles (I mentioned above) on an imminent crash will introduce you to some other expert who allegedly knows where to invest to avoid wealth hazards when a crash comes or is flogging a book, a newsletter, etc. They are so predictable. Some are so pathetic they claim they have a secret. That’s when you should stop reading, if you haven’t already.
People with real secrets to make money won’t share them because it would kill the value of the secret!
In the realm of real concerns, a slowdown in China has to rank but I think this is overdone. It is copping a natural slowdown as it changes from being heavily focused on manufacturing to developing its service sector. It is more focused on local consumption rather than purely industrial investment and exports.
Like the Yanks, its currency is rising in value, which gives their citizens great international purchasing power but it reduces the country’s economic growth. However, it’s still close to 7% and the Shanghai Composite below shows the Chinese aren’t negative on their future:
The bond market is a bit of a worry, with yields still falling and luminaries such as JPMorgan’s CEO, Jamie Dimon and former Treasury Secretary Larry Summers arguing there’s a liquidity problem linked to excessive regulation post-GFC.
Some of this debate is a beat up because big US financial institutions simply want to improve their profitability and regulations are getting in the way.
But the real issue for the bond market would be if the US economy underperforms. It would raise credibility question marks over all QE programs around the world.
The risks
JPMorgan’s chief economist, Bruce Kasman was not fazed by the March jobs report, which showed 126,000 instead of the 245,000 expected by experts.
“The idea that the economy is going to do better in the second quarter is pretty clear on a number of fronts,” with longer-term signs of labor market tightening and wages turning around, he argued, but improving growth won’t happen quickly enough for the Fed to feel comfortable increasing rates in June, he told CNBC.
David Darst, the legendary wealth manager from Morgan Stanley, thinks the Fed could hold back its first rate rise until 2016 but admits it’s not normal.
However, the Fed is making sure it doesn’t over spook markets. This is the opposite of our RBA, which doesn’t seem to give a hoot about our stock market.
That said, we’re on a big experimental ride with the Fed and as long as economies respond positively to this excessive stimulation and unbelievably low interest rates, I argue it’s sensible to play stocks.
Of course, if the economic story becomes negative, that’s when I’ll be sounding the alarm but before that happens, there are bound to be sell-offs that will be buying opportunities.
I hate to be rude but the reality is that “it’s the economy stupid”, and that’s why I watch key economies 24/7.
One final comment, which might allay some of your scaremonger-created fears, comes from the World Bank: “Overall, global growth is expected to rise moderately, to 3% in 2015, and average about 3.3% through 2017. High-income countries are likely to see growth of 2.2% in 2015-17, up from 1.8% in 2014, on the back of gradually recovering labor markets, ebbing fiscal consolidation, and still-low financing costs. In developing countries, as the domestic headwinds that held back growth in 2014 ease and the recovery in high-income countries slowly strengthens, growth is projected to gradually accelerate, rising from 4.4% in 2014 to 4.8% in 2015 and 5.4% by 2017. Lower oil prices will contribute to diverging prospects for oil-exporting and -importing countries, particularly in 2015.”
As I often tell you (though some don’t believe me) one day I will turn negative. Now is not the time.
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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