Things Just Seem to be Getting Better….
Lance Spicer, Editor - Trident Confidential, 22 Feb, 9:16 AM
Things Just Seem to be Getting Better….
Most of us remember the good old days of the stock market, pre-2007, when we all thought we were stock market geniuses because you could buy something and within a month or two you’d have returns that would make Warren Buffett look like a “newbie”. Well, ahem, didn’t 2008 sort most investors out? Then we had the huge bounce of 2009 that most cynical investors missed, which kept on going into 2010, then the markets received a jolly good hiding again in 2011.
For a large number of investors “enough was enough” and they left the market “never to return” in 2011 – I know this for a fact, as some of them thanked me for the newsletter but have vowed that the stock market is not for them anymore.
Some of them have decided to return to the “safety” of the property market….I hope they’ll be ok, because I think the property market is decidedly dodgy right now and going to get worse. I think they are going to have their own “Property 2008” later this year, with banks now officially stating they are disconnecting from the RBA and they are going to do what they like – this means higher rates for sure, which in turn means falling property prices.
However, as each day passes I become more confident that the predictions of BlackRock’s Larry Fink, Buffett and many other luminaries are right - that we are just about to begin a new bull market in 2012 - a bit like the one we had from 2002 to 2007. All the evidence is pointing that way.
- The US is going from strength to strength and accelerating
- The Greek drama is now at an end
- EU bond yields are weakening and bank liquidity is solved by the ECB’s 1% unlimited loans plan
- China acts on any sign of weakness by adjusting the banks ability to lend – The Chinese “communist” manifesto obviously includes the words “capitalism, growth and profits at any cost – let’s get filthy rich!”. Would Chairman Mao be proud or apoplectic? I suspect the latter.
- Expect revisions of global GDP growth in coming months with Europe being the big surprise.
Both Warren Buffett and Larry Fink, the CEO of BlackRock the world’s largest investor with $3.4 Trillion funds under management have said it’s now time to be “all in” on equities. That’s not a typo, it really is Trillion – a Trillion is a thousand Billion which as you know is a thousand Million – in other words a thousand, thousand million times 3.4.
However, we must remember there are always risks - namely Iran, Syria and of course, the Greeks could do something unpredictable at the last moment, but based on all going well and the Iranians not threatening world oil supplies, we should see things improving.
Of course, we are also in an election year in the US and this is often a good year on the markets and due to squabbling and a somewhat negative Republican campaign (thus far) it seems President Obama may find himself with another 4 years.
Economically, Barack Obama has made some fundamental economic errors. Keeping Ben Bernanke may be the best decision he made and the number one factor in winning a second term, if he gets one, which seems more and more likely as the economy improves. What Bernanke has done in the US is keeping US exports competitive with a weak US$, maintaining low interest rates and assuring business of low rates for the foreseeable future. Record low mortgage rates will ensure a reasonable recovery of the US real estate market over time. Bernanke has given the markets what they want – something they always want - certainty.
I have often been asked, particularly recently - “What’s wrong with the Australian market?” The simple answer is “everything” – labour relations – high dollar – high interest rates – unstable political situation – carbon tax – mining tax – anti-business policies – low productivity – have I missed something?
In Australia, we are doing the exact opposite to the US. We have a Reserve Bank totally obsessed with inflation and government providing policy that promotes wage inflation. What’s happening right now is maddening and is 100% totally responsible for the Australian stock market lagging other major markets, even those in Europe. The French, the British and the Germans have outperformed the Australian market over the last 6 months by a wide margin - can you believe it? We all want to see the Australian stock market take off, if not for the good of our portfolios, then our superannuation, but the simple problem is “Canberra”.
It’s not a pretty picture, but now you know why the Australian stock market is lagging most other markets and has done so for a few years now and will continue to do so. Despite what the government tells us, Australia is not in a great position, we have placed all our eggs in the commodity boom basket and if it ends, and it will at some stage, we will be up a certain body of water without means of propulsion.
Consequently we have been favouring opportunities from US markets, as Australia just does not have that many that we can see making any decent returns. We will stick with the few Australian stocks in the portfolio, but they’ll be watched closely.
Now with the Greek bailout deal passed, there will be little to worry the markets other than maybe Iran. Economic news from the US is looking good and even industrial output is up in Italy, which shocked the market. Will there be a recession in Europe? It’s actually looking like a very weak one at worst. In fact, I really can’t think of anything that is looming on the horizon that’s even moderately scary.