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Alert for a bear attack
Robert Gottliebsen
Published 8:46 AM, 16 Jan 2012 Last update 8:46 AM, 16 Jan 2012
Most of the commentary over the Christmas-New Year break has been concentrated on single regional or country issues, whether it be about Europe, the US, China or India. And of course there has been extensive writing about the domestic outlook in Australia. This morning I want to step back and look at the combined message.
Let’s start with the US, where there are signs of a modest recovery, remembering that the proposed big spending cuts do not take place until 2013. If and when they take place, the US recovery will begin to stall.
But in the 2012 election campaign the really big global issue will be relations with China, and a series of American commentators are now intensifying the blame for the sluggish employment recovery in the US on the level of the Chinese currency. For example, Professor Peter Morici at the University of Maryland has quite bluntly blamed US employment sluggishness on a 40 per cent overvaluation of the Chinese currency. He advocates a tax on dollar/yuan conversion equal to China’s currency “market intervention that would neutralise China’s subsidies that steal US factories and jobs.”
The China issue is going to be a major one in the American election and it comes at a time when China is about to change its leadership (The Distillery: China trials, January 16). China is slowing down and needs a major stimulus which might not be easy in a ‘leadership change year’. Any anti-Chinese rhetoric that comes out of the US will further complicate the situation.
All this is happening while Europe is slowly disintegrating. This was described graphically by Wolfgang Munchau of the FT (Europe's point of no return, January 16). And at the same time, again as set out in Distillery, India is slowing down more rapidly than we had expected and this has been reflected in the India sharemarket, which has been one of the worst performers in the world. Here in Australia, we are also showing considerable signs of domestic strain.
I think any one of these situations is probably manageable, although it will be a bumpy ride. The greatest danger the world faces is that all or most of these issues will take on lives of their own and then combine. The sharemarket bears have had a hard time during the Christmas and New Year break as markets have performed well. If any of the above problems get very serious and/or they all combine, then the bears will return to the front line.
8 Comments
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Tony Holland wrote:
Robert in support of the bears coming out, probably the issue flying under the Australian radar at the moment is the seriousness of Iran and how close we are to war. (Alert for a bear attack, January 16)
The Israelis would go today if the yanks would let them as it is, the gulf states are quietly assuring everyone that oil will flow when and if Iran stops.
Nothing brings out the bears more than a war, and it will come within six months I believe.
16 Jan 2012 10:21 AM
Martin Renolds wrote:
I think you mean all other stock markets excluding Australia have performed well over the Christmas period! As usual the Aussie market has underperformed and gone nowhere. (Alert for a bear attack, January 16)
16 Jan 2012 11:34 AM
Les Lowe wrote:
What's a bear, what's a bull, what's a sharemarket? I've given up on the whole thing (Alert for a bear attack, January 16).
Four years of our Wayne Swan-inspired, strong economy that can withstand anything and my super is going down like the "Costa Concordia", whilst the weak, debt riddled, downgraded nations that caused all this are doing okay.
As a share investor of some 35 years I've lost all interest in this crazy market. None of it makes any sense anymore. The only truth to come out of all of this is that the market is manipulated, dishonest and takes no account whatsoever of the damage it's doing to the world economy. As long as bond traders and hedge funds are making huge bonuses,,,,,,,,,Bulls, bears, who cares! I could have written this article myself.
16 Jan 2012 11:54 AM
Russell Palmer wrote:
Rob, you describe the deck of cards pretty well (Alert for a bear attack, January 16). You say that all of these situations could develop independently and then combine. That is unlikely. Pull one card and they all will tumble. Higher rates in Europe will affect everyone. U.S protectionism against China will ultimately affect everyone. India's recession will damage everyone that exports to India (like us). But increasing unemployment in Australia will not have an impact internationally. Here is your one independent development. It will only affect us. But everything will affect us negatively. Perhaps that is why our stock market has been so reluctant to make any gains for the past year or so. You are so right about the direction of our market in 2012. With all of the negatives against us, it can only go down.
16 Jan 2012 12:27 PM
Michael Costin wrote:
In response to Tony Holland's astute comments (January 16, 10:21AM). I guess a new war would stimulate the US economy and give the banks somewhere to invest all the stimulus funds they have accumulated..The military industrial complex in the US has excess capacity now that Iraq is winding down.
16 Jan 2012 12:52 PM
David Stephen wrote:
In the words of Warren Buffet "be fearful when others are greedy and greedy when others are fearful" (Alert for a bear attack, January 16).
The more the bears come out, the happier I am. For long term investors (10-years plus), this market represents the greatest buying opportunity I've seen!
I hope the bears do come out again so I can continue to accumulate at these low prices and collect dividends on my Aussie stocks at record yields! Well above term deposits offered by our banks.
16 Jan 2012 5:13 PM
Sachin Saraf wrote:
In a situation where Aussie banks and bankers are minting zillions, one cannot expect the ponzi market to deliver healthy super returns. The winners are the big boys in Canberra and Sydney. The rest are losers all the way (Alert for a bear attack, January 16).
16 Jan 2012 5:32 PM
Ben O'Grady wrote:
Most economies around the world are slowing, albeit not as steeply now as a few months ago (Alert for a bear attack, January 16). But the most interesting development is the US Conference Board that publishes the US leading economic indicators most US institutional investors use in their algorithms to help them monitor their economy and thereby invest their clients' funds have in December 2011 come out with a new set of indicators to use in future that show the future US economy is not as strong as the now slightly discredited indicators have shown recently!
The new indicators will come out next week... expect volatility as US investors reallocate their funds to fit the 'new' facts.
18 Jan 2012 5:39 AM
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