Optimisitcally Pessimistic

 

I got bashed up again by a reader over the weekend for being so down beat all the time. Now I genuinely believe all I am doing in what we are writing on here is reflecting what’s going on in the world. And because we are dealing with macro issues the reality is that at present the outlook is cloudy at best. But its a good point our reader makes and one that did give me pause for thought.

The first thing to say is that I genuinely believe that at some point in the next 5 years I, we all, will get the opportunity of our lifetimes to buy equities for the long run. Now that assumes that like me you were either too young, too busy having fun or too busy with the kids to really take part in the massive increase in equities between 1982 and 2000. 

But the last 11 years have been more like the 17, between 1965-82, that preceded the great bull run. So its been a much harder grind and your returns have been more subject to your timing and trading and your risk appetite. If you are a passive investor, like most Australians with their super or Financial plan then it has been a wild rollercoaster ride and a none to comfortable one.

And the current macro settings are a continuation of the uncertainty that has existed during this period and exists as a result of the destruction of probably the greatest credit bubble of all time. We are 4 years into what we like to call the GFC and we can see from what is happening in Greece, Ireland, Portugal and even in the US with the debate over their own debt levels that there is still plenty of healing to be done before we can “buy stocks for the long run” and sit back and rest.

In the meantime we have to just deal with the market we are given.

But our readers point is still a good one. Things are never universally bad.

During the Depression 70-75% of people still had jobs, in the US at the moment and you have been to Uni your unemployment rate is tiny relative to the 9-10% out of work. Equally the fall in property prices as allowed people who didnt get caught in the hoopla to buy into the market at prices that reflect a fairer interpretation of value. Indeed in the equity market even though the ASX200 has been range trading sideways for a year or so now there have been some very big winners and of course some big losers.

Now if you look at the performance of assets such as the AUD/USD exchange rate which had a low of just under 1.04 and sits at 1.0779 this morning, or the ASX200 which rose 150 pts from last week’s low to high, or the S&P 500 which is up 6.9% from the low on the 23rd of June you would have to say that good times are back and Greece is but a sideshow.

That’s probably correct and now that the catalyst for catastrophe has passed the markets rallied hard and are now free to focus on the fundamentals which are in no uncertain terms, OH BOTHER, pretty poor. Writing in the Weekly Wrap on Saturday we summed the data up by saying it

“…was a week of further deterioration globally. manufacturing indices in China, Eurozone, UK and India were all down however the US ISM Manufacturing index showed a surprise jump. We don’t want to be bearish for bearishness sake but the huge uptick in inventories on which much of the jump was based could be problematic in the months ahead as we’re guessing it was involuntary.”

Add to this manufacturing weakness news on Sunday from China that the services PMI had fallen 4 points to 57 and we get further concerns about Chinese growth slowing. Can the markets ignore this weak data? Of course they can and in holiday trade today we might get some more optimism that will drive asset prices higher.

But while Greek means there is no crash around the corner the best we can be now is optimistically pessimistic we think while the economy muddles through. What we really mean is to be cautious and circumspect. Have position sizing that reflects the risk. In our world that means smaller positions that can wear bigger stop loses because you need to make room for the volatility. It also means doing your homework on the stocks you want to buy and the opportunities that abound.

So it’s not all bad by any stretch of the imagination and as we wrote Saturday the short-term technical outlook might be positive given the bounces of really important technical support in a number of markets. Lets hope so, at least for a while.

greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

This blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If you do need economic, investment or financial advice we are happy to help.

Please Email the team at Lighthouse at info@lighthousesecurities.com.au or Greg directly on greg@lighthousesecurities.com.au

 

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