With so many pundits predicting recession, Peter Switzer says it’s unlikely to happen.
Regular readers might recall that as a response to excessive negative reports on mainstream media over 2008, when the global financial crisis (GFC) was taking out the likes of Lehman Brothers, I created a “Good News Daily” section on our website – www.switzer. com.au.
With my media mates being lured into the latest opportunity to spook ordinary Australians with constant references to a double dip recession in the USA, and a recent ABC “Four Corners” reports suggesting that we were simply awaiting another market crash and severe recession, I thought it was time to put the other side of the argument.
By the way, the ABC program, which was sourced from overseas – which means we can’t blame Aunty’s journalists, only their programmers – did zip to canvas the other point of view.
Financial planners’ clients could have been easily worried by the warnings that were made in this program. I know I received a few emails from readers/viewers; but for my clients, I headed it off at the pass in my daily column on my site.
The reality is that a consensus of US economists expects a slowdown, but not a double dip recession.
There are those who argue it’s a 25 per cent chance of a double dip recession, but the general view is that we are looking at a slowdown. And the first week in September – historically the worst week for shares – was a great start to proving my case.
In that week, the S&P 500 Index put on around 3.75 per cent and pushed through an important resistance level. The market drive came from a better-than-expected US jobs report, where unemployment rose from 9.5 per cent to 9.6 per cent, but the rise in private employment was better than expected.
Earlier in the week, there was much better manufacturing news than economists tipped, with the ISM manufacturing data raising doubts over the credibility of the fear mongers and double dip claims.
Then China kicked in with another better-than-expected Performance of Manufacturing Index, and global stockmarkets were off to the races. Meanwhile, the Aussie economy registered a strong June quarter economic growth number – up 1.2 per cent. So, there are few economic worries at home, given our strong links to China and India.
Hot on the heels of this manufacturing data came the latest retailers’ sales figures in the USA, which were better than expected in August. On that day, the consumer discretionary sector rose around 1.8 per cent on the New York Stock Exchange.
Not bad for an economy heading for a double dip recession.
My feeling is that the US will avoid another recession and will experience slow economic growth and then slow growth in stock prices until the balance sheet health of major companies results in jobs being created. This will power the US economy and then Wall Street.
On my program on Sky News Business Channel, former ANZ chief economist Saul Eslake said investment-led recoveries are slow to spill over to jobs, but eventually it happens.
We have an investment-led recovery in the USA, and that’s why they should avoid a double dip recession, but it is also why the stockmarket will have ups and downs until the doubting Thomases become “boom boom Bobbies”.
When Anton Tagliaferro, the founder of Investors Mutual, appeared on my program, he put forward a view that I thought had relevance for anyone arguing that we should avoid a crash and burn of the stockmarket and the US economy.
He says the US is not out of the woods and will be in a “bit of strife for a while”.
On whether there will be a double dip, however, he makes the following point: “A collapse usually comes when you don’t expect it, but right now there are a lot of people expecting it.”
That’s a great point.
Peter Switzer is founder of fee-for-service financial planning firm Switzer Financial Services and hosts SWITZER on Sky News Business Channel, Monday to Thursday at 7pm & 10pm. Visit www.switzer. com.au or email: [email protected]