Peter Switzer says anyone hoping for a relatively stress-free year has been sorely disappointed.
For financial planners, the year 2010 would have to go down as “the year of living precariously”. Sure 2008 was the year of living dangerously, especially if you were trying to keep your clients from going to cash after the collapse of Lehman Brothers. And 2009 was the comeback year. But this year has been overloaded with challenges to worry about.
Not surprisingly, the stockmarket has not delivered this year. We started on January 4 at 4864.9 and at the time of writing we were at 4689; and so we are still under water. However, many analysts, such as AMP Capital Investors’ Shane Oliver, who I interview on my Sky Business program, believe we will see the S&P/ASX 200 at 5000 before the year is out.
(I hope so, or I will have a big meal at Machiavelli to pay for, after a bet with one of the country’s best bond traders!)
Let me relive the dramas that the bears, the short-sellers and the media doomsday merchants worked with this year to stop us resting our heads anxiety-free.
We actually had a pretty good start with the market peaking at 5001.9 on April 15.
The first trigger for the crisis of confidence was the debt pickle the Greeks found themselves in. This later gave rise to a new unfair and nasty acronym – PIGS – which stood for the debt-laden economies of Portugal, Italy, Greece and Spain. Rumour has it that this insulting tag came from a UK economist who stumbled on this new name for the Club Med economies, which left out Ireland. If potentially unmanageable debt was the criteria for being a part of the PIGS, Ireland should have been there.
This led to concerns over Euro-debt issues broadly, and then Euro-bank worries, which were KO’d eventually by the EU coming up with an overdue rescue package and a series of bank stress tests.
To keep the markets spooked, a US hedge fund manager, Jimmy Chanos, kept warning his group of influentials that China had a housing bubble that was set to burst. This was later made worse by China attempting to slow down their boom, which made some expert economists predict that the economy could slow down to six per cent growth. They were wrong, as per usual.
After Europe and China dealt with the threats to the progress of the stockmarket, along came the double dip drama for the US economy. Economic data did go off the boil but you can never trust a couple of months of data and you can often exaggerate a projected trend in the short term.
The Yanks were slowing down and the US consumer had gone missing in action but US company reporting season had come in miles better than expected. Putting it all together, it created a September to remember which rolled into a “Roctober” where the market has gone from 4413.3 on the open in September to 4689, at the time of writing – that’s about an 8.7 per cent gain across the historically scariest months of all for the market.
This has been helped by the Federal Reserve’s “promise” to go to a second round of quantitative easing – QE2 – which has put the threat of a double dip recession to bed, once and for all.
However, just as we thought it was safe to load up on stocks for the most nervous clients, the Yanks have manufactured a mortgage mess over foreclosures. Banks have been accused of acting illegally and could face lawsuits from big investors who bought mortgage-backed securities and $US80 billion of mortgages may have to be repaid.
Of course this is the worst-case scenario dreamt up by the prophets of doom and could be a big stumbling block for the market, but my bet is that the US banking system will weather it.
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 peter@switzer.com.au
