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Take a look at these pearls!
By Peter Switzer
During the week on both my radio and TV shows, I posed this question: are we living in a Donald Trump-created La-La-Land? After all, stock markets worldwide were responding positively to his policy promises, with US market indices at all-time high levels.
On Wednesday, the S&P/ASX 200 index went to 5809 and, as someone who has tipped we’d see 6000 in 2017 and maybe 6300, I have to say it has made me a very proud market forecaster.
However, time and grey hair has taught me that markets seldom travel in a straight line and pullbacks and even corrections are a fact of market life. That said, any sell off will be a buying opportunity and the reasons are set out below.
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Pearls for optimists!
So have a look at these positives pearls:
This is the IMF’s view on the global economy: “After a lackluster outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies. However, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications. The assumptions underpinning the forecast should be more specific by the time of the April 2017 World Economic Outlook, as more clarity emerges on U.S. policies and their implications for the global economy.”
The Australian economy looks poised to do better than doomsday merchants would have it, with the RBA Governor Phil Lowe predicting 3% economic growth for the next two years.
The latest business survey from NAB has reinforced my positive view on the Oz economy. Business conditions went from 9.9 to 16.2 — a nine year high and says doing business right now is a ripper! The long-term average is only 4.9! Meanwhile, business confidence, which needs no explaining, went from 5.7 to 9.8, a three-year high and where the long-term average is 5.8. Call me an economist but I reckon this is the kind of news every Australian should hear but especially those of us who invest in businesses and create jobs.
In other good Oz economic news, job advertisements rose by 4% in January to 167,164 ads – a five-year high. It was the strongest monthly rise in 2½ years. Job ads are up 7.1% on a year ago. Unemployment fell from 5.8% to 5.7% and the market is now betting interest rates will rise this year, which is a good sign that we might be heading towards a more normal economy.
Meanwhile, iron ore futures beat $US100 late last week and copper hit the highest price since May 2015, surging 4.6% to close at $US6,090 a tonne. Copper is a great omen indicator for world growth and we sell this stuff!
Donald Trump is talking company tax cuts, infrastructure spending and less banking regulations and it’s having a “me too” impact around the world, which not only is fuelling optimism, it’s getting policy discussions on the subject going global.
Here in Australia, by some miracle, probably inspired by ‘St. Donald’, the PM has discovered his mojo and has been sticking it to his opposite number, Bill Shorten, over his anti-company tax lowering attack on the Government. To that, the Government is delighting in pointing out that Bill, in Government, wanted a company tax cut to create jobs and growth!
And finally, on why I think we have some time with rising stocks, this from AMP’s chief economist, Dr. Shane Oliver, is a beauty:
“We are still a long way from the peak in the investment cycle. There is little sign of economic excess globally: underlying inflation is low; spare capacity remains; there is no sign of overinvestment; credit growth is modest; monetary conditions are not tight; share market valuations are okay; and investors are not euphoric.”
What could the threats be?
I see two big threats to this La-La Land for stocks. First, Donald is stopped from delivering tax cuts because of Congress or his insistence on too tough trade protection measures. And second, because a pullback for stocks is always on the cards after such a big run up of share prices since the election.
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However, if the latter happened, I’d tell you that it’s a buying opportunity because of all the positives mentioned above.
Of course, a left-field, black swan event could ruin my pretty picture but, by definition, black swans aren’t easily seen. However, I will be watching carefully for one of those pesky critters.
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
