Janet Yellen’s speech this morning comes at a time when even my optimism is being tested! Yep, the guy, who some unfairly call a perpetual bull, is allowing his objective analysis to admit that maybe, and only maybe, I might have to turn bearish!
How could something like this happen?
The current market negativity, which might create the worst quarter for US markets in four years, has seen our market flop 432 points. If, however, you take the high in July into account, it’s been a 700-point slip.
If you take the high point for the year, we’ve dropped around 16% but if we go back to the start of the year, we’re down 384 points (or 7%). And if you count in dividends and franking credits, your loss might be 2% or so. But wait, there’s good news — we usually have a big, positive finish to the year.
But wait some more. There’s a lot of negativity around now that’s making me ask the question: Is Peter Switzer turning bearish on stocks?
So, what has got to me? Try the following:
Last night on my show, I told FN Arena’s Rudi Filapek-Vandyck that I was hoping China produced some better than expected economic data or a big stimulus package but he argued that China carries too much debt, so forget about it. And he added that if they did try this stunt, it would only have a short-term effect. The chart below shows China’s total debt to GDP has rocketed since 2008 but there was a thing called the GFC, which partly explains it!
As you can see, debt has rocketed from 125% of GDP in 2008 to 207% of GDP now, but I don’t easily discount what Beijing might do to achieve 7% plus growth rates.
When you think about it, if Yellen and Switzer are becoming negative, then it’s China-related but how come the chairman of HSBC, Douglas Flint — a wily Scot! — is more optimistic than most? He tells us that Beijing can cut interest rates — currently they’re very high — and state spending can be increased.
In many ways, he’s betting the bank on his relatively positive view on China and I like that from someone so well placed to comprehend the story in the world’s second biggest economy.
Meanwhile, there are still bulls out there, with Price Headley from BigTrends.com arguing we’ll see the Dow at 20,000 by mid 2016! He cites record levels of pessimism like in 2008 and 2011, which ran ahead of big market take offs. He argues earnings in October in the US will be better than expected and will drive the market comeback. And I like that story!
If China can come up with a stimulus play, if Europe continues to do better than expected and Mario Draghi (the European Central Bank boss) continues to say he’ll do what it takes and if Yellen gets her rate play and comments right, then we might just see a turnaround for stocks.
One day it might happen but this bull is not for turning, yet!
Published: Friday, September 25, 2015