The Impending Recovery

Well I think it is safe to say that over the last 6-9 months the ass has fallen out of the share market...



However the vice versa of a famous quote of "everything that goes up must come down" would suggest that this downwards trend also will end at some point, of course the million dollar question is when...



Now I think you'd be a very brave man to pick the date, week, or even month at which this stock market slide is going to turn, but I tend to personally believe that there are sometimes tipping points which prompts people to step back and take stock - does anyone think that the All Ords dipping below 5,000 might be such a point? Obviously the All Ords is heavily influenced by other indexes as well, and on this note the Dow went below 11,000 for the first time in years, is this a wake up point for US investors?

There has been a fair bit of talk about how so many Australian companies fundamentals aren't that much different to what they were 12 months ago, yet have seen anywhere from 20 - 50% reductions in their share value. This makes you wonder how long major growth Australia companies can have share values equating to dividend yields of 7%+ and not have investor start looking for bargains?

I can appreciate that there are some global problems contributing like the credit crisis, oil/food inflationary pressures etc but this isn't new news anymore, and most governments and corporations have factored the impending losses... and many are even factor for more. So I'm really starting to wonder when people will start getting on with business as usual? When will sentiment turn?

It already seems as if oil is coming off a bit, as of writing this, over the last three days it has dropped from $145/bbl to $133/bbl, I reckon if it can get back below $130/bbl it might be enough stimulus to start moving world economies back in the right direction? What does everyone else think?

The thing that really interest me is what sort of recovery will we see? The recent stock market correction has taken place over three quarters of a year, many are predicting a slow recovery, but as I mentioned in another thread I can't help but feel that if there are enough positive signs, being the continued containment of inflation and reduction in oil prices, that there are just way too many bargains out there at the moment for investors not to start looking to jump right back into the market.

What do you think?

 

Chris

I think that we will have a good day today.

Other than that, the recent drop in the price of oil is not (IMHO) a sign of share market recovery.

A US hit on Iranian nuclear facilities will make the price of oil jump to $200/b and shares will come straight down as well.

Cheers

 

I don't think we are headed for a significant improvement anytime soon. People continually repeat that the fundamentals haven't changed, but in reality they have changed dramatically.
The US is headed into a period of prolonged recession, its CAD is running at about 60% of GDP. Its simple, what has been borrowed as some point has to be paid back, people have to go from spenders to savers, there is going to be a contraction in their economy.
People rave on about China and India, but the US comprises the bulk of global GDP. If it slows down, this will have an effect on all economies globally, this is the reality of globalisation.
I agree that I think alot of stocks are undervalued and that there has been maybe an over-correction on the stock market, because in the long run these companies should continue to grow, but I would not be surprised to see the market track sideways for atleast a couple of years.
The world is not in a state of doom and gloom, but the US economy is in an extremely bad state (stagflation, slowing economy, poor credit regulation leading to huge corporate write offs, large CAD).
Like with any economist, I believe that in the long run, all will return to normal, but it takes quite a long time to remedy this huge fundamental problems, in the largest economy in the world.

 

Hi Chris,

While banks are offering term deposits around mid 8%, customers don't want the volatility that stocks are offering, thye want to know that they are going to get their capital back plus a generous amount of interest on top. The stockmarket isn't giving investors any certainty (well only the certainty of a rollercoaster ride at the moment).

Once these interest rates start easing (probably not this year, but I dont have a crystal ball) we might see some investors head back to the market.

Cheers,

Dan

 

I thought I would bump this thread back up because I think it is interesting to relook at what some of us were thinking only a couple of months ago versus what we are thinking now.

Man I'm glad I didn't act on my own intuition...

Might still be right...

Well interest rates are definitely starting to drop though I don't think these drops have been passed on in to the areas of margin lending finance, but no doubt they will be soon? So do you still think the market might bounce back with these drops?

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From my personal perspective I am definitely a lot less bullish than I was back in July and I'm starting to think this could be something that hasn't fully played itself out until many many months from now. As such I think there will be quite a few ups and downs, but I don't expect the market to dip below 3750 as I can't see what other bad news could eventuate, short of World War III or governments collapsing, would push the market below 3750.

So do other people have any perspectives on what the market will do in the short, medium and long term?

 

I think the doom and gloom feel in the air will eventually die off because people will learn to ignore it.
I believe it will be after the US elections.
In the meantime, interest rates will fall and market sentiment should gradually improve.

Cheers

 

Hi BV,

I also think that after the election things will improve.
I am expecting things to settle and confidence flow back once a new president is in the whitehouse.

I went to an Advance seminar this morning, their economist Felix Stephens is looking forward to prices increasing after a new president is in and then dropping a little early next year and then earnings increasing mid next year.

Also, he is betting behind Obama, we will see in a few weeks whether this is the winning candidate

Cheers,

Dan

 

I think people on this forum are very keen to be back in the market. I guess that is the nature of an investor, always trying to snap up a bargin.

My view on the global economy is simple. The US has some fundamental flaws it has to address in its economy, before it can turn the direction of its slide, which quite simply is into recession.
They have a CAD of over 4trillion last time I checked. Put simply, at some point they have to run a fiscal surplus. These would indicate a slow down in the economy alone. However, when they are in the midst of stagflation that is going to be a near on impossible thing to do.
Expect most economies to track sideways for a while. There is not going to be a expediated period of recovery, we are in one of the biggest shocks to the economy since 87. Addressing these flaws will take time, but a recovery will happen.
My plan is to hold cash, until I am really sure of some value in the market, value is going to be around for a while.

 

I guess this raises the question, does the world need the US to see significant recovery, or will Europe's recovery along with the continued strong domestic growth of BRIC economies be more than enough to surge things forward again, whilst the US sorts their dilemmas out?

 

The US running deficits means other countries are running surpluses, right? Doesn't it all even out? So why should Australia, or the world economy care if America is running massive CAD's?

 

Eddyl

I agree but I believe that first the US would have to fix the subprime mess which is the heart of the problem.

I am actually surprised that they tried to fix the symptoms but did not address the cause of this financial crisis.

IMHO they would have to address their existing subprime loans and one of the ways would be to force their refinance to a lower interest rate.

I also believe that it's important to see the prosecution of lenders & mortgage brokers who made a lot of money by preying on people who had no ability to repay those loans.

I think that the new president will fix the existing subprime loans and the prosecution of those responsible will also take place in the near future
Banks, Subprime Lenders To Face Charges, U.S. Attorney Predicts "Dramatic Results" From Sweeping Investigation Into Mortgage Crisis - CBS News

cheers

 

I think the issue is that the music is about to stop with the CAD.

Its kind of like a drug dealer who has been lending money to a junky to buy his stuff. Sooner or later it will get ugly and business will grind to a halt for both parties.