6 June 2020
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A sea of negativity makes even the most rusted-on bulls reconsider their optimism.

Is Peter Switzer turning bearish on stocks?

Peter Switzer
25 September 2015

By Peter Switzer

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:

  • ANZ’s chief economist, Warren Hogan, thinks Australia needs two more rate cuts over the upcoming year, taking the cash rate to 1.5%, because he doubts our growth prospects. AMP’s Shane Oliver thinks we might need one but two is possible, so he’s less bearish than Hoges.
  • The Chinese economic data continues to disappoint, with the latest flash PMI figure coming in at 47 rather than 47.5, which says manufacturing is contracting in China. A number under 50 says contraction is happening.
  • A slower than expected China hits demand for iron ore and oil and this is hitting stock market indexes from Wall Street to the ASX.
  • OPEC and Saudi Arabia continue to keep supply high and oil prices low, which also hurts stock market indexes, with the lower price of an important cost of world production not having the economic stimulus effect I dreamed of. What’s going on with that?
  • The Fed ‘f-up’ with the failure to raise rates, which has undermined a lot of optimists’ confidence. There are bulls who actually believe the Fed knows something we all don’t know about China, emerging markets or the global economy and that’s why they didn’t raise rates.
  • Economies (such as Japan) that are using quantitative easing are not responding well, though the US took time to get a bang from its QE buck.
  • Expert market watchers are becoming more cautious and yesterday I noted Geoff Wilson on Sky Business saying that stocks could be struggling not for three, not for six but for possibly 12 months. I have noted that and Geoff will either be praised or bagged on that big call. 
  • I think we’re in a delicate moment for markets, economies and governments. I have to say that at home, I’ve liked Malcolm Turnbull and Scott Morrison getting on the front foot to talk about the economy. In the US, it looks like Obama has put up the “gone fishing” sign. We criticise our leaders in Australia but the economic leadership coming out of Washington is hopeless. Most of us would not know the name of the most important Treasury head honcho of the world — Jack Lew — but we certainly know Janet Yellen.

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!

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