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Scary September

Peter Switzer
2 September 2009
September promised to bring spooky trading days and on day one in the USA, like a Hollywood scary movie, it delivered a gasping fright right from the start. But don’t worry. Unlike the blockbuster called ‘Lehman Brothers is Dead’, which ran last September, this one looks more like being a B-grade production called something like: ‘A Bank Might Die, I Think’.
Lights! Camera!
Let’s set the scene.

Though August finished with two days in the red, the month concluded six months of ups for the broader index that best represents the health of corporate America — the S&P 500. The new age, tech-heavy Nasdaq also put in six positive ones. Over that time, the S&P was up around 50 per cent.

Bears and ‘their partners in crime’ — hedge funds and short-sellers — have been given a hiding as many were arguing back in March, when the market hit it low, that there was more falling to go.

These guys are like vampires who haven’t seen live ones for a month! They’re looking for blood on the Street. They need a big sell-off and September’s history gives them their best chance for another crash or at least a decent correction.

At the same time, even the bulls want a pullback but for different reasons — they just want to buy great stocks at lower prices.

Angus Geddes, the founder of Fat Prophets, told me on my program — SWITZER — on Sky New Business Channel that he expects a pullback of up to 10 per cent over September and October and that’s simply because this past rally has been so huge. It’s been scary in going up so far in such a short time and that’s why a pullback is expected.


Act one, scene one and rumours start that there could be more bank failures. What? Just like September last year when Lehman Brothers failed, which then sparked the second leg of the Crash of 2007 to '09, could another bank could fail?

Yep, this was the B-grade script we were handed for the first scene. The day unfolded with the Dow Jones index down 186 points to 9,311. Meanwhile, the S&P 500 lost 2.2 per cent to 998.

The ‘A bank might fail’ rumour was used by some to sell off, but what escapes most people is that most of the banks that count in the USA are partly owned or propped up by the US Government. There are thousands of banks in the USA but the big ones are now closely managed and so I can’t see a Lehman re-run happening too easily.

After all, it’s like one of those movies where there is a mad killer on the loose in a neighbourhood — everyone locks their doors except the patsy nominates by the director to be the next victim.

The Yanks tried this last year with Lehman Brothers and sent credit markets into hard freeze. Even Americans have learnt the lesson — you can’t play around with confidence in the banking system.

I believe the market just needs to trade lower. Short-term traders will want to take profit but they might have to do it with the problem of better economic news putting a floor under the falls in share prices.

More data

Overnight in the US, the Institute for Supply Management (ISM) manufacturing index rose to 52.9 in August from 48.9 in July. This industrial health reading has not been over 50 — the level after which manufacturing is growing — since January 2008!

Sure, the Cash for Clunkers program has helped but this program has a multiplier effect on people’s incomes and jobs and eventually consumption.

On top of that, pending home sales rose big time by 3.2 per cent in July, which is the best level in two years and there has now been six months of rises.

Thursday US-time, we get the ISM’s report for the services sector and at the end of the week the jobs report. The latter indicator could give the market a fright but expectations are it could do the opposite.

Nightmare on Wall Street II?

If this market is going to be scared out of its wits to force a massive sell-off, there will have to be a shock of Fatal Attraction proportions, like when the Glenn Close character emerged out of the bath with a knife to Michael Douglas’s surprise.

I’m not saying it couldn’t happen, given what we have seen with the credit crunch, the GFC and the massive government bailouts of banks, but the odds of seeing a genuine scary movie like last year’s ‘Nightmare on Wall Street’ seem rather long. Let’s hope they stay that way.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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