When stock markets are rising, as they have been since March 2009, then you can largely rest on your laurels and deal with some crazy critics, who hate my current bullish ways.
However, when the headlines become madder than the market itself, that’s when you have to deal with an avalanche of “I told you so” types, who, in fact, never told me in the first place!
Anyway, even if they did, I wouldn’t have listened because I think, on balance, the arguments against stock markets crashing are more credible than the ones that say those long with stocks are going to hell in a hand basket.
Let me give you the reasons why I don’t lose sleep when stock markets do something crazy, like Tuesday’s 3.82 per cent sell off of the S&P/ASX 200 index, which took the index down to 4918.4.
Lots of us hoped that the 5000 level would have been the support level for our market, after stocks had fallen from 5996.4 only a few months ago.
We’ve gone through an 18 per cent drop so this correction is getting close to a bear market, which technically starts when we lose 20 per cent!
But this last leg down was caused by market madness linked to a mining giant called Glencore, which in 2014 was the 10th biggest company in the world!
It’s caught in a high debt and low commodity price trap and some (hitherto) unknown Investec analyst raised doubts about the company and market smarties, hedge fund managers, short-sellers, traders and generally scared investors dumped its stock.
It fell 29.4 per cent. That spooked a lot of people and made them think that BHP and Rio were potentially badly affected and that’s why we sold off big time.
However, one day later, Glencore rebounds 16.9 per cent, when smarter people gave some critical analysis on the work of the Investec guy.
Right now, there is a lot of negativity around because economies such as China and Australia have underperformed and company profits are not as good as expected.
So share prices, created on expectations of higher profits, now have to fall to match the reality of recent profit reporting and the expectations of future results.
The latter could prove to be too negative and would mean that share prices could rebound, which I expect.
I don’t want to be sexist nor fattest but I can’t see this run up for stocks to be over until the proverbial “the fat lady sings”.
This bull market has never been predictable because it has come out of unusual policies to fight a very unique, potential Great Depression, which we avoided.
Excessive monetary policy expansion or quantitative easing has given the world a chance to remake its economies but it's a slow process and that’s why stock markets are finding it difficult now.
Fortunately, we have seen the US economy come out of QE successfully, though not everyone agrees, but unemployment is at 5.1 per cent, which is better than us at 6.1 per cent, and economic growth is at 3.9 per cent, while we’re in the low 2 per cent range.
When I think Australia and the world economy looks stuffed and policies aren’t going to work, then I would pull out the R-word for recession and pull out of being long stocks.
The chief economist at Beta Shares, David Bassanese, agrees with me that the economic story supports sticking with stocks but he doesn’t say the turnaround will be as quick as we’d like.
However, he is a ‘sticking with stocks’ guy right now on all the economic data he watches.
The chief economist at brokers Morgans, Michael Knox, thinks the next two US reporting seasons will be better than expected and, on top of an improving economic story, will mean that there’ll be nice drivers to take Wall Street higher.
This will help our stock market.
The combined effects of the low dollar, hopefully some improving economic news out of China (data or a new stimulatory initiative), our low interest rates, the positives for small business out of the previous Budget and maybe even the Turnbull ‘turn me on’ effect just might raise growth here, helping profits then share prices.
I’m expecting an end-of-year rally, which rolls into 2016 but we’re living in strange days indeed. To try and create a stock market script on what history tells us is fraught with danger.
In the 1987 crash, I interviewed the great Canadian economist, J.K. Galbraith (who advised US presidents and was an economic oracle of his time) and I asked him what was happening?
He replied: “There are those, like me, who say I don’t know and then there are those poor fellows who don’t know they don’t know!”
The GFC was a curve ball and crashes can often come from these odd events.
No one knew that those sub-prime loans could kill investment giant names such as Bear Stearns and Lehman Brothers. That’s because the ratings agencies didn’t give everyone a good leg up on how dodgy a lot of investment products linked to these loans were.
Sure, something like this could happen again but it’s going to (to use a baseball analogy) come from leftfield.
At the moment, on what I can see, I remain long stocks and see this current sell off as another buying opportunity.
Now I could look wrong for a few weeks or even months but I reckon, by Christmas, I’ll be celebrating.
This chart shows us where we were in 2007 before the GFC crash.
We’re a long way from those heady levels because our economy and others aren’t doing as well. History says we usually pass the old all-time high before crashing again.
In our case, this was 6851.5 (hit on 1 November 2007) so I think I’ll bet that this bull market has a way to go.