(03) 9020 2905Debt Man column – The West Australian (Business)
February 4, 2011.
Bruce Brammall
Debt Man
Few things seem to go “twang!” as easily as confidence. It runs second only to footballers’ hamstrings once the pre-season starts.
(Speaking of hamstrings … how’s Daniel Kerr shaping up for 2011?)
Take the share market. Investor optimism turns to jubilation turns to pessimism turns to white-of-your-eyes fear on a near daily basis at times. You can hear confidence snap.
And more so than others, investors are usually riding the wave of the confidence of others. If off a cliff drives either business confidence or consumer confidence, investor confidence is sure to follow.
Definitely more lemming than James Dean.
Imagine what’s going through the minds of Queensland’s tourism chiefs. Sure, “beautiful one day, perfect the next” has been replaced with “Where else but Queensland?”
But maybe its time for some truth-in-tourism-advertising with their weather forecast: “Drought on Monday, torrential rain mid week, inland tsunamis by Thursday and just when you thought you could relax for a weekend barbeque … tropical cyclones. Where else but Queensland?”
Queensland Premier Anna Bligh’s halo is currently shining so bright, she could nearly turn that into a tourism winner. She should certainly be the poster girl.
We’ll all pay this bill for the floods. Even if you’re exempted from Prime Minister Julia Gillard’s flood levy – that is, you’re earning less than $50,000 –higher grocery prices will get you.
The share market has been, so far, surprisingly unscathed. The All Ordinaries is bouncing around 4800 to 4900, as it has been forever, and reinsurance contracts seem to be protecting the nation’s largest publicly listed insurers, including IAG, QBE and Suncorp, whose share prices are either holding steady or haven’t fallen more than about 5 per cent. Certainly no wipeout.
What does it mean for investors? Well, bizarrely, it’s probably pretty good news.
The fact that professional investors – those whose influence is greatest on the the confidence of the market – haven’t soiled themselves over these massive costs to the economy and government budgets is a positive.
When professional investors lose confidence, they sell. Hard. Fast. They dump stock. They take modest returns from cash until their fears have passed.
They haven’t done so on this occasion, despite it being probably the single largest catastrophe, from a financial sense, Australia has faced.
Consumer confidence has dipped, but hasn’t slumped. Business confidence was down to two year lows in December, which is before the worst of the floods hit.
Globally, our markets also consider what’s happening in teetering regimes, including Egypt, and debt-ravaged European nations.
And now we’re into February, the first profit season of the year. Here’s where we find out how the major companies saw the second half of 2010, from an Australian point of view (such as Commonwealth Bank) and from a global point of view (including BHP Billiton and Rio Tinto).
There’s a definite absence, so far, of gloom and doom (no matter how much Gerry Harvey said last year would be the worst Christmas ever). Even perennial retailing dud Coles is finally shining under Wesfarmers’ ownership.
There’s no oozing confidence in the market. There’s a hazy sort of goodwill.
Sssh. If you’ve got some, keep your confidence to yourself. Assess your current position. How much cash are you holding? Are you underweight shares?
With the benefit of hindsight, having the balls to buy shares in March 2009, when the market bottomed, was an awesome act of courage. If you did buy, or even held your nerve and didn’t sell, you were rewarded. The market bounce from that point was around 50-60 per cent.
But picking bottoms (excuse me!) of the market takes extreme courage. You are literally running against the herd – a thousand bulls running down the streets of Pamplona and you run at them. (I swear the only reason I did that was because I was inebriated and Mrs DebtMan had gone shopping.)
The next hardest time to buy is during indifference. No extreme pessimism. No great optimism. No great reason to do anything.
The “easiest” time to buy is actually the worst. When everyone’s piling in to the stock market. When hot tips are abundant. When confidence is sweating from everyone’s pore.
It’s time to place your bets. But don’t get too cocky. Confidence during the off season is a fickle thing. Ask Daniel Kerr’s hamstring.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au . The writer owns shares in many of the companies listed.