Tom Scollon

Greece? But we have known for some time that this was going to be a problem requiring reckoning at some point.  It was only a matter of time.  But it is weird how the market waits before panicking.

I remember a couple of years ago in Morocco I met a Greek guy who said to me ‘ …you should have known we would never pay the money back when you gave it to us’.  I could write a book about this.  But bottom-line Greek has not undergone any real paradigm change.  Nor have many countries in Europe for that matter.  Not a lot has changed in the economic reality world since 2007/08.

What else could act as a trigger?

Could a cessation of interest rate easing also be the catalyst? What about an end to the property boom in Australia – or even a bursting of the so called bubble?  Or could a disaster in property result in a flight to equities?

What might be the prompter to unsettle markets is a topic about which I can offer little wisdom.  As an equity analyst I don’t spend much time thinking about this.  As a fundamental economist I do occasionally ponder such phenomena.

This is the chart I most ponder:

Click to Enlarge

After the 2009 bottom the market bounced back with a sudden rush of blood to the head.  There was no real consolidation.  The market did consolidate a little around 2011/2013 and then took off again unabated for the next three years. 

Markets just don’t keep going up and the usual rule of thumb is that a pullback of about 50% is healthy.  And that is the first wave four pullbacks projected in the chart above.  So a level of about 4900 would do the trick.  A second projected wave four would bring us back to 4500.  Neither are too disastrous except for those who have bought in recent months and more painful for those who have negatively geared.

This second wave four pullback could take us back to 2009 levels – even 2008:


Click to Enlarge

I cannot say with any strong conviction that the market could come back to these levels.  I have no solid technical or fundamental argument to say this.  But I would not be surprised.

I have seen the ‘X’ factor come into play so often.  We have not had any X factor scenarios in the last several years.  It is only a matter of time.

Is China an ‘X’ factor? In my view, no.  A Chinese trigger of any kind would have dramatic global ramifications.  I would no like to project where markets may settle under such a scenario.

Enjoy the ride             

Tom Scollon