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.
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.
could act as a trigger?
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?
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
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.
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.
wave four pullback could take us back to 2009 levels – even 2008:
Click to Enlarge
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
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.