(FRIDAY 5TH AUGUST- 08.08 - JAMES GERRISH)..The global economy is coming to a grinding halt hindered by ineffective political leadership and a string of failed decisions in dealing with debt...or at least that's what the MKT is telling us with the overnight action where we saw panic selling across the board. The DOW JONES lost a significant -512pts while the S&P 500 fell -4.78% - the biggest fall in equities since Feb 2009. The SPI FUTURES are down -157pts
Selling was indiscriminate last night and the charts below highlight a pretty sobering session. I'm actually struggling to finding one trigger point last night so I think it was a combination of all the simmering elements that have been in play including European Debt + growth concerns in the US.
The moves were HUGE overnight and no matter what way you look at it, fear was the main driver. The VIX was up +29% to close at its highest level this year (Still well off GFC levels obviously).
European Debt Concerns
The bond yields tell the story in the Euroezone with concern now spread to larger nations - Spain & Italy are now in the mix in addition to the peripherals such as Ireland, Greece and Portugal. Its a commonly held view that 10 year debt above 6% is unsustainable. As the chart show, we're pretty much there.
WHAT TO DO TODAY IN OUR MKT??
No doubt this will be the most popular question in the country today and one that's going to be difficult to answer with any certainty. The most honest response is that I or no one else really knows whether this is the time to be averaging down to existing positions or sitting tight.
I think the most important element here is to keep a cool head, look at your existing portfolio and review what type of investor you are. If you've got a time frame that is greater than 12 months, then it may be worth sitting tight- let the dust settle. If there is one slight positive to come out of last night, such a violent move prompts action from policy makers. Domestically, this puts a lot more weight behind calls for an interest rate cut (rather than an increase) which could put downward pressure on the Aussie dollar. The Aussie has been a major headwind in our MKT and any move lower would be a positive.
Its also important to note that Corporate s are incredibly healthy particularly in the US. This is different to what we saw in the GFC when balance sheets were highly leveraged and there were large structural issues in the financial system. We've also got America trading at an exceptionally cheap level (13.2 times earnings). I know all this means very little today and the MKTS can go lower, but its worthwhile keeping in the back of ones mind!
Looking locally, I certainly did not foresee our market trading at these levels, but from a technical standpoint, the buy zone seems to sit around 4150. The media will provide you with a huge amount of bearish literature today sighting expects who obviously foresaw the recent drop. Keep in mind that this is a characteristic of market lows.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$1.08 to US$15.04, equivalent to A$14.42, A$0.34 below its last close on the ASX.
ResMed fell by US$1.27 to US$28.12, equivalent to A$2.70, A$0.02 below its last close on the ASX.
In London, Rio Tinto fell 218.5 pence to £37.97, A$3.40 lower in Australian currency terms.
BHP-Billiton fell 108.0 pence to £20.13, A$1.68 lower in Australian currency terms.
Henderson Group Plc fell 8.2 pence to £1.45, A$0.13 lower in Australian currency terms
