Applying logic and balance

Posted | 08/09/2014 / Views | 2263
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Some might see us as “Chicken Little” when it comes to continual talk of a sharemarket crash when it just keeps going up and “Everything is Awesome”.  We don’t for one minute know when it will happen but would challenge any independent thinker to deny it will happen and on any measure shares and property are looking a little ‘toppy’ right now.  

Case in point,  just late last week the European Central Bank (ECB) announced cuts to interest rates to just 0.05% and deposit rates to -0.2% (yep, that’s a minus sign) and a program of buying asset backed securities and covered bonds to inject liquidity into their sick and struggling economy (only German resistance prevented a full on US style QE program announcement although it looks inevitable).  What happens?  Euro shares rally!  On Friday night much weaker than expected official employment numbers came out of the US.  

What happens?  US shares rally!  Both markets rallied on poor economic news because that mean more cheap/free money from those central banks.  By the way, on Friday the Australian Financial Review ran a feature story on our economy entering “the Danger Zone” predicting a painful downturn in 2015 as we face the reality of iron ore hitting just $85.70 (down from $190 – and ore representing 20% of all out export income)  They reported “falling prices for coal and iron ore, a slump in business investment, an overpriced housing market and high dollar had placed the Reserve Bank of Australia “between a rock and a hard place”’.  

Whilst we have sharemarkets over inflated by central bank instigated purchases not economic health and reality, logic must dictate that will end badly.  But no we don’t know when, and that is why we preach balance.  The key question for readers?  Is your wealth balanced to weather the coming financial storm but profit now from the stimulus?