Monthly Archives: December 2014

Stock market volatility

Investors need to get used to volatility. There is currently significant volatility in the American and world markets. What really is happening? Why should the Australian market rise by more nearly 2.5% in one day in an economic environment where unemployment is rising and Australia is likely to enter a recession for the first time in 23 years?

The reality is that the United States is one of the few economies in the world which is now growing and it is driving all equity markets. Most other equity markets are at recent highs and they do not reflect the underlying economic performance of their respective countries. Some examples are India where the Sensex index is at all-time highs on the promise of better times based on a new prime minister in Narendra Modi. That spectacular market rise is entirely related to optimism but the reality is that the Indian economy… Continue reading

The next black swan – is it rising oil price or the US dollar?

In a world where very high sovereign debt is the norm and central banks have invoked very low interest rates and quantitative easing to repair their respective economies, the world economy has been in an uncertain and unhealthy state for several years. The very low interest rates and a surplus of capital has meant that investors have little alternative but to invest in equities and as a result most world equity markets are near or at record highs.

As a result equity markets are overheated in an environment where world growth (with the probable exception of the United States) is falling and this must make markets very vulnerable.   There have been a number of issues which have alarmed the markets over the past few years. In the past month we have seen a dramatic fall on the Greek stock market which raised the risk that Greece could leave… Continue reading

More uncertainty for investors

It seems that investors should get used to volatile markets. There are many uncertainties for investors these days. In the past week we have had three significant events which have shaken the markets.

  • There was a dramatic fall on the Greek stock market provoked by an election which raises the likelihood that Greece could leave the European Union.
  • There was a dramatic fall on the Chinese market stimulated by Chinese authorities tightening the rules for collateral and equity margin which will bleed liquidity from that equity market.
  • The continued fall in the price of oil has caused consternation to markets. This will damage some economies but should be a positive for world growth. But what other instabilities will result from this very low price of oil?

In the light of these events all world markets took a tumble. The Australian market now is looking very shaky. From the daily chart… Continue reading

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