Are you a buyer or a seller today? If you're running one of Australia's big banks, are you buying your own shares? One of the signs that the Australian share market has bottomed will be when insiders step in and buy. They tend to view 20% sell-offs in the share market as a great time to get your own shares on sale.
We're not so sure. Friday's weak close in the U.S. doesn't give the Australian share market a good lead to follow. Monday is a public holiday in America, so it will be a full day before we see if the U.S. market resumes its slide. It probably will.
"What could cause greater economic losses or fallout in the market would be further recognized losses or downgrades in the financial sector," said economist Joe Davis at Vanguard. "That is the heart of the problem and where the greatest risks lie." Indeed. The heart of the bull market was the financial sector. It turns out that heart was mostly rotten.
Abbey Joseph Cohen at Goldman Sachs (NYSE: GS) - whom we've long suspected is actually an animatronic soldier in Wall Street's PR war to keep investors buying-says the market could finish the year up 22%. Markets can be driven higher by a number of things. corporate earnings, news events, or Pavlovian dip-buying by well-trained investors. Right now, investors are trying to discount a recession in the U.S., reckoning how much it will affect earnings there, here, and everywhere.
Cohen told the New York Times that once a U.S. recession was factored into share prices, it would be clear sailing to 14,750. A twenty percent rally in the All Ords from where it sits as we write (5,724) would take it all the way up to 6,983. On the other hand, the Australian share market is within spitting distance of making a new 52-week low if it closes below 5,490.
You look around and there aren't a lot of compelling reasons to buy aggressively into this market. That itself might be a good sign if the bear market in credit was over, or of its affects were isolated to a certain few sectors. But the bear market in credit isn't over. And without newly created money finding its way (via carry trades) into the Aussie market, the main source of buying will be from superannuation funds.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
