Up and down and up again

Another week and the stock market refuses to head in the right direction, but are there any reasons for long-suffering, long-term investors to take heart that the good news is starting to make up some headway on bad news?

Words of wisdom

To this all-important question, like most economists I refer back to a model that gives me hope. In fact, it's my all-time favourite model, and it shows my age, but the model is called - Rachel Hunter!

In a famous Pantene hair commercial she uttered those immortal and relevant-to-now words to what would be an improved situation: "It won't happen overnight but it will happen!"

The head of MLC's financial planning unit, Steve Tucker, took a similar position when I asked him on my Money Makers television program on Sky Business. I asked if we were near the bottom of this stock market rout and he said he didn't know, but he knew from history that it would turn around and go up strongly.

Key issues

The issues for many people are:

What are you invested in?
Do you have good cash flow?

If you have good shares or a fund that has just been caught in the market sell-off, they will come back over time. And if you don't need cash now, the money will come back to you.

There's likely to be a solid rebound, eventually, and then it will take some years to pass the old high on the stock market, which was a phoney high anyway and that's why this crash has been so bad.

News from around the globe

So, what about the good news?

Well for starters, the G20 meeting over the past weekend could have been a lot more helpful, but at least Monsieur Sarkozy, the French PM made the relevant point: "We agreed on the necessity for stimulus," he said. "That's the message we are sending markets."

And the Russians responded with a big fiscal package early this week which pushed its stock market up 22%, though it was still down overall by 48% from its highs.

Next, a Wall Street Journal survey of 54 economists saw the majority tip the US will come out of recession in the second half of 2009. The same group - well, two-thirds of them - voted that the Troubled Assets Relief Program or TARP will have a positive effect.

Back from the brink

Early this week the US stock market sold off because of poor retail figures for October. This was understandable with this month being the one where the investors of the world stared over the abyss into financial meltdown. We've come back from the edge and November's consumer sentiment reading in America was up in November.

Historical bounce

History shows the stock market bounces big time in a bear market after the US hits its lowest reading on consumer confidence. Given October's was the lowest ever, we could be heading for the light.

This week Wal-Mart's earnings were up 9.8% and sales were up 7.5%. While this is a reflection that many US consumers are switching from other stores to cheaper Wal-Mart products, it also says something about the willingness of Americans to shop.

Right now Wal-Mart attracts 8% of the non-car retail spend in the USA.

The experts in the States say its commercial market paper where they access loans has improved over the past month, and credit markets have definitely improved.

Signs

One really weird fact relates to a guy who has made a lot of money out of shorting the banks over their exposure to sub-prime loans and the related mortgage-backed securities. His name is John Paulson and he is not related to the US Treasury Secretary Henry Paulson. John Paulson, who has a $US36 billion hedge fund and has made billions betting the sub-prime mess would bring banks undone, is now said to be buying sub-prime mortgage assets.

This could be a sign that he thinks "enough is enough" and a bounce and the economic healing process is on the way, though with a long way to go. However, these guys are pre-emptive types and so this could be a promising sign.

Save jobs

The world economy and global stock markets have to see steps to shore up economies put in place. For example, an auto industry rescue plan would help save the jobs of many of the 3 million US workers linked to this industry.

This stops workers walking away from homes and mortgages, which helps the banks as well as the housing sector.

Strength required

These are challenging times and it's a pity that the USA has a lame duck president, who has suffered from this condition for years, and it means bold leadership decisions are not being made.

As my favourite model has said, or virtually said: "Improvement won't happen over night but it will happen."

Click here to visit Peter Switzer's website

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Up and down and up again

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