Was That A Sell Off Or A Snow Flake?

Yes, it was a slightly gut-wrenching Wednesday in stock markets in Australia. Not so much elsewhere in the world.

The US market is only 1% off all-time record highs again. Expect those to come soon.

So what was the story with Australia?

Well, there were a few bearish, as in sell factors involved, but really I think it was more a case of the usual lack of courage among Australian fund managers who seem to be all too keen to do ‘nothing’ at every opportunity.

The reason Australian stocks tend to fall further on overseas news more than even the markets directly affected do is that Australian fund managers, tasked with managing your money and investing in stocks among other things, tend to all act en masse. That is, they tend to make sheep look like strong individuals.

If there is any bad news anywhere in the world, then as soon as the Australian market opens, these supposedly value buyers do absolutely nothing. Leaving the market to the whim of the day traders who inexplicably all want to sell most days. Without any real liquidity, the market falls sharply.

We have seen this happen time and time again.

It is not until the market is again shooting upwards, something it does far more often than reported in the press, that these “value” buyers, at last, feel compelled to do something. They still get paid handsomely just the same. No matter the outcome for you and all the other super fund investors out there. No wonder virtually everyone in the financial industry has a self-managed super fund. They know what goes on, and do not see any value in leaving their money and future in the hands of these people.

Which is why property prices have been going sky high, but only if you were living in a deep valley. As there is plenty more to go. Sky high from the mountain tops is still a long way off.

Did you know that Sydney property prices are up 80% over the past five years? We have been bullish, expecting prices to rise, since late 2008.

We still expect further strong gains in the Australian market in general based on the amazing true reality that Europe is accelerating, the USA, and China especially are booming, and well as a commodity producer, minerals and agriculture, we are hardly going to be left out of this global rising tide. Even if our leadership and economic management is akin to a leaking tinny.

So our stock market has begun to rally again as well it should, and the blue skies of property are set to prevail.

One last word. We have to mention how a hapless small research firm managed to get enormous publicity during the week by saying Australian property prices would fall for the next two years. Truly irritating. As all these people are doing, is saying property will fall as a way of promoting their brand through the media. Everyone seems to want to be a property bear.

Reminds me of when everyone wanted to be a stock market bear all these past eight years, as the Dow Jones Index rose 300%. That's right, 300%.

So Sydney may be up 80% in five years, but it has plenty more to go. As does Australia.

Clifford Bennett // Chief Economist