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Yes we are inclined to be more upbeat at this time of the year with summer here and as we desert the big smoke and escape to the beach we leave our troubles behind. Resort bookings are at an all time high evidenced by the fact that so many people have struggled to find reservations. Our optimism is also evidenced by record spending on our credit card. After we return from our beach escape we face the real world again – and maybe some of the issues we left behind in 2003 are gone, maybe some are still there and maybe there are some new ones. Overspending the credit card might be an old one for some but for many more it will be a new one and that is something that will become a headline issue for 2004. Watch it – government, corporate and personal debt!
Optimism is an emotion and we all wonder at times: is our glass half empty or half full? Our view of this will vary depending on the circumstances of past experiences. Sure life does feel much better – we have gotten some of the monkeys off our backs and feeling good can be purely a matter of some of the very bad news disappearing. How quickly our memory can fade especially at this time of the year. September 11 – SARS – Iraq War - stock market five year trough - all are fast becoming a mere memory. This time last year – two New Years after 9/11 people still asked was it safe to go out and revel en masse or travel on holiday. All is almost forgotten and even though terrorist warnings are commonplace people are celebrating and travelling in bigger numbers than ever. We are getting on with life and accept that the threat of terrorism is a reality and that anti-terrorism is a new and fast growing industry today.
As we return from our annual coma at the end of January and rejoin the rest, another headline issue for the world will be: is this a real bullish environment we are experiencing or are we about to see one of the greatest binges of all time. Sure there are signs of sustained global recovery and you might even say that yes we are seeing new jobs being created, but is our new spending built on new earnings or even savings or is it merely built around increased debt. In other words are we just creating a problem for ourselves sometime down the track? How far does the Reserve Bank have to go with interest rates, to be “cruel to be kind” Will another two, quarter per cent increases before March slow us down? Maybe not.
So what will all this mean for the markets in 2004. This week I will briefly look at the Australian All Ordinaries – the “big picture” and over the balance of January undertake a more detailed analysis of other relevant indicators. The All Ords showed an overall gain of almost 16% for the calendar year 2003. This is based on the Accumulation Index which includes dividends. This compares with the US Dow Jones 25% gain so the Australian market was much more modest in its gain. And for this reason may also be cushioned when the American markets retreat. As expected the Australian market finished firmly last week and gave every indication of continuing strength in the early part of 2004. If it follows the “average pattern” the market should in fact continue to climb through to April and then retreat in May in sympathy with the northern hemisphere summer pattern of “sell in May and go away”
The unknown can always happen – I say that ad nausea much to the frustration of some readers but we must be vigilant. But at this point the market should power on. One critical hurdle will be 3422 an All Ords high twice failed – once in mid 2001 and then in early 2002. My view is it will clear this hurdle on this occasion because this assault has a great deal more conviction than the other occasions. So where might it settle? It is traditional at this time of the year for market analysts to go out on a limb and forecast where the markets might finish at 2004 end. That is always difficult as whilst one can forecast a high, it is so much more difficult and less important to forecast a level at a particular point in time. I say less important because if a high is reached much earlier than 2004 end and the market subsequently comes off then in my view it is more important to recognize that milestone and take a view then about your strategy from there forward. Having said that let’s go to the bottom line.
3600 is a highly likely milestone but in the best of worlds – barring the “X” factor we could see an All Ords as high as 3800. That does not mean it is straight up from here – we could see a major pullback before an assault on the new peak.
This could well be a binge but you are invited to the party and it is your decision as to whether you come and if you do, it is your call as to what you eat and drink and when you leave the party. Likewise it is your choice as to what sectors you pick and when to take profits. Decisions on both will affect your returns greatly in 2004.
Enjoy the ride.
Tom Scollon
Editor
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