Market Wrap 10-9-11

By Jason Fittler

I was speaking to a friend this week and the conversation turned to how he was not happy with his current advisor. His comments were,

“They told me the market was cheap and I should buy, the market dropped further, again they said it was cheap and I should buy more, I did it, the market dropped further again. Now that I have no more money to invest they tell me that investing is long term and I simply need to hold on.”

This indicates to me that the lows are near, the recession is close to an end and that the market will soon start to recover. Now let me qualify the above statement.

1.    Lows are near – could see another 10% down side in the market, we will not know until it does or does not happen. It is going to it will be in the next 12 months.
2.    Recession is close to the end – families are now just starting to hurt. Unemployment in Queensland is 6.3%; you will soon start to hear in the media about families losing their homes. The fear will truly start to hit the man on the street, these are the people who have never invested in the share market and are wondering what the fuss is all about. Watch for the headline in the paper and on the news over the next 12 months. When the media start to scream how bad it is, the worst has usually passed for the markets. What we are looking for is the last of the want to be traders leave the market place and the doggy financial advisers leave the industry and look for work elsewhere as making money in the markets is now just too hard. I expect this will happen in the next 12-18 months.

3.    Markets will start to recover – markets do not recover quickly, take a look at the GFC it to 18 months to find a bottom, expect 3 years from the start of the recover for the market to get back to fair value.  I expect the recovery to start in the next 12 months, so factor around 4 years until we are back to fair value and 6-8 before the want to be investors start to get back into the market and push it beyond fair value.

Most people would look at my above comments and consider the time frames to be extremely long term. In fact 8 years in an investment cycle is very short. Long term is 40 years.