Keep volatility in-market
Volatility in the markets can be a good thing. The problem lately, however, is that the volatility has been on the front page of the nation’s newspapers.
When that occurs it’s usually a precursor to Armageddon for investment advisers.
Investors, particularly “mums and dads”, don’t like uncertainty and that has been confirmed both anecdotally and physically, with money being redeemed from managed funds at an exponential rate.
According to the latest report by independent research company SuperRatings, the average super fund fell a further 1.8 per cent during September, taking losses so far this financial year to almost 5 per cent.
This was the fifth consecutive monthly fall, in line with ongoing declines on the Australian Securities Exchange.
Since June 30, people with a balanced investment option have lost $5,000 for every $100,000 in their super fund according to SuperRatings.
This is usually close to the bottom of the market, as the herd mentality is a sure sign that markets are levelling out.
The usual scenario is “get me out”, at any level, then I’m not interested in the market at all, then a “bail out” or two, read the Eurozone, then the FOMO part of the cycle. Fear Of Missing Out !
We aren’t there yet, but market psychology reads that FOMO is around the corner.
Basically, any stocks with a hint of capital issues or exposure to wrong sectors are being “shorted” to the bejesus.
FMG for example is over 50 per cent short in the ASX at present.
That’s an unbelievable number, and when the market turns, or when their short term issues are solved the short covering will be worth watching.
Markets at present are very hard to read, with a couple of days of recovery leading some pundits to call the end of the bear market, just before another large sell down leads others to declare that we are on the cusp of a complete market capitulation.
Therefore, it’s safe to assume no-one knows what the future holds.
Also, it is safe to assume that the Euro debt crisis will be sorted before it gets worse, as markets are reeling from bad news emanating from Europe weekly.
Some days it’s a haemorrhage, others it’s a flat-line. But generally, world markets are not happy with the current uncertainty.
The upcoming meeting of European leaders at a summit should provide some direction.
“I think it’s a matter of details that have got to be worked out rather than the fundamentals, that’s why I think that no matter what the meeting decides on the weekend it’s not going to have a material negative impact on the market,” Michael Heffernan from Austock said.
In a joint statement France and Germany said that European leaders would discuss a global solution to the crisis on Sunday but no decisions would be adopted before a second meeting to be held by Wednesday at the latest.
The major sticking point is over how to scale up the European Financial Stability Facility, a 440 billion euro ($600 billion) fund so far used to bail out Portugal and Ireland.
