Welcome to the silly season!
Yes, despite last Christmas feeling like it was only yesterday, we're now into the final stretch of 2014.
I've put up our Christmas lights (I may have got carried away at the Christmas shop), and our now almost-2-year-old son can say a passable version of 'Santa Claus'.
Photos with Santa will follow, then some Christmas shopping, a few parties then — probably on the 23rd or 24th — I'll brave the crowds and do some last minute shopping for my wife's present that I've been meaning to buy every day since writing this!
The share market has its own version of the same thing: the fabled (and some would add, mythical) Santa Claus rally.
You see, the 'investing community' — such as it is — has decided that December is the province of the aforementioned upward trend in prices, that's supposed to be as sure as death and taxes.
So, is Santa coming?
Is the Santa Claus rally real?
Well, yes and no. There's something of a self-fulfilling prophecy in all this — people expect stocks to go up, so they don't sell cheaply, meaning those who want to buy end up paying higher prices… and hey, presto, we have a rising market.
It's the stock market's version of what I was told about Santa as a kid — 'if you don't believe, you don't receive'.
But it doesn't happen every year. Indeed, it's the philosophical successor to 'the January effect' which was supposed to suggest that prices always go up in January. You know what's going to happen, right?
Yes, the Santa Claus rally is probably just the clever Dicks in the market trying to front-run the January effect.
And yes, give it a couple of years, and we'll have people trying to buy in November to 'get set' for the Santa Claus rally, then people trying to buy in October to get in ahead of the November pre-Santa Claus rally.
Calling the market's bluff
I hope this sounds as silly as it really is.
It's the grown-ups' version of bluff and double bluff.
You know that I know that you know that I know…and it's another example of the folly of concerning yourself with trying to guess short-term market movements. It just isn't worth the time. Or effort.
David Murray in the role of The Grinch?
Speaking of Christmas, David Murray's financial system inquiry may just well be the proverbial lump of coal that is put in the stocking of naughty children at Christmas… at least if you're a bank shareholder.
If implemented — and it's a big if — bank shareholders can take Murray off their Christmas card lists, as higher capital requirements will likely make strong returns harder (though not impossible) to come by.
Higher capital requirements lower banks' ability to earn returns on their capital, as they have to hold more money for every new loan they issue.
The banks have predictably come out against the changes — and if the financial advice changes are anything to go by, they have the ear of the federal government — so the changes are far from guaranteed.
It's a tough decision — the proposal would undoubtedly make the Australian financial system safer, but legislators are always faced with trying to balance two opposing forces.
Banning cars would make pedestrians safer, but our society has determined that having automotive transport justifies the risk — an imperfect but necessary trade-off. For my money, a safer financial system is worth putting a little more lead in the banks' saddlebags.
With house price growth slowing, the potential for banks to be lumped with higher capital requirements and reasonably high share prices, banks aren't the bargains some might think.
It might just be time for bank shareholders to give themselves a Christmas present by lightening their exposure to the banks and looking elsewhere for better ideas.
If you want excitement…
Whether or not we have a Santa Claus rally, and whether or not the federal government implements the recommendations of the Murray inquiry, the basic (and yes, some might say 'boring') approach to investing still applies. If you want excitement, go sky diving.
