China's casino + Greek gambling on a Sunday!

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In a week when China trumped Greece as the problem child of world finance, we wait with trepidation as the recalcitrant borrower – Greece – and the not so lenient lenders bang their heads together. However, it’s us, the stock market bulls who are ending up with the pain in the neck! (I guess the Greeks would argue their heads are hurting too but we are innocent bystanders, while they have a major role in this long, drawn out and sad story, which hopefully has a happy ending this weekend.)

I know it’s Saturday but after living with the Greeks for nearly a month, after writing about 20 stories on the place over June and doing countless radio and TV/Skype interviews on what was supposed to be a ‘getaway’ to write my next book, I can’t wait for Sunday.

Tomorrow we see how the lenders – the European Union, the European Central Bank and the International Monetary Fund – will respond to what many say looks like the same proposals that the Greek PM, Alexis Tsipras rejected ahead of a referendum that said “No” to those proposals. This is a big Greek gamble on Sunday.

Against that, other news sources say it’s a “new set of proposals” and let’s hope it is, as a big, overdue tick from the lenders will help stocks head up next week and that’s my main game. Personally, I don’t care about the nitty gritty of the proposals, I just like the recent market reaction and, especially, the German DAX index.

Of course, the market has overreacted to the positive before, so it has not been a reliable indicator of what the lenders will say about the latest reform proposals from the Greeks.

Since Tuesday when the Greek debt proposal news looked more positive, the index has gone from 10,767.78 to 11,319, which is about a 5% gain.

The Italian market has actually done better, up 9% in two days, which shows what a good Greek outcome on Sunday could do for stocks. Gotta hope equity markets are getting it right this time.

Greece might be only 0.3% of world GDP and 2% of Eurozone total production but its so-called Grexit could have profound market and then economic implications. The fact that Barack Obama rang Germany’s leader, Angela Merkel, on the subject underlines the importance of the issue.

I expect a good outcome on Sunday and stocks will spike but our weak 21-point rise of the S&P/ASX 200 index on Friday shows there aren’t many in this country who were prepared to bet the bank on Greece and its lenders.

Away from this Sunday, China-watching, especially its economy, will remain an important work-in-progress and its impact on our stock market, as well as our dollar, shows how vulnerable we are to a surprise slump in Chinese economic growth. For the time being, the Chinese stocks regulator has banned those with more than a 5% holding of a company from selling shares for the next six months to halt the stock price collapse. This is capitalism Communist-style and global market players were happy to cop this interference. The stock market bounce-backs around the world prove that but if the Chinese economy seriously disappoints in the near future, we won’t like the market reaction.

Wouldn’t it be nice if term deposits were 7% so we could easily reduce our exposure to stocks?

What I liked

The Obama phone call to Merkel – it’s good to see Barack’s involved in important global issues, at last!
The RBA rates decision – I don’t want any more rate cuts, as it shows our economy is on the road to a 3% growth recovery.
The overall June jobs report was positive but delving into the ABS numbers shows that over the past eight months, 205,000 plus jobs have been created across the Australian economy. This is what CommSec concuded: “The unemployment rate looks like it has topped out or is very close to peaking – which should help to ease some concerns about job security. An improvement in confidence would certainly bode well for retail activity and broader economic growth.”
Good US economic data, with the ISM services index rising from 55.7 to 56.0, just short of forecasts near 56.2. The employment trends index rose from 128.47 to 129.11 in July. And the Markit composite purchasing managers index was steady at 54.6 in June (numbers over 50 means expansion).
Yanis Varoufakis resigning from the finance minister’s job in Greece. He’s a smart guy but a shocking leftie-show pony and his resignation improves the chances of a settlement of the debt drama. Remember he recently tweeted “‘They are unanimous in their hate for me; and I welcome their hatred.’ A quotation [from FDR 1936] close to my heart (& reality) these days.” He’s clearly not a consensus kind of guy.
The Chinese Government handling of crash-creating selling, with six month bans for those holding 5% plus of a companies shares!
Learning that only 7% of China plays stocks – about 90 million people, so the real world effect via negative consumers, who’ve copped it at the hands of the stock market, is really small and this reduces the economic effect of the dive in the casino that is the Chinese stock market.
Job advertisements rose by 1.3% in June, to be up 10.8% on a year ago. Job ads have risen in 15 of the last 17 months.
Wall Street up this morning on headlines such as “overseas worries fade” (CNBC)
The TD Securities-Melbourne Institute monthly inflation gauge was up 0.1% in June to be up 1.5% over the year. No inflation means rates can stay lower for longer.

What I didn’t like

The minutes of the June Federal Reserve meeting, which showed that while one Fed official was ready to begin hiking rates, “most participants” believed that conditions were not yet right for a rate hike. The Fed noted that there were signs that the economy was improving with progress in housing and manufacturing. So this says the first US interest rate hike is unlikely to be in September. I see the first hike as the Fed’s admission that the US economy is heading towards normalcy. We need to see this happen to convince us that Quantitative Easing, with all that debt, was really worth it!
The link between the slump in the Chinese stock market and the 10.1% drop in iron ore prices, which followed an 11% plummet over the previous two days! The link between the Chinese stock market and the real economy is much weaker than the same link between Wall Street and the US economy. Yale University academic and China-watcher, Stephen Roach, has scared people recently, telling CNBC that with the Chinese stock market, “The bubble is bursting”. However, he’s still positive on the Chinese economy! On my TV program on Sky Business, David Bassanese, the Beta Shares economist, agreed with Roach.
How come? As I said earlier, the Chinese stock market has been described as a “casino” and is a poor reflection of what’s happening in the economy.
Reacting to the share dumping, CBA’s China expert, Wei Li, said “We see no imminent threat to China’s financial stability and banking industry from recent stock market declines.” (I loved that!)
The total number of Chinese companies in a trading halt was about 1,400, or 50% of the market. Only in China would this happen, though the Chinese argue the Yanks did a lot of interfering in 2009 following the GFC. Think QE and Wall Street’s spectacular run.
Talk from some German sources, who say don’t get too optimistic about a debt deal for Greece on Sunday. In fact, the Spanish finance minister warned that caution might be the wisest expectation to have about a deal this weekend. Sunday is too far away and I hope it doesn’t become known as Sunday Bloody Sunday!

I wish I said that!

This from my mate, Evan Lucas of IG Markets, who said: “Iron ore has just logged its worst trading day on record. The steel price in China is now cheaper per tonne than cabbage!”

Top stocks – how they fared

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The week in review

(click the blue text to read more)

I gave you the safest, riskiest and best plays for stocks in 2015. My best play? Buying an ETF over the S&P/ASX 200 index.
Charlie Aitken reminded us that in volatility there is opportunity. “On weak S&P/ASX 200 index days I’d encourage you to nibble on Australian industrial reliable dividend yield payers and key US dollar earners,” he said.
Tony Featherstone gave long term investors four ways to play the Asian-led consumption boom.
For the first 6 months, our income portfolio outperformed the index by 2.74%, while the growth portfolio is 3.60% higher than the benchmark.
James Dunn outlined five funky ETFs you could consider, like the BetaShares FTSE RAFI Australia 200 ETF and the Market Vectors MSCI World ex-Australia Quality ETF.
Our Super Stock Selectors booed Fortescue this week, while AGL Energy, Virgin Australia and Commonwealth Bank were among the ‘likes’.
The brokers were in an upgrading frenzy. Among the upgrades were Aristocrat Leisure, Beach Energy, South32, and Sydney Airport. In our second broker report for the week, AWE and Caltex were in the good books, but Woodside Petroleum was downgraded.
Property guru Margaret Lomas told us how to get organised for the tax year ahead with a SMSF property checklist.
In this week’s My SMSF, we heard from Kathy Evans of Crowe Horwath, who started her family’s SMSF for more control and investment choice.
Penny Pryor revisited our takeover potential list, and it’s looking good.
And if you can’t find your trust deed, Tony Negline gave you some popular (and less than popular) solutions.

What moved the market

A gremlin lurking in the system of the New York Stock Exchange, which halted trading for over three hours!
Turbulent times for the Shanghai Composite Index, and the price of iron ore falling to a six year low of $US 44.59 a tonne.
The “no’’ vote getting up in Greece, and reported reform proposals produced by Greek PM, Alex Tspiras.
And locally, the latest jobs figures, which came in better than expected. Unemployment remained fairly stable at 6% and nearly 25,000 full times jobs were added.

The week ahead

Australia
Monday July 13 – Lending finance (May)
Monday July 13 – Credit and debit card lending (May)
Tuesday July 14 – Business confidence (June)
Wednesday July 15 – Consumer confidence (July)
Wednesday July 15 – New car sales (June)
Wednesday July 15 – Building activity (March quarter)

Overseas
Monday July 13 – China Trade data (June)
Tuesday July 14 – US Retail sales (June)
Wednesday July 15 – US Empire Manufacturing Survey (July)
Wednesday July 15 – China Economic growth (June quarter)
Wednesday July 15 – US Federal Reserve Beige Book
Friday July 17 – US CPI (June)
Friday July 17 – US Housing Starts (June)

Calls of the week

The Queensland Police Service trolling NSW on Facebook after their win in the final and deciding State of Origin match. One status update read, “Police are considering opening an investigation into the current whereabouts of the NSW ‪#‎Origin‬ team!”

‬As opposition leader Bill Shorten fronted the royal commission for two days running, former ALP national secretary, Bob Hogg’s, called for him to resign. Shorten shot this one back to the media, “Mr Hogg’s advice, I put somewhere between Mr Abbott’s, Senator Abetz’s and probably even Christopher Pyne’s”.
And in a literal call of the week, US President Barack Obama phoned German Chancellor Angela Merkel to talk about the Greek debt crisis. I wonder if they discussed the weather?

Food for thought

Intelligence is the ability to adapt to change

– Stephen Hawking – English Physicist

Last week’s TV roundup

AFR journo Christopher Joye and Switzer expert David Bassanese go head to head to discuss whether there really is a housing bubble.
If you missed our July webinar, catch up here with Paul Rickard and special guest Charlie Aitken as they answer your questions on all things investing.
How worried should you be about China and Greece? Professor John Hewson confronts these issues on Super TV.
In the latest Super Sessions, Paul Rickard and I talk about the exchange rate and how having an understanding of hedging can increase your investment performance.

Stocks shorted

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed, compared to the week before.

This week, Cabcharge Australia had a 1.41 percentage point increase in the proportion of its shares sold short. The next biggest mover was Fortescue metals, with a change of 0.43 percentage points to 9.68%.

Source: Bloomberg

The Shanghai Composite Index has gone for a bumpy ride, with rules put in place by policymakers to control selling resulting in the largest one day percentage lift (July 9) since March 2009. Stocks jumped nearly 6%!

Online office supply shopping makes transactions take-off!

Source: e-Way

e-WAY just released its online retail report for the first half of 2015, and there’s been a massive $9.3 billion spent online! That’s a 21.5% lift in spending since the same period last year. Online spend on office equipment alone surged by 57.7% in the first half and comes off the back of small business tax incentives announced in the Federal Budget.

Recent Switzer Super Reports

Thursday, 9 July, 2015: The trend is your friend
Monday, 6 July 2015: The ‘Nos’ have it

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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