Switzer on Saturday

US + China + Turnbull = hope = rally!

Founder and Publisher of the Switzer Report
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The name of the game is that I always tell you what I’m thinking about investing in and after my TV show on Thursday night, I was feeling a little negative. Yep, believe it or not, I can succumb to normal peoples’ inclinations, such as being too pessimistic, but I don’t make a habit of it!

That said, my job is to give you insights so take this as read that if I thought it was time to bail out of stocks, I’d tell you straight away.

No, I maintain we’re in a buying opportunity and I think the Turnbull accession to power will prove a positive omen.

In fact, I’m now running with an equation, which is what economists like, and it goes like this:
USA + China + Turnbull = hope = rally!

People going nowhere are hopeless. People going somewhere are powered by hope and, despite the current stock sell off, which has created a reason to buy, there are other reasons.

The Fed boss finally got her script right in her arduous speech on Thursday at the University of Massachusetts, where she apparently wobbled with dehydration. I’m sure part of that wobble was pressure, after blowing her communiqué after the FOMC meeting last week, which triggered off a big stocks’ slide.

The bottom line conclusion became “the Fed knows something we don’t know about the global economy – better sell.” And sell they did!

So on Thursday, the big takeout was that the Fed intends to raise interest rates this year or, as Janet said, it looks “appropriate”. She downplayed international developments, i.e. China, and indicated that she expects the US economy to be strong enough to create what every economy wants nowadays – inflation!

OK, rule the US in as a big help to stocks, either by year’s end or at least in 2016.

What about China? Every expert, their dog and the proverbial galah at the local pet shop thinks China will let down the global economy and then stock markets.

Why have we fallen about 16% from our April high and 7% from the start of the year? The economic story globally and locally disappointed, earnings struggled and the market numbers belatedly said “you’ve paid too much, so you better sell off.”

Then we were hit by APRA and David Murray disciplining the banks about capital and for lending to investors, commodity prices fell on China weakness and then Yellen spooked everyone.

The current picture looks weaker than expected so stock prices are weaker but can circumstances change?

Douglas Flint thinks things can be better than expected, especially when it comes to China. Doug, a Scot, is the chairman of HSBC and has to be a China expert. He recently said: “…data suggests that China will stage a modest recovery in the coming quarters, with full-year growth of around 7%.”What’s he on? Possibly history and experience!

He argues that Beijing will use interest rates and government spending to buy growth. That’s what I said last week was my big hope and Doug thinks I’m on to something.

“It has the room to cut interest rates to boost domestic demand. It can cut reserve ratio requirements to increase bank-lending capacity. And it can deliver strong fiscal support for growth,” Flint said, in a speech given at Cass Business School in London on Thursday and reported by Business Insider.

So let’s punt on Doug and China and let’s double up on Price Headley’s views from BIGTRENDS.COM, who told CNBC this week that we’ll see the Dow at 20,000 by mid 2016! He cites record levels of pessimism (like in 2008 and 2011), which ran ahead of big market take offs.

He argues earnings in October in the US will be better than expected and will drive the market comeback. They’re the kind of high hopes that offset the negativity that has been even affecting me so much that I wrote a piece for Switzer Daily entitled: “Is Peter Switzer turning bearish on stocks?” You might have read it.

In case you missed didn’t, this is how I concluded my piece: “If China can come up with a stimulus play, if Europe continues to do better than expected and Mario Draghi (the European Central Bank boss) continues to say he’ll do what it takes and if Yellen gets her rate play and comments right, then we might just see a turnaround for stocks. One day it might happen but this bull is not for turning, yet!”

To Turnbull and I loved the ANZ/Roy Morgan consumer confidence reading having the biggest jump in its seven-year history at 8.7%. I’ve agreed with nearly everything he and Treasurer Scott Morrison has said on the economy so far.

I know there are those out there who think we need a rate cut but I hope this little Aussie bleeder of an economy proves them wrong. If it does, it will be because the Oz dollar has depreciated to push us into the great growth zone.

What I liked

  • The fact that Wall Street went up after Yellen’s speech – our market is so wimpy!
  • Given my belief in the US, as seen above, overnight the Yanks got their second quarter GDP revision and it went from 3.7% to 3.9%!
  • That ANZ consumer confidence number.
  • This fact that over the next two months, conservatively around $22 billion (around 1.4% of GDP) will be paid out by companies in dividends to shareholders.
  • While in Germany, the Markit “flash” composite purchasing managers index eased from 55.0 to 54.3 in September and German companies noted the strongest lift in new orders in two years!
  • This from Mario Draghi, when he said the ECB “would not hesitate to act if downside risks to inflation materialise”. That’s code for him sticking to his “whatever it takes” promise.
  • ABS data confirmed that home price growth remained very strong in the June quarter.

What I didn’t like

  • ANZ chief economist, Warren Hogan, predicting that rates have to fall twice, taking the cash rate to 1.5%, as this works against my optimistic take on the economy. By the way, the RBA agrees with me and while I have been a critic of its work, I’ve always argued that it was a good learner, albeit a bit slow!
  • This infernal stock market volatility, which saw us pierce the 5000 level on the S&P/ASX 200, though I was happy to see us hold close to that level then bounce back above 5000. It still has me a little toey.
  • Morgan Stanley saying that the housing boom has peaked so they wanted to talk recession here! Headline grabbers like this in the hands of a newspaper journalist desperate to star on the front page of a daily rag are a pain in the butt. If these guys prove to be right, I’ll praise them. If they’re wrong, they’re going to cop it – big time!
  • The increased talk of a US Government shut down. The upcoming resignation in October of the House Speaker, Republican John Boehner, is not a good sign.
  • The Volkswagen dodgy diesel story this week – who would have thought a big company could have been so cynical and stupid?
  • The Swans and Roosters losing in the space of seven days – go the Wallabies!

I know why I have more faith in the stock market – it wins, on average, eight years in 10 and averages 10% per annum over a decade and half of this victory is dividends. Go dividends!

Next week

The Yanks get a data downpour, with everything from home sales to consumer confidence to manufacturing readings to the all-important jobs number. We need to see some good US economic news, so go USA!

Top stocks – how they fared

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The week in review

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  • I told you why we need positivity from China and strength from the US for our markets. Because I am still a strong believer in the long game, I’ll be buying a few stocks that pay nice dividends when the market wants to go excessively negative.
  • James Dunn said these five stocks under five dollars are good businesses with healthy prospects – Primary Health Care (PRY), Tatts Group (TTS), GBST Holdings (GBT), CSR (CSR), and Mortgage Choice (MOC).
  • Charlie Aitken got the cranks with Janet Yellen’s market moving commentary, after rates were left on hold, and he said to ‘keep buying the dips’ in high quality companies and wait patiently for the gloom to lift.
  • Tony Featherstone said investors should consider taking advantage of lower prices for these five specialist A-REITs – National Storage REIT (NSR), Asia Pacific Data Centre Group (AJD), Arena REIT (ARF), Galileo Japan Trust (GJT), and US Masters Residential Property Fund (URF).
  • This week’s Fundie, Simon Conn of Investors Mutual, explained why Steadfast Group is better than its competitors.
  • In a quiet week for the brokers, Beach Energy, OrotonGroup and TPG Telecom were all upgraded. In our second broker report, Goodman Group and Premier Investments were both upgraded.
  • And our Super Stock Selectors liked Telstra and Spark Infrastructure and disliked Myer.

What moved the market

  • The US Fed Reserve chair Janet Yellen said economic improvements “will likely entail an initial increase in the federal funds rate later this year”.
  • Global growth concerns after China’s manufacturing data fell to 47.0 in September from 47.3 in August – missing expectations.
  • Volatility in US crude oil prices.
  • And the Volkswagen emissions scandal weighed on global carmaker shares.

The week ahead

Australia

  • Tuesday September 29 – Weekly consumer sentiment
  • Wednesday September 30 – Private sector credit (August)
  • Wednesday September 30 – Building approvals (August)
  • Thursday October 1 – AIG Performance of Manufacturing (September)
  • Thursday October 1 – Monthly home prices (September)
  • Thursday October 1 – Job vacancies (August)
  • Friday October 2 – Retail sales (August)

Overseas

  • Monday September 28 – US Pending home sales (August)
  • Monday September 28 – US Personal income (August)
  • Tuesday September 29 – S&P/Case-Shiller Home Prices (July)
  • Tuesday September 29 – US Consumer confidence (September)
  • Wednesday September 30 – US ADP employment gauge (September)
  • Thursday October 1 – US ISM manufacturing (September)
  • Thursday October 1 – China purchasing managers’ index (September)
  • Friday October 2 – US Non-farm payrolls (September)
  • Friday October 2 – US Factory orders (August)

Calls of the week

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  • It’s more a call of the decade, but in 2007 a 19-year old Aussie golfer Jason Day said he could “take down” Tiger Woods. This week, Day backed up his call to become the world’s number one golfer after taking out the BMW Championship. Take that Tiger!
  • ABC presenter Leigh Sales called herself out for interrupting PM Malcolm Turnbull during an interview on 7.30, spurring on criticism for being too soft!
  • And Paul Rickard said Ramsay, CSL, and Resmed are all hot healthcare stocks that you should buy in weakness.

Food for thought

Winning isn’t everything, but wanting to win is.

– Vince Lombardi, American football coach.

Last week’s TV roundup

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 one of the biggest movers was Slater and Gordon, with a 6.26 percentage point increase in the proportion of its shares sold short to 16.17%. Super Retail went the other way, with an 8.94 percentage point decrease to 10.44%.

20150925 - short positions

My favourite charts

Turnbull turnaround?

20150925 - anz

The ANZ-Roy Morgan weekly consumer confidence index bounced back 8.7% to 114.5 last week after Turnbull took office. It was the second biggest weekly gain in the survey’s 7-year history! It could just be a PM change ‘’honey-moon’’ period – which historically lasts for 100 days – but let’s hope this bounce can be sustained.

SMSF trustees are getting richer!

20150925 - smsf growth

Source: ATO, The Australian

Since 2014, the number of SMSFs and their combined assets have grown by approximately 6%, according to the ATO quarterly SMSF statistical report for June 2015. There are now estimated to be more than 557,000 SMSFs with total assets of $590 billion. Shares account for the highest asset allocation, followed by cash.

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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.