[table “184” not found /]

The latest Brexit poll shows the Poms might be preparing to leave the EU and global stock markets didn’t like it. The German DAX was down 254.25 points (or 2.52%), the French CAC dropped 2.24% and the FTSE lost 1.86%.

The US stock market picked up the jitters but only lost 120 points, after being down 172 points.

Banks have copped it and ours will again next week.  In Europe, however, Deutsche Bank is down 34% this year, Intesa SaPaolo off 28% and Societe Generalle has lost 19%.

In contrast, the CBA is down 11.6% but there has been an international hate session on the banks or financials generally. That said, Wells Fargo, regarded as one of the better US banks, is down only 8.1%. Ours still look to be well-respected by stock players, even if the media, along with the hedge fund managers, other short-sellers and some crazy economists, as well as Labor, are anti-banks here in Australia.

On the subject of negativity and on the local front, remember the name Vimal Gor of BT Investment Management. He will either be an absolute genius or a prized dope. There’s no other way to look at someone who says our dollar is going to 40 US cents!

It has been a week for big calls, with Moody’s speculating that we could see a housing crisis that could rock our banks, which comes when consumer confidence hit a two-year high. Of course, it’s Fairfax that’s happily running this scare story but why should I be surprised because in the weird world of the media “if it bleeds, it leads”.

Apparently Vimal sees something that Treasury, the RBA, all the banking economists, Goldman Sachs and just about every other smart person or institution seems to have missed. So let’s see what he’s seeing.

He argues that the net foreign liability claim is at 67% of gross domestic product, meaning Australia owes the world 67% of output but you don’t have to pay it back in one year! This is over the 50% mark, which the International Monetary Fund says is “the point at which the financial stability of a country comes into question”, Mr. Gor points out.

A part of his argument is that if we cut rates, then foreigners won’t cop it because of our borrowings and so something has to give and it will be the currency. However, if rates don’t fall, his argument evaporates unless there’s a curve ball recession-creator from outside our borders.

I’ll be testing his thesis in the week and I’ll update you ASAP.

Negativity on Friday and, in fact, over the week, has come from the banks and it came just when I argued that they look like they’re close to the “good buy” and not “goodbye” zone. Talk of a 40 cents Oz dollar will unsettle investors – especially foreign ones – who tend to want to buy our stocks, such as the banks, at the lowest possible level to benefit from an eventual currency spike.

The S&P/ASX 200 index was down 0.9% on Friday but was only off 0.1% for the week. We seem to be fighting gravity but the Brexit vote could be a real issue for stocks on June 23. Obviously, some careful types are taking profit and why not, if you’re a short-term speculator.

A critical part of Vimal’s argument is that we will see interest rates fall and that will eventually hurt our dollar but if we keep growing solidly, we won’t see rates fall. I’m punting on this scenario, along with the likes of the RBA, Treasury, et al.

That said, historically I have opposed this lot and have often argued, like the famous economist, J.K. Galbraith, that when it comes to economics “the majority is usually wrong!”

But this time I think they’ve got it right.

What I liked

• Charlie Aitken liking my question: “Could the top 20 stocks be a contrarian play?” He admitted there’s merit in the question, which he referred to in his Thursday piece for the Switzer Super Report.
• The Roy Morgan/ANZ weekly consumer confidence spiking 3.2% to a two-year high!
• Chinese imports were down just 0.4% on a year ago in May, after a 10.9% annual fall in April. Forecasts were centred on a 6% annual decline. This suggests the contraction of growth is not as worrying as was predicted.
• No rate cut on Tuesday says to me that the RBA still believes in the favourable growth outlook but it wants to see the next inflation read before it thinks about another rate cut. The Big Bank would love to keep rates on hold to stick it to the likes of Vimal Gor. Remember, if our dollar falls to 40 US cents, the RBA, which is responsible for our external viability, would cop it big time from everyone from the Treasurer to big mouth media commentators. The old “asleep at the wheel” slags would be the first to be trotted out if the dollar nosedives to Gor’s lows.
• German industrial production rose more than expected – a stronger Europe is critical to the optimist’s story.
• In the US, the JOLTS survey of job openings was 5.788 million in April, up from 5.757 million in March and above forecasts centred on 5.672 million.
• New mortgage applications in the US rose by 9.3% in the latest week, with purchases up 11.7% and refinancing up by 7.4%.

What I didn’t like

• The dollar spiking up over 75 US cents, following the RBA’s comments on ‘rates day’.
• The value of home loans for owner-occupiers and investors to build new homes fell by 1.8% in April, with loans by investors down 5%, while loans by owner occupiers rose by 0.1%. Investor home loans are down 20.8% on a year ago – the biggest annual fall in seven years.
• This from European Central Bank boss, Mario Draghi, who suggested that Europe is at risk of suffering lasting economic damage from weak productivity and low growth. Well, der, Mario!
• My ex-student – the Dude – who keeps looking for negative stories from the likes of Bloomberg and the WSJ pointing to a slow train wreck as a metaphor for the global economy and stock markets. We’ve got to prove this smart Alec wrong!
• The Brexit might be good news for the doomsday Dude!
• For the second week in a row, the US oil rig count was up – higher oil prices will do that – and oil lost $US1.49 for West Texas Intermediate (WTI) to price at under $US50 a barrel.

Those damn Poms

I knew there were potential problems ahead when the smarties came up with Brexit, which raised the market gyration ghosts of Grexit only a year ago! Brexit anxiety will last until June 23 and the poll news overnight now completely rules out a June rate rise in the US. If Brexit becomes a happening thing, the first rise might not come until September or even December but I hope that doesn’t happen. We need the Yanks to proceed to normality ASAP.

And like Mr Gor, the Poms with their Brexit decision could one day be hailed as geniuses or dopes!

Top stocks – how they fared

[table “183” not found /]

The week in review

(click the blue text to read more)

• This week I continued to show my love for the banks by explaining the curveballs they need to overcome to be loved by the market!
• My mate Paul Rickard reviewed the Switzer Super Report income and growth portfolios – they are both back in the black after a solid May.
• Barrie Dunstan said the proposed $1.6 million super cap may be too low in the current economic climate.
• The brokers liked ASX while Treasury Wine Estates copped a downgrade. In our second broker report, Webjet was in the good books while Woodside was in the not-so-good books.
• Our Super Stock Selectors placed ResMed in their likes list, but ‘overvalued’ discretionary stock JB Hi-Fi was out-of-favour.
• Charlie Aitken said the bond market’s lessons in global growth and interest rates shows why dividend yield is important. He hasn’t changed his mind on Telstra either!
• Tony Featherstone explained why Spark Infrastructure has elements of a takeover target.
• And Melanie Dunn shared some end of financial year tips and strategies for SMSF trustees.

What moved the market

• While Fed boss Janet Yellen was upbeat on her economic forecasts for the US, no clear time frame was given to the next rate hike, boosting investor sentiment and sending the US dollar lower.
• Higher global oil prices helped support the local market, particularly mining and energy stocks.
• The Aussie dollar also rallied after the RBA held fire on the cash rate.

The week ahead

Australia

• Tuesday June 14 – Credit & debit card lending (April)
• Tuesday June 14 – Speech by Reserve Bank official
• Tuesday June 14 – Weekly consumer confidence
• Tuesday June 14 – NAB Business survey (May)
• Wednesday June 15 – Consumer confidence (June)
• Thursday June 16 – Speech by Reserve Bank official
• Thursday June 16 – Employment/unemployment (May)
• Thursday June 16 – New vehicle sales (May)

Overseas

• Sunday June 12 – Chinese monthly data (May)
• Tuesday June 14 – US Retail sales (May)
• Tuesday June 14 – US Import/export prices (May)
• June 14/June 15 – US Federal Reserve meeting
• Wednesday June 15 – US Industrial production (May)
• Wednesday June 15 – US Producer prices (May)
• Thursday June 16 – US Consumer prices (May)
• Thursday June 16 – US Philadelphia Federal Reserve (Jun)
• Friday June 17 – US Housing starts (May)

Calls of the week

• Tony Featherstone updated his takeover-target portfolio and added Spark Infrastructure to the mix – he says the utilities sector could be an unlikely source of takeovers this year.
• Richard Branson posed for a photo with one exhausted and napping Virgin Australia staffer when he visited the local offices recently! He doesn’t look too worried about Air New Zealand recently dumping its Virgin holding, does he?

Source: Virgin.com

Food for thought

He who is not courageous enough to take risks will accomplish nothing in life.

– Muhammad Ali, American Olympic and professional boxer

Last week’s TV roundup

• Switzer Super Report’s Paul Rickard joins the show to discuss his views on the banks.
• Charlie Aitken of Aitken Investment Management gives his take on where shares are headed.
• For a fundie’s fresh look at shares, Julian Beaumont of Australian Equity Partners joins the show.
• Nicholas Capp, CEO and Managing Director of PrimaryMarkets, explains whether the ASX is making it harder for smaller companies to raise capital.

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 Bendigo and Adelaide Bank with a 0.79 percentage point increase in the proportion of its shares sold short to 7.48%. Primary Health Care went the other way with 7.40% of its shares sold short, a 2.28 percentage point decrease on last week.

My favourite charts

Consumer confidence cracks 2-year record

This week we learnt that the Roy Morgan/ANZ weekly consumer confidence reading rose by 3.2% to 116.8 in the week to June 5. It was the strongest confidence reading in 29 months!

Disposable income trend

Here’s one for the doomsday merchants. Over the period where we’re told we’ve lived through an income recession, Australian Personal Disposable Income has continued to rise.

Top 5 most clicked on stories

• Charlie Aitken: Australia’s Berkshire Hathaway
• Peter Switzer: Another reason to keep the faith in bank stocks!
• Paul Rickard: Portfolios in the black after strong May
• Charlie Aitken: Bonded to sustainable dividend yield
• Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say

Recent Switzer Super Reports

• Thursday 9 June: Dividend Yield
• Monday 6 June: Global conditions

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.