Budgets, brawls and bloody great stats

Founder and Publisher of the Switzer Report
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It has been a week of Budget, brawls and ‘bloody great’ economic statistics. I don’t want to add to the Budget hype by giving any more oxygen to these Canberra tales that could be modified before 7pm Tuesday, when Treasurer Joe Hockey starts proclaiming his first Budget.

Okay, everyone knows that the past few weeks haven’t been a high point for the Abbott Government’s political nous. In fact, its handling of the media with its Budget news or leaks was on par with the two blokes who thoroughly thought through the Bondi brawl!

But here’s the only news I saw last week that made me think that Tuesday will bring better news for the economy and the Coalition’s popularity.

In an interview in the AFR, Joe revealed, while defending what lies ahead as a work in progress, that his first Budget would  “stimulate growth and boost confidence!” (I added the exclamation mark but maybe Joe should have.)

Let’s leave it at that because our stocks will be affected by next week’s revelations.

If the Budget is too hard, the dollar could go higher, faster. I contend that the next big leg up for our stock market comes when the dollar dives as the greenback rises.

If it’s mildly stimulatory or even just neutral, then our economic recovery will proceed nicely, driving up GDP, then earnings and, in fact, share prices will spike ahead of better company reporting.

That’s enough on the Budget. In terms of news, it ran a poor second to Thursday’s release of the jobs report here, where 14,200 jobs showed up and they were full-time ones to boot. But the monthly story looks ignorable compared to the four-month one where, wait for it, 106,000 jobs were created! (That deserved an exclamation mark.)

Now if you didn’t know this ‘little’ HUGE fact, then you can see how second-rate your news service is and how valuable this little offering really is. The smarties in the market didn’t miss it and that’s why stocks rebounded on Thursday, after a bad day on Wednesday.

On Monday in this Report, I’ll look at what the jobs data means more closely for stocks, to get away from the B-word, which will dominate our media life next week. So you can see, that was big news and reinforces my positive view for stocks and explains why dips always get bought before they go very low.

Meanwhile in the land of hope and positivity – the good old US of A – the Dow put in another all-time high close overnight, ending up 32 points (or 0.2%) to 16,583.34! (That deserved an exclamation point too.)

Why did this happen?

Well, US companies reported better than expected. The US economy is coming up with some good data news (as the services sector showed this week) and remember, 288,000 jobs showed up in April, which was way more than the 214,000 expected.

Of course, Janet Yellen’s testimony to Congress was a huge plus, where she virtually said “I won’t screw up this economic and stock market recovery by raising interest rates too soon” and that has to help share prices. And finally, Vlad the Pesty Putin started playing ball to hose down the heat in Ukrainian rebels, who want in with Russia and out with the Ukraine.

One US analyst who can be pretty perceptive, David Darst, says the more sideways movement of the S&P 500, which has failed to beat its recent all-time highs, is building a base to eventually go higher. I think that has some relevance for our own S&P/ASX 200 index.

Think about it. It really has been maybe two years since we had a significant correction and when that happens it suggest base building, which will be the foundation for the next takeoff.

If this market can beat May and not deliver the big sell off that many wannabe big call merchants have hung their dodgy hats on, then it will really deepen that base for a big spike later this year. I’m counting the May days down, though I must confess early June brings my trip to Europe, where I’ll be doing these reports from, so the counting has a special commitment.

By the way, I’m not expecting to be calling out ‘Mayday, Mayday’ anytime in June as a warning for stocks, though, as you know, I don’t let my generally bullish view get in the way of any short-term issue that could turn me temporarily negative, which I usually tell you is a buying opportunity.

To get personal, next week is the fastest week of the year for me with speeches on Monday, Wednesday and Thursday in Melbourne, Brisbane and Perth.

The post-Budget one on Wednesday attracts a crowd to this PwC event, which is HUGE. I’ve done this show in Brisbane for around six years. It used to attract about 1,000 attendees but two years ago, they added a guy called John Howard and the numbers have climbed to 2,200! When on stage last year, I recognized this crowd swelling, publicly admitting to Mr Howard that when it came to popularity between him and me, it was a draw!

However, I suspect the extra 200 that showed up last year and apparently this year too could be put down to his enduring popularity in the face of some ordinary replacements in recent times.

One final point, and yes, it is Budget-related. What Tony Abbott does with his paid parental leave scheme should be intriguing. If you wonder about these things, consider this about America, which we are always forced to benchmark ourselves off. The US is one of eight countries without a mandated maternity leave system, which puts it on par with such countries as PNG. The Yanks have the Family and Medical Leave Act, which gives 12 weeks unpaid leave but this only covers 59% of workers. Companies such as Amazon have generous leave arrangements because they know it attracts and keeps great workers.

Tony’s pre-election promise was over-the-top. How he handles this ‘hot potato’ next week could say a lot about how he has to grow in stature as a PM of Howard proportions.

Top stocks – how they fared

Numbers that moved the market

Employment figures surprised on the upside, with 14,200 more Australians joining the workforce in April. The unemployment rate held steady at 5.8%.

The RBA had their monthly meeting on Tuesday, with the Board deciding to hold the cash rate at 2.5%.

On Monday, the US ISM Non-Manufacturing index for April rose to 55.2 following a previous rise to 53.1 in March. The figure was higher than economists’ expectations of 54.1, and is a positive sign for the services sector as it emerges from a weak winter period.

Also in the US, the International Trade in Goods and Services data revealed exports during March came to a whopping $193.9 billion, while imports came to $234.3 billion. This brought the goods and services deficit down to $40.4 billion after a February figure of $41.9 billion.

The week ahead

Australia

12 May – Credit & debit card lending (March)
12 May – NAB business index (April)
13 May – Housing finance (March)
13 May – Federal Budget
15 May – Labour market data (April)
16 May – Lending finance (March)

Overseas

12 May – US Federal Budget (April)
13 May – US Retail sales (April);
13 May – China monthly data (April)
14 May – US Producer prices (April)
15 May – US consumer prices (April)
15 May – US industrial production (April)
15 May – Philadelphia Fed survey
15 May – Speech by Federal Reserve Chair, Janet Yellen

Apart from the Budget, a pretty quiet week in Australia. On Monday, the NAB Business Survey will show how business confidence has stood up during the pre budget noise. On Friday, the ABS will release broader lending finance figures for March.

We’re not the only ones in budget mode, with the US Federal Budget due out on Monday. Retail sales and import and export prices will be released on Tuesday. And on Thursday, it’s a big one for the US with a large file of data, which includes US consumer prices, US industrial production, the Philly Fed survey, and a speech by the Fed Reserve Chair, Janet Yellen. We’ll also see some important data for the Aussie dollar released on Tuesday, with figures issued on China’s retail sales and industrial production and investment spending in April.

Calls of the week

On that billion dollar bash up between ‘frenemies’ James Packer and the TV executive David Gyngell;

“They look for all the world like two drunken louts brawling in the gutter after being ejected from a seedy pub.”

“No cuts, no fees, no corporate universities” – university students show democracy is well and truly alive as they hijack Q&A from an annoyed Tony Jones, in protest of Education Minister Christopher Pyne’s deregulation plans.

Charlie’s Aitken’s call on Crown Resorts – he says it’s a buy at $21.30, and a “structural growth stock for the Asian century and one of very few Australian stocks NOT dependent on ultra-low cash rates, commodity prices or high dividend payout ratio for share price rating.”

Food for thought

Money won’t make success – the freedom to make it will. – Nelson Mandela

Last week’s TV roundup

The Managing Director of BGL, Ron Lesh, came on the show to explain what SuperStream is, and what it will mean for SMSF trustees. For those who want a better understanding of the process – this is a must watch.

This week, Michael Witt joined Super TV to discuss how the Reserve Bank’s decision to hold the cash rate at 2.5% could impact the Budget next week.

Charlie Aitken stole my thunder as he coined the phrase ‘The Canberra Correction’ in light of the controversial (a.k.a ‘politically mad’) debt levy. Find out why he thinks the proposed levy has impacted on the big four.

And did you miss out on our monthly webinar? You can catch up on the conversation here where Paul Rickard and I answer your questions. We also spoke about budget crunch time, and what’s going on with the US economy.

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’s biggest mover this week was Leighton Holdings, who had their short position expand by a massive 5.53%!

Source: ASIC

My favourite charts

Who said retail was dead? Australia’s retail trade figures were released on Wednesday, and revealed a 1.2% boost in the March quarter after a rise of 1.1% in the December quarter.

Top five clicked on stories

Recent Switzer Super Reports

Monday, 5 May 2014: Toe to toe with Tony
Thursday, 8 May 2014: Forget the billionaires’ biff

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