I don’t care what markets are doing day by day. I don’t care that the oil price slides one day after spiking last week. I worry about what the tragedy means for the people affected by BHP’s and Vale’s poor processes, then I think about what I’ll do with the lower price, which will rebound eventually. However, I’m not worried about where stock prices are now because they will go higher.
My biggest worry is: when will I buy in on this dip? It’s not a huge concern because these sell offs are creating buying opportunities all the time. Of course, if the US economy wasn’t so good and Mario Draghi at the ECB was shaking in his boots and we weren’t coming up with better labour market numbers, I might be a bit more toey. However, that’s not the case, so I’m relaxed.
I’m not alone in my confidence in stocks for the future.
“Any correction would not be sustained and would be an opportunity to position for recovery,” said Ajay Rajadhyaksha, head of macro research at Barclays this week. This makes me happy.
John Murray, MD of Perennial Value, is with me and is a buyer of stocks when we have down days. I like being on a unity ticket with someone like John.
Meanwhile, the bank share price reaction to those job numbers says banks do better when growth is rising. And if you throw in the fact that rising interest rates also helps bank profits, then my recent suggestion to buy banks still makes perfect sense.
Against this positivity, I do ponder oil price problems. On Thursday in the US, oil prices slumped by around 3% for a second day, on fears that the oversupplied conditions would persist. However, that’s only one half of the issue – there is also a demand problem and when the global economy improves, which I suspect will happen over 2016, then oil prices will head higher. I believe OPEC will kill supply when demand is stronger and that will push oil prices up and energy stocks will spike. It’s a matter of when?
And when the global economy picks up, so will commodity prices and that will help the likes of BHP and Rio and our stock market too. It’s a waiting game.
I know we don’t like falling stock markets but you have to remember these sorts of facts: on Monday, the Dow Jones had lifted 14% from lows in late August and profit-takers will always take profit. Our market spiked 8.8% and this made it ripe for a sell off but whatever you do, don’t get too stressed.
I won’t say too much about those job numbers but to all of the doomsday merchants out there – “eat my shorts!” The Turnbull ‘turn on’ effect plus these numbers creates confidence and while some right-wing Turnbull haters say “he has done nothing, policy-wise”, he has done something policy can only hope to do – he’s raised confidence. In addition, expert after expert on my TV show is saying that a change of leadership is having a positive effect. That’s SOMETHING!
What I liked
- Those great job numbers – 40,000 full-time ones in a month! – and the timing of them. Yes! Even if they’re wrong by half, 20,000 jobs are great! (Actual details below with the beautiful chart.)
- The run of economic data this week, with Westpac’s consumer sentiment number going over 100 to 101.7, which mean optimists now outnumber pessimists.
- Christmas spending intentions from the above survey are at a 7-year high, with 16.9% of respondents expected to spend more this year, with the average being 12.5%.
- The NAB business conditions index was unchanged at +8.9 points in October, which means for three months in a row businesses are saying business is pretty damn good!
- Chinese retail sales rose at an 11% annual rate in the year to October. The result was above forecasts of 10.9% and above the 10.9% growth in the year to September. It was the fastest annual growth since December 2014.
- The Charles Schwab strategist who said “the high level of investor fear is unfounded. Even though corporate earnings may post consecutive negative quarters, the broader economy is not close to recession.” (CNBC)
- The ECB boss Mario Draghi saying this: “If we were to conclude that our medium-term price stability objective is at risk, we’d act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained.” He’s still in a ‘whatever it takes’ frame of mind, which means more money thrown at the Eurozone problems and that’s good for stocks.
- Wall Street smarties betting on financial stocks because banks make money when interest rates rise and this is a lesson we shouldn’t ignore here.
What I didn’t like
- Investors were unnerved by news that leftist parties in Portugal have achieved an agreement to challenge the ruling centre-right government. Portugal’s PSI20 index fell by 4.1%.
- The BHP disaster!
- Just about everything to do with Santos, though I like their new CEO Kevin Gallagher.
- ABS baggers in the media and economists who got it wrong but my journo mates wouldn’t have pondered the figures if they were really bad. Imagine the headlines!
My tip
This regular drop in the price of oil and some weaker than expected retail numbers in the US, combined with this fear of a December rate rise there, is going to make stock price rises here a bit challenging. That said, once the share prices of much-loved companies slip too far, the smarties will come in. This is bound to be the script until the first rate rise happens in the US and some better economic news surfaces for the global economy.
Get used to volatility and buy the dips!
Top stocks – how they fared
[table “129” not found /]The week in review
(click the blue text to read more)
- This week [1], I said the banks still look attractive for a yield player, and that I’m buying BHP and Rio on silly sell-offs. It might take a while for the returns to roll in, but the dividends trump term deposits any day!
- Paul Rickard told you everything you need to know about Centuria’s latest unlisted fund, the Centuria 203 Pacific Highway Fund [2]. He thinks the investment case for the fund – including 8% yield – is pretty attractive.
- Tony Featherstone gave you three quality wealth-management stocks [3] to consider – Henderson Group (HGG), Platinum (PTH), and Perpetual (PPT).
- Our chartist extraordinaire, Gary Stone, said to beware of the Blackmores euphoria [4] and that the rise in the stock’s share price in such a short amount of time is unsustainable.
- The brokers [5] upgraded APN Group and downgraded GWA Group. In our second report [6], the brokers put News Corp and Santos in the not-so-good books.
- Our Super Stock Selectors [7] liked retailer Myer and two health companies, Healthscope and Estia Health.
- And Tony Negline gave his two cents [8] on Turnbull’s proposed tax increases for superannuation. He thinks they are inequitable.
What moved the market
- BHP shares slumped following the mining disaster in Samarco, Brazil.
- The local market received a boost after a better-than-expected jobs report with a 5.9% unemployment rate, and more than 58,000 new jobs created.
- A lower oil price hurt the likes of materials and energy stocks Santos, Oil Search and Woodside. Santos’ share price also moved lower on the back of its $2.5 billion capital raising, and a less than impressive Strategic Review.
The week ahead
Australia
- Monday November 16 – New vehicle sales (October)
- Tuesday November 17 – Reserve Bank Board minutes
- Wednesday November 18 – Wage price index (September quarter) year
- Wednesday November 18 – Imports of goods (October)
- Wednesday November 18 – Speech by Reserve Bank official
- Thursday November 19 – Detailed job data (October)
- Friday November 20 – State Accounts (2014/15)
Overseas
- Tuesday November 17 – US Consumer prices (October)
- Tuesday November 17 – US Industrial production (October)
- Tuesday November 17 – US Capital flows (September)
- Wednesday November 18 – China house prices (October)
- Wednesday November 18 – US FOMC minutes
- Wednesday November 18 – US Housing starts (October)
- Thursday November 19 – US Leading index (October)
- Thursday November 19 – US Philadelphia Fed (November)
Calls of the week
- Charlie Aitken says the correction in Telstra is now overdone [9], and that he’s starting to build an investment position on down days.
- Fortescue chair Andrew ‘Twiggy’ Forrest said he thinks the iron ore price could drop to as low as US$40 per tonne at the company’s AGM.
- Chinese and international consumers made the call to spend big – $20 billion big – on ‘’Singles Day’’, according to e-commerce company, Alibaba. That compares to $13 billion last year!
- And 18-year old Jake Bailey from Christchurch Boys High – despite doctors telling him he had only three weeks to live without immediate medical attention – gave this inspirational and moving speech [10] that he wrote before receiving the news to his school cohort. A true leader.
Food for thought
“Let others lead small lives, but not you. Let others argue over small things, but not you. Let others cry over small hurts, but not you. Let others leave their future in someone else’s hands, but not you.”
– US motivational speaker, Jim Rohn.
Last week’s TV roundup
- To see where the economy and key sectors [11] are headed, I spoke to the founder and director of IBISWorld, Phil Ruthven.
- John Howie [12], head of iShares Australia at BlackRock, joins the show to talk about Exchange Traded Funds or ETFs.
- Nick Griffin of K2 Asset Management tells us how he’s playing stocks [13] as December looms.
- Just what is short selling, and why is it important for investors? Paul Rickard and I tell you everything you need to know [14] in this week’s Super Session.
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 Mineral Resources, with a 1.68 percentage point increase in the proportion of its shares sold short to 15.46%. Dick Smith went the other way, with its short position decreasing by 4.14 percentage points to 11.15%.
[15]My favourite charts
Jobs jump to seven year highs!
[16]Employment levels rose by 58,600 during October, and 315,000 jobs over the past year. That’s the best gain in over 7 years. CommSec says they pin it down to great confidence levels (Turnbull turn on effect?) low interest rates, small business stimulus measures and solid numbers for home building. Can’t complain about that!
Turnbull turns on confidence!
[17]Source: Trading Economics, Westpac/Melbourne Institute
This week, we saw consumer confidence levels hit their highest point since May 2015. The November reading rose 3.9% to 101.7. Go Malcolm!
Top 5 most clicked on stories
- Peter Switzer: Get ready for good news, and this is how you invest [1]
- Charlie Aitken: Selective opportunities at home [18]
- Paul Rickard: 8% yield makes this property trust look attractive [2]
- Tony Featherstone: Star wealth managers: 3 quality stocks to consider [3]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [5]
Recent Switzer Super Reports
- Thursday, 12 November, 2015: Time for contrarian ideas [19]
- Monday, 9 November, 2015: Good news delivery [20]
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.