- Consumers may respond to recent tragic events by spending more for loved ones.
- Key macro theme for 2015 remains a stronger US dollar.
- And remember, you’ll never overtake anyone by driving in the same lane.
Consumer spending still strong
I had quite a few questions about whether I thought the Sydney siege would have ramifications for Australian consumer spending in the crucial Xmas retail sales period.
Well, below is a photo I took at the Apple store in George St at midday on Tuesday, less than 12 hours after the end of the Martin Place incident.
The Apple store was packed and it is only around 400 metres in a straight line from the Lindt Café. I spoke to the Apple staff and they said it had been like that since 9am.
My point is, while Sydneysiders are shocked and saddened by the dreadful events in Martin Place, the next day they were getting on with it, perhaps even buying a gift for a family member in times that make people consider those closest to them.
Economically, there are no changes to my forecast of a solid retail spending period in Australia this Christmas. What could easily happen is the Australian household response to the Martin Place siege is to get out and spend some money, which in effect defeats the purpose of terrorism. I did this myself personally and I am sure I wasn’t alone.
My key discretionary retail trading recommendations remain JB Hi-Fi (JBH), Super Retail Group (SUL), RCG Corporation (RCG) and Automotive Holdings (AHE). In the mall owners I like Westfield Corporation (WFD) which has exceeded my long-held price target of $8.80, yet looks to have further upside on AUD earnings growth translation and potential corporate action.
It’s a wrap!
2014 has been a tough year in Australian equities, in fact the toughest I can remember since the GFC. The ASX200 is down (before today) 3.5% in raw terms and 12% in US dollar terms. Individual stock performance divergence is wide.
From the macro strategy down to stock-picking and tactical trading strategy level I have tried my best. In these sorts of markets you will never get everything right and the key is to limit losses.
The key macro call to get right in 2014 was the Australian dollar, which this morning reached a fresh four-year low of 81.07 US cents. The S&P500 is up 20% in Aussie dollars for 2014 and the NASDAQ up 22% in Aussie dollars. Losing the “home bias” was essential in 2014 to generate capital growth.
As I look forward to 2015 I see more of the same, namely, cross-asset class volatility. I think we all need to get used to heightened levels of volatility and to capture the maximum available return from equities we are all going to have to trade more, most likely in US dollars.
The trigger for that heightened volatility will be the Federal Reserve starting the US cash rate normalisation process. You can tell the Fed themselves are nervous about the market ramifications of raising cash rates and that is a justified nervousness after more than half a decade of ZIRP (zero interest rate policy) in the world’s largest economy. Ending QE has seen cross asset class volatility spike and raising cash rates will continue that event.
More upside for US dollar
With the rest of the world persisting with ZIRP/QE and even lowering cash rates (Australia, Eurozone), the likelihood of a capital surge back to the US dollar remains very high. My core strategic belief is we are in the infancy of a major move higher by the US Dollar.
The biggest risk for 2015 is that the US dollar resurgence causes further emerging market and commodity price contagion. The rouble and oil price collapse are more than likely a warning shot across the bow in all emerging markets and commodities.
I would also encourage you to focus on liquidity. In volatile times liquidity is your friend. Being in relatively liquid investments in a world where the marginal pricer of every risk asset class is a high frequency trader (HFT) can reduce the impact cost of investment mistakes.
However, in volatility there is opportunity and if you buy the right stock at the right price in the right currency you will be able to generate positive total returns in 2015 as 2014 proved.
As for me, it’s time for a break with my family and to consider what comes next.
I thank you all for your loyal support in 2014 and wish you a Merry Xmas and safe, happy and prosperous New Year.
Just remember, you’ll never overtake anyone by driving in the same lane.
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.
