It’s always nice to get the market prediction caper right. I appreciate it, as I know how hard it is and that’s why I have always shot for good value, not for now but the longer term.
That was my base case for BHP-Billiton last Monday and so it’s nice to see the stock has put on over $2 in a week.
Of course, stock-tipping, like economic forecasting as Treasurer Wayne Swan has found out, is a case of rooster one day, feather duster the next!
Right on the money
That said, I’m really pleased with the crystal ball stuff I’ve been associated with in the Switzer Super Report, my daily switzer.com.au [1] blogs and my Switzer program on the Sky News Business channel 602.
Now even though I’ll do some crowing, I’m aware that my team and I can’t be complacent.
Our long-term calls on stocks since March 2009 have been spot on and that has meant we have argued against term deposits and that old fisherman from Challenger, who said he “could not wait for the stock market” to catch up and so went for annuities instead.
I’ve been happy with our interest rate calls, the Newcrest prediction, our income portfolio, which did over 20% last year – that was mainly Paul Rickard’s work – and his latest growth-oriented portfolio, which is up around 14% for the four months of this year, my “Buy in May and stay” and a number other big calls.
Sure, there have been some average calls but let’s not pre-occupy ourselves with the minimal negatives. There will be some challenging moments ahead but they should be buying opportunities.
I know the Budget always brings a lot of attention but it has less significance this time, because, if the blueprint is deemed silly by the eventual Abbott government, there could be a mini-budget in October.
Quite frankly, I’m tipping the economy to improve over 2013-14, but it will happen in two halves, with the second stronger than the first. This will help Treasurer Hockey see his deficit trim down and it is ironic that, despite some ordinary budgeting by Mr Swan in recent years, the Coalition will inherit an improving economic outlook and budget bottom line.
Growth forecast
I don’t agree with Treasury that we will grow at 2.75% for two years – maybe one – but the second year will benefit from a lower Aussie dollar, a faster growing Japan, a Europe that starts looking better by year’s end (though there are some better signs already showing), a stronger US recovery and a Chinese economy that will eventually surprise its critics.
Meanwhile, inflation will be low over the next two years and that will keep interest rates low, which will be good for many stocks that have not enjoyed the good run up for bigger income-paying stocks.
I don’t see a bubble here because, as confidence grows more and more, people will want to chase ignored smaller cap companies. I know for my financial planning clients, we’re working on a strategy to make sure we benefit from the stage in the cycle when smaller companies play catch up.
One last positive that will help both the economy and stocks, will be the September 14 election. The long election campaign, following a hung parliament and a challenged government, should unleash a sustained burst of business confidence.
Swan song
So, with only four months to go before that important poll, I have tagged tomorrow’s economic show and tell of the Treasurer’s — the sayonara Budget.
One last thing, for those who jumped on board my BHP call, my BHP expert has sent me his latest reconnaissance on the company. Have a look at the chart below, which is a price forecast for iron ore to 2020 under three different scenarios, done by Citibank.
[2]“You will note that even in its worst case scenario of flat to negative steel growth in China to 2020, the iron ore price still remains above $100/tonne, which will still provide excellent margins for low cost producers, such as BHP, Rio and Vale,” he pointed out.
He also more nastily threw in this barb: “At least it is based on real analysis rather than just a flaky number like $20/tonne that some experts are pulling out of thin air based on a wild guess!”
I like this guy’s feistiness and, like a lot of roosters, he has a lot of pluck, let’s hope he also has luck!
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.
Also in the Switzer Super Report
- Greg Fraser: Stock in focus – Coca Cola Amatil [3]
- Paul Rickard: Investing in government bonds – when to bother [4]
- Rudi Filapek-Vandyck: Weekly broker wrap – BLD, CCL and DOW action [5]
- Penny Pryor: Auction clearance rates – rate cut revival [6]