Doomsday merchants and short-sellers were delivered the news they didn’t want to hear, see or read when the US jobs report came out on Friday with 271,000 new jobs in the month of October when only 180,000 was expected. I’m gearing up for good news and I think the only bad news in the States will come from Jack Frost!
I said the banks look attractive for a yield player and they still do. I am buying BHP and Rio when there are silly sell-offs but I know my good returns from these could be two-three years away but the dividends are still miles better than term deposits.
For two years in a row cold weather has rocked the US economy, it showed up in statistics, it affected confidence, it gave credibility to the ‘we’ll all be ruined’ types and held back the march forward of the stock market.
I’m always arguing that positivity begets positivity but of course it works in reverse, so a bad jobs number could have created more significant doubts about the US economic recovery, the outlook for the global recovery, the potency of QE and ultimately what stocks will do.
Right now I am surrounded by experts who want to play a negative game and while I respect them, I hope they’re proved wrong and it will be strong economic improvement that will determine whether they are right or wrong.
Roger Montgomery talks about and worries about a China banking crisis that will affect us but when I pushed him on Thursday about whether this ‘crisis’ will lead to a worldwide financial crisis he said no. It will affect Chinese growth and we will lose demand as a consequence of China being our most important trading partner.
FN Arena’s Rudi Filapek-Vandyk is negative on stocks right now but for how long? I make my calls on a calendar year basis and I think we will end up on last year’s finish of 5411 and I bet next year we will go higher again. Citibank has 6,200 call out there and all blessings to them with that!
Share Wealth Systems’ Gary Stone is not afraid of a long-term view and he has us in a secular bull market and so when I asked him on Thursday [1] when the bull market ends, he came up with five or six years!
Now that means a cyclical bear market could get in the way but on a longer term basis he’s betting stocks go higher.
A cyclical bear market could result if economies in Europe and Japan don’t respond to QE as quickly as we like but thankfully, the Yanks look set to deliver in 2016 and so many market pros now expect the Fed to raise rates in December.
If that happened we could see a sell-off but it would be a certain kind of madness that I will make money out of by buying the dips. Economic recovery is the scream headline out of those US job numbers and so US companies and their stocks should deliver. Roger is a big Apple fan if you are looking for a leg up tip for US stocks.
I also think we will see a stronger Oz economy as the lower dollar promotes economic growth better than a lot of economists, analysts and company CFOs are predicting. None of these people are infallible and their confidence and attitudes can turn on a dime.
I’ve said before that there are negative economist thinking we are heading to 1% or so economic growth next year, but my survey of seven top economists came up with a range of 2.6% to 3.2% and the RBA is so confident about economic growth it did not cut interest rates on Cup Day, despite the banks being set to raise rates in late November! That’s confidence or stupidity.
So, how do you invest? I said the banks look attractive for a yield player and they still do. I am buying BHP and Rio when there are silly sell-offs but I know my good returns from these could be two-three years away but the dividends are still miles better than term deposits.
ETF index plays like STW are good long-term plays but if Citi is right, then if 6,200 shows up next year then making a 1000 points on 5,200 would be 19% plus dividends, let’s call it 24%, and I’d be happy with that over two years!
I’ll take it in one year if it happens but two years yielding 12% is pretty damn good for backing optimism and the best 200 companies in Australia.
I think small-cap fund manager specialists also offer some alpha for your returns if you can’t be bothered doing the company research and then keeping your fingers crossed that you have all of the relevant info!
While the jobs report in the USA was the best news last week I also liked this: “US September quarter earnings have come in better than expected but still down slightly,” AMP’s Shane Oliver calculated. “86% of S&P 500 companies have now reported with 73% beating on earnings, and consensus earnings expectations for the year to the September quarter have improved from -6.3% three weeks ago to -2.8%.”
It’s not a story of unparalleled greatness for US profits but it’s progress. Revenue has been disappointing though with only 44% of companies beating on sales but there were reasons — the strong $US and falling oil price have weighed on a lot of companies that do well when the opposite prevails.
The GFC stole normalcy from us and we’re trying to put it back together and it is a slow process but it’s better than the opposite where we would have seen a Great Depression, higher unemployment, bigger bankruptcies and possibly a quicker stock market recovery but I prefer this long slow recovery any day of the week.
One final point has to be made. If the market sells off after the Fed raises, possibly in December, then the Santa Claus rally will come late but it will come. Economic recovery rolls into higher profits and share prices but it doesn’t always follow the timetable we prefer.
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