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Are you kidding? News outlets told us that markets reacted to central bankers telling us that easy money times are over, as if this is news. You’ve got to be kidding!
This might be news to the bond market, which has been betting the economic story isn’t as strong as optimists like me and others have been believing.
But you don’t have to be a chief economist at a bank to work out that if central bankers are saying “we’re out of the bailing out” game, that this should be good news for economies, companies and stock prices. Yet we’ve been ‘greeted’ by news headlines referring to a $26 billion wipe out of share market value on Friday!
I can’t take anyone seriously if they’re talking about market meltdowns but never even try to talk about market melt-ups.
At the heart of the central bankers warning was the escalation of debt and the surge in asset prices created by, guess who? Yep, central bankers. And now they somehow think that warnings like these, which have negative market implications, will be good for economic growth?
These warnings and these market reactions are so stupid it pains me to waste time talking about it.
What’s done is done. Now we have to see solid economic growth this year and next, or else we could see serious recession talk and big falls in stock prices. If you’re worried about that, recall that the RBA only recently reaffirmed its 3% plus calls for economic growth over the next two years, so let’s hope our central bankers are more closely connected to the ground, compared to the morons who spoke this week, with their heads somewhere in the clouds on route to cuckoo land!
Sorry, but this kind of market instability is simply unnecessary. We have to get growth, Donald Trump has to stop tweeting and fighting the media and get working on the Congress to pass his tax bill.
Earnings have to come in on par with, or better than, expectations. And the US has to see its low first quarter growth of 1.4% jump up into the 2% plus level.
While markets were listening to central bankers, I liked the rotation out of tech stocks on US stock markets into banks and energy stocks.
Wall Street wasn’t buying this central bank BS and was more concerned about the sector rotation out of tech stocks into banks and energy. That was Thursday. On Friday the same story applied, with the Dow up over 62 points. That made me happy early Saturday morning.
I was also happy to see BHP and Rio go higher in London markets on Thursday, so it surprised me that we played ‘follow the leader’ with other mad markets.
My case for skepticism about this sell off has been helped by the following facts that you might have missed:
- China’s official factory gauge rose more than expected this week.
- The US dollar fell and ours rose, which is good for commodity prices.
- As the SMH reported: “Iron ore continues its stunning surge and enters a bull market, up more than 20% this month!”
- Foreigners now buying Aussie stocks are at a record high, which must say something positive about us that many of us here have missed!
Of course, some of the sell off could’ve been those pocketing tax losses before June 30 was over, which often happens ahead of a rebound in the first week of July. And AMP’s Shane Oliver backs me up on this – see the chart below:
I can’t wait for July!
What I liked
- Wall Street didn’t play the silly game our market played with Asia and Europe, where central bank comments were over-respected or over-heeded!
- This quote from Jason Hunter, a technical analyst at JPMorgan: “While we have been growing more concerned about a summer top pattern and potential correction into the fall, that medium-term bearish reversal pattern has not developed yet. Furthermore, the current weakness is in part driven by the bearish global bond price action.” (CNBC)
- Total household wealth (net worth) stood at a record $9,636.1 billion at the end of March, up $226.9 billion (or 2.4%) over the quarter. CommSec estimates that wealth per person rose to a record $393,380 in the March quarter, up $7,530 over the quarter and up around $34,500 over the year.
- Job vacancies rose by 1.6% to 189,000 in the three months to May. This is a 6-year high. Job vacancies are up 11.4% on a year ago.
- Foreigners like us, with overseas investors now holding a record $816.6 billion of Aussie shares in the March quarter (or 44.9% of the total!).
- Despite efforts to slow down house price increases, (in seasonally adjusted terms), new home sales rose by 1.1% in May.
- Australia’s population expanded by 372,805 over the year to December 2016 to 24,385,625 people. Overall, Australia’s annual population growth rate rose from 1.547% to 1.553% – the fastest population growth in almost three years. Population growth leads to economic growth because more people means more demand.
- China’s manufacturing purchasing managers index increased to 51.7 in June, compared with estimates of 51 and a reading of 51.2 in May. The non-manufacturing PMI rose to 54.9, compared to 54.5 a month earlier.
- Smart players linking good European growth forecasts and current metrics to the outlook for big cap European companies. After my Italian trip, the tourists and trucks on the road ‘vibe’ was stronger than I’ve seen since the GFC.
What I didn’t like
- Tony Abbott’s play for the PM’s job. I don’t mind Tony as a pollie but he didn’t cut it as PM because the job is hard to pull off well, as Malcolm is finding. More instability isn’t needed for an economy that looks to be on the mend.
- Unnecessary comments from the likes of Mario Draghi, boss of the European Central Bank. This was a rare mistake from a guy I’ve called Super Mario!
- The run of US economic data is softer than I’d like but you do have to be careful about monthly numbers. Trends are more important and that’s what I’ll be watching for this month.
- Economist John Edwards and what he said. It got the usually calm Shane Oliver nearly unsettled. This is what my old mate said: “Eight rate hikes over the next two years from the RBA?” Don’t come the raw prawn with me… in other words, I doubt it. Former RBA board member John Edwards comment that if the RBA forecasts – for growth to pick up above 3% and inflation to be around 2.5% by mid 2019 – come to fruition, then the RBA “will want the cash rate to be 3.5% at least by the end of 2019 coming on the back of more talk of monetary tightening globally over the last week have naturally sparked a bit of interest. However, it’s doubtful this will happen.” Not a wild reaction but more a mild one. But what would you expect from Shane?
If John Edwards is right then…
If John (who’s also a mate) is right (and I don’t think he is), then our economy will be going gangbusters. This is how John’s old advice-client, Paul Keating, would’ve described it. As I say, if he’s right, then our stock market will be a lot damn higher than it is today.
That said, by the fourth or fifth rate rise, I’d be taking a lot of my stocks profit off the table!
The week in review:
- I shared some strong reasons for buying foreign stocks now [1].
- Paul Rickard [2]revealed the best rates on cash and term deposits.
- James Dunn [3] picked four stocks to watch for the new financial year.
- Tony Featherstone [4]shared three companies to consider for a “post-Amazon” world.
- Charlie Aitken [5] said it’s time to look at global equities to generate better returns for your portfolio.
- Westpac was upgraded this week, while Healthscope [6] received a downgrade.
- In our second broker update, Metcash was in the good and bad books following its full-year report. Medibank was upgraded, while Newcrest copped a downgrade [7].
- ST Wong explained why he likes Pinnacle Investment Management [8].
- And in our stock selector survey, the experts nominated a food and grocery wholesaler and a healthcare company for their “likes list”. Find out why [9].
Top stocks – how they fared
What moved the market?
- A rally in iron ore and oil prices.
- Strong gains from the banks. In the US, the financials passed stressed tests to ensure the banks would cope in the event of a downturn.
- Investors booking in profits at the end of the month.
Calls of the week
- Christine Holgate was chosen as the new Australia Post CEO.
- Former RBA board member, John Edwards, said interest rates could rise eight times (or 2%) in two years – but other economists aren’t so sure!
- Tony Abbott basically made a pitch to get back his old job by saying “we need to make Australia work again”. But just how broke is our country? I explored this question on Switzer Daily [10].
- And Charlie Aitken said you need to lose some of your home bias to generate better total returns in FY18. Read his article here [5].
The week ahead
Australia
- Monday July 3 – CoreLogic home prices (June)
- Monday July 3 – Performance of Manufacturing (June)
- Monday July 3 – Building approvals (May)
- Monday July 3 – Job advertisements (June)
- Tuesday July 4 – Reserve Bank Board meeting
- Tuesday July 4 – Retail trade (May)
- Thursday July 6 – International trade (May)
Overseas
- Monday July 3 – US Construction spending (May)
- Monday July 3 – US ISM manufacturing (June)
- Monday July 3 – US New vehicle sales (June)
- Monday July 3 – China Caixin Manufacturing (June)
- Wednesday July 5 – China Caixin Services (June)
- Thursday July 6 – US ISM services (June)
- Thursday July 6 – US ADP employment (June)
- Thursday July 6 – US International trade (May)
- Friday July 7 – US Non-farm Payrolls (June)
Food for thought
Don’t be afraid to give up the good to go for the great.
– John D. Rockefeller
Last week’s TV roundup
- Chris Kelaher [11], CEO of IOOF, shares the growth strategy for the company and provides insights into the financial services industry.
- To share his views on the markets and how he’s investing right now, Charlie Aitken [12] from Aitken Investment Management joins Super TV.
- With the financial year about to end, what will the market do in the second half of 2017? To share his views on the markets and more, FNArena’s Rudi Filapek-Vandyck [13] joins the show.
- And Contango Asset Management’s Bill Laister [14] shares his views on the stock market and the small-cap companies he’s watching right now.
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 shows how this has changed compared to the week before.
This week, one of the biggest movers was Galaxy Resources, with its short position increasing by 1.37 percentage points to 9.21%. Retailer JB Hi-Fi followed, moving 1.05 percentage points to 12.02%.
Source: ASIC
Chart of the week
Aussies are wealthier than ever!
Our assets are continuing to rise! Total household wealth or net worth was a record $9,636.1 billion at the end of March. That’s an increase of 2.4% or $226.9 billion over the quarter. As you can see from the chart, the majority of our wealth comes from land and dwelling assets.
Top five most clicked stories
- Paul Rickard: The best rates on cash and term deposits [2]
- Tony Featherstone: 4 stocks for the new financial year [15]
- Peter Switzer: The strong reasons to buy foreign stocks now [1]
- James Dunn: 4 stocks to watch for the new financial year [3]
- Charlie Aitken: Is home bias hurting your portfolio? [5]
Recent Switzer Super Reports
- Thursday 29 June 2017: Australia vs. the world [16]
- Monday 26 June 2017: Look abroad [17]
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.