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It’s the Economy, Stupid! and it’s not bad

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I don’t know if you heard it here first (though I suspect you did) that the big four banks and Telstra were on the way up and had a great week, rebounding from what looked like ridiculously low levels. The experts, who check out these sorts of things, tell me that this is the third best week this year. I hope this is a sign of things to come as December looms, which is historically a great month for stocks.

So how come? Well, as Bill Clinton once advised Americans – “it’s the economy stupid.” Yep, Wall Street, which was on track ahead of the close for the best week for 2015, is starting to buy the logical story that the Fed will only raise rates for the first time since 2006 because the economy is damn well good enough to take it.

When it happens, it’s the final stages of the QE program that was designed to rescue the US and the world economy from a potential Great Depression Mk II and stocks should head north. But on a more micro-level, not only should the economy do well, so should company revenues and profits, which should help share prices.

And happily, as I have been arguing for months, the Oz economy is looking like it’s in the same boat for 2016. Even the AFR, which along with other Fairfax publications has been talking the economy down, led with a story entitled: “Risk of recession is waning as Australia outpaces it peers…”

Yahoo! But note they didn’t pass up the opportunity to throw in the R-word. A better heading might have been “After being wrong all year, we’re now right. The Oz economy is getting stronger! Sorry.”

I’m not going to gloat but it’s so nice to see more and more people get on board the positivity train, which picked up speed when Malcolm T took over the throttle.

Regular readers know I was not anti-Abbott and was pro-Joe after his 2015 Budget, which has underpinned this recent improvement in jobs but the T-train has driven up confidence and I’m hoping he handles this foreign policy pressure post-Paris, which could hurt his popularity after a so-so week.

Fortunately for the Coalition, Bill Shorten is coming up short politically. I don’t say this with glee for political purposes but for economic reasons, as the economy needs strong leadership in Canberra that elevates the psyche and tells us that the Government is not under attack from without and from within.

Strong, well-supported leadership is good for the economy, just as the opposite is bad for the economy. And as I have said, it’s the economy stupid!

This from Chuck Self, the CIO of iSectors, shows how important the economy will be for stocks as the year peters out: “The market is just going to be in volatile trading on bits and pieces of news that come out until we get to November retail sales and the November employment report.”

Here we get the National Accounts in the first week of December and then we’ll wait to see if those great job and jobless numbers of October were credible. If they were, we could really see a stocks takeoff!

What I liked

What I didn’t like

My final point

The goods are really outnumbering the bads – look at my likes versus my dislikes – as we roll into December, which is a great month for stocks. Sure, you can’t trust history, totally, and yes, Warren Buffett once said: “If past history was all there was to the game, the richest people would be librarians,” but, with a strong understanding of the economy, it can be a great base for either buying or selling stocks.

I don’t usually question Warren but I do have to say “past history” – is there any other kind? And why didn’t he say “the richest people would be historians?”

Maybe he isn’t as infallible as we all think! Ponder that over your coffee today.

Top stocks – how they fared

20151120-topstocks [1]

The week in review

(click the blue text to read more)

What moved the market

The week ahead

Australia

Overseas

Calls of the week

Food for thought

“Headlines, in a way, are what mislead you because bad news is a headline, and gradual improvement is not.”

Bill Gates – American businessman, cofounder of Microsoft.

Last week’s TV roundup

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, the biggest movers were Metcash and Nine Entertainment, with a 2.23 and 2.20 percentage point increase in the proportion of shares sold short respectively.

20151120-largeshortpositions [16]

My favourite charts

Don’t fear the rate hike!

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Shane Oliver sent a reassuring note on 5 reasons why you shouldn’t worry about the Fed raising rates. The chart above reveals one of them, with US employment up and unemployment down. “Jobs are well up on 2008 levels, unemployment is down to 5%, confidence is up, the housing sector has recovered and business is investing again. And since inflation normally only turns up with a lag the Fed feels there is an argument to get going.”

Record passengers from Sydney to Melbourne!

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The number of passengers moving between Sydney and Melbourne has increased by 3.1% on a year ago and is at a 23-month high. CommSec says this is further evidence that the economy is strengthening, as it is traditionally looked at as a ‘barometer of business activity.’

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