It’s been a rough week at the office, with the S&P/ASX 200 index plumbing one-month lows and behind it, mainly the weakness in commodity prices. There could also be a bit of apprehension ahead of the Fed’s expected first interest rate rise since 2006, which pre-dated the GFC.
And as I have been beating the drum for long-term investors to remember that they’re exactly that – long-term investors, I think it’s timely to invoke some good old Rudyard Kipling who once wrote:
If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too:
If you can wait and not be tired by waiting…
Yours is the Earth and everything that’s in it.
Poetry experts might’ve noticed I have cut out a lot of this great poem but I’ve shared the best bit for investors worried about what’s been going on with commodities lately. I remain optimistic on stocks, with this from The Financial Times’ Jamie Chisholm this week:
- The Capital Economics team thinks the first rate rise in the US next week will reinforce the view that the US economy is going well.
- “Prospects for emerging economies (EMs) are better than expected. Data suggests China will escape a hard landing and EMs are not as exposed to a US tightening as before because of stronger balance sheets and floating exchange rates.” (FT)
- Monetary conditions worldwide will be accommodative and the Fed will raise rates slowly.
- The higher greenback helps other countries grow exports and their economies, such as Australia (my addition to bring it home to you).
- The US dollar strength is already priced in so it’s not expected that the greenback will spike after the most anticipated decision.
Also, OPEC countries are having arguments over who cuts back production but they’ll eventually start the supply restrictions for their own sake and non-OPEC supply has been revised lower from 1 billion barrels a day to 690,000. That’s a big drop. Also ZACKS says: “Rigs engaged in exploration and production in the US totalled 737 in the week ended 4 December 2015. The latest rig count is down by seven from the previous week. This is the lowest level since 15 October 1999.”
When I throw in the expectation that oil will eventually head up in price, our lower dollar, the great economic data we’re seeing here right now, the US economic strength and the positive views even held on the Eurozone economy, along with the optimism shown on China and EMs, I can only keep my head and trust myself. What I’ve learnt over 30 years of teaching economics and writing about economics, as well as analyzing market experts, my own investments and my own business experiences tells me that this was just another stormy week ahead of blue skies and clear sailing in 2016 and beyond.
What I liked
- Those job numbers with 71,400 jobs created in November and the biggest back-to-back job gains in 28 years!
- Unemployment falling from 5.9% to 5.8%, with the participation rate rising.
- Job ads rose by 1.3% in November, after lifting by 0.3% in October. Job ads have risen in 16 of the last 18 months and are up 25 months in a row on a trend term basis. These forward indicators might explain why the real job numbers are so good now.
- The NAB business conditions index rose from +9.8 to +10.2 points in November. And the business confidence index rose from +2.8 points to +4.8 points.
- The weekly ANZ/Roy Morgan consumer confidence rating rose by 3.5 points to 116.3 in the week to December 6 – a four week high. Confidence is up 5.3% over the year and well above the average of 111.4 since 2014.
What I didn’t like
- The commodity price story this week – it’s been a shocker.
- The stock market reaction and where in the hell is Santa?
- The media reaction to those great job figures – journalists always want to listen to the negative storytellers, who are currently shooting the ABS messenger because their forecasting is up the you-know-what!
- Trump – never been a fan of the rat bag. A lot of us worldwide are scared of the Islamic terrorist threat but we have to trump Donald’s effort with far smarter solutions.
- In the US, the Federal Reserve’s Labour Market Conditions Index rose 0.5 points in November – the slowest growth in seven months.
- The Dow was down again on that pesky oil price, with the International Energy Agency (IEA) warning that the global oversupply problem could worsen in the New Year.
Big week ahead
On December 16 we should see the Fed raise its official interest rate and the market’s reaction will be a huge, dramatic event. Short sellers will be hoping for anxiety, which they will try to turn into panic, while those who think this much-anticipated decision should unleash feelings of positivity towards the outlook for the world’s biggest economy will try to take stocks higher.
And while the decision is seemingly a foregone conclusion, the real drama will be in what the Fed boss, Janet Yellen, says. I’m really hoping she doesn’t have a rat bag moment that spooks markets. That’s unlikely because she, more than anyone in the world, knows that one false move or silly word will have major market implications. Don’t lose your head, Janet!
Top stocks – how they fared
[table “135” not found /]The week in review
(click the blue text to read more)
- This week I tested my positivity on stocks [1]. You guessed it, there’s good reason to remain positive on shares into 2016 and I’m sticking to it until it becomes sensible to change it!
- My colleague Paul Rickard explained how to buy shares for minors in part 2 of Investing for your kids [2] or grandchildren. He gave his suggestions on where to stash your cash, including alternative ideas like CommSec’s share packs. Click here to revisit Part 1 [3].
- The brokers were light on upgrades, but Fisher & Paykel Healthcare (FPH) was one of the lucky ones [4].
In our second broker report, Platinum and Premier were downgraded [5]. - Monik Kotecha said global health stocks are poised for growth and trading at attractive discounts [6] to the domestic healthcare sector.
- Our Super Stock Selectors liked Asciano Group (AIO) but CCL (CCL) went on the dislikes list [7].
- Charlie said he’s certain Fed boss Janet Yellen is going to hike rates on December 17 but says it will be a ‘dovish hike’ [8] accompanied by dovish commentary.
- Tony Featherstone explored three media stocks with interesting prospects [9]including iSentia Group (ISD), 3P Learning (3PL) and QMS Media (QMS).
- SG Fleet (SGF) was this week’s Professional Pick by Anton du Preez, [10]with its well-diversified business giving it a competitive edge.
- Christine St Anne explained why BHP is battered but not out [11], revealing the game plan of Paul Rickard and yours truly on the stock. The price has even sparked Charlie Aitken’s interest, but he’s still in watch mode.
- And Tony Negline said it’s time to recap your knowledge on limited recourse borrowing arrangements (LRBAs) [12] due to new rulings by the ATO.
The week ahead
Australia
- Monday December 14 – Credit & debit card lending (October)
- Tuesday December 15 – Weekly Consumer sentiment
- Tuesday December 15 – Reserve Bank Board minutes
- Tuesday December 15 – New vehicle sales (November)
- Thursday December 17 – Population data (June quarter)
- Thursday December 17 – Detailed labour market data (November)
- Thursday December 17 – Finance & Wealth (September quarter)
Overseas
- Tuesday December 15 – US Consumer prices (November)
- Tuesday December 15 – US Capital flows (October)
- Tuesday December 15 – US NABH housing market index (December)
- December 15-16 – US Federal Reserve meeting
- Wednesday December 16 – US housing stats (November)
- Wednesday December 16 – “Flash” manufacturing surveys
- Wednesday December 16 – US Industrial production (November)
- Thursday December 17 – US Leading index (November)
- Thursday December 17 – US Current account (Sept quarter)
Calls of the week
- Malcolm Turnbull’s $1.1 billion innovation package – including a capital gains incentive of a 20% tax write-off for entrepreneurs – gets my tick of approval!
- Charlie Aitken says the Fed will embark on a dovish hike rate hike trajectory on December 17 [8]and that the Fed lift-off will pave the way for US equities to advance in late 2015 and into 2016.
- The call by Atlassian founders, Mike Cannon-Brookes and Scott Farquhar, to list their company on the NASDAQ. Priced at US$21.00, the shares closed the first day at US$27.72, valuing the company at US$5.6bn – almost AUD 8.0bn.
Food for thought
“Successful people do what unsuccessful people are not willing to do. Don’t wish it were easier; wish you were better.”
Jim Rohn, American entrepreneur and motivational speaker
Last week’s TV roundup
- Marty Switzer talks to David Bassanese from BetaShares [13]about struggling commodity prices, a Christmas rally and the movement of the Fed.
- Paul Moore, founder and CIO of PM Capital [14], joins Super TV to talk about global investment opportunities.
- Charlie Aitken from Aitken Investment Management [15] shares his views on global financial markets and what stocks he’s watching right now.
- And to talk about the state of SMSFs in Australia, Bryce Doherty of UBS Asset Management [16]joins the show.
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. The biggest movers were Slater and Gordon and Cabcharge.
[17]My favourite charts
Female jobs soar!
More females are finding work; 54,000 in fact, and that’s just in November! I hope we can believe those figures because that’s the biggest monthly surge in nearly 30 years and an encouraging sign for the jobs market! Total employment rose by 71,400 in November after rising by 56,100 in October.
[18]Is it time to buy BHP?
BHP shares sank this week, but are you brave enough to take the plunge? If you’re like me, you will put this miner on the watch list. It’s a waiting game for long-term players!
[19]Top 5 most clicked on stories
- Charlie Aitken: A structural growth stock [20]
- Peter Switzer: Am I right on the stocks or M.A.D [1]
- Roger Montgomery: Any value out there at the moment? [21]
- Charlie Aitken: The dovish hike [8]
- Christine St Anne: Short n’ Sweet – BHP battered but not out [11]
Recent Switzer Super Reports
- Monday, 7 December, 2015: Optimism is tested [22]
- Thursday, 10 December, 2015: Yellen for a rise [23]
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.