It’s a tale of two stories – one short, the other long term. And it’s big news when a US economic recovery has been ramped up by an economic growth number that went from a great 3.6% to a whopping 4.3%! But what happens to the credibility of this belief that America is booming, when an expected 196,000 jobs in December only ends up being 74,000?!
Well, it could mean we got too carried away with the USA’s good growth news. Or, we could say this is a short-term aberration, which will be KO’d by the overall long-term and more believable other good recovery news, such as factory orders, manufacturing readings, chain store sales, consumer confidence, etc.
By the way, there might be a third story: US economists simply screwed up with their 196,000 jobs created guess (that can happen), or this number is a statistical gremlin that will be squashed when the revision comes through.
And revisions do happen with November’s solid 200,000-number being re-worked to a whopping 241,000! That’s a huge mistake, sorry, revision – that’s the word statisticians use to soften a huge boo boo.
“It’s certainly disappointing, but I don’t think it’s indicative of what’s going on in the economy,” said Gus Faucher, senior economist at PNC Financial Services Group.
Gus expects a revision and so do I, given other economic data out there for the US. By the way, on another instance of the use and abuse of statistics, the Yanks’ unemployment rate fell to 6.7% from 7% and that should be a great sign. This result, however, was driven by a large drop in the participation rate, which isn’t a great economic indicator.
Silver lining playbook
But we’re always playing or praying for a silver lining inside every black cloud and this number does make it easier for Janet Yellen not to go too hard on tapering, which will make the stimulation from QE3 a little longer lasting. Some informed experts were worried that a Fed that races to a more normal monetary policy, with zero QE3 bond buying, could push up market interest rates too quickly and burn the bull market.
Why I remain bullish
Okay, the US jobs number was disappointing, so let me hit you with stuff this week that keeps me supportive of stocks this year and my measured call of 6000 on the S&P/ASX 200 index.
Here goes:
- Monthly chain store sales in the US rose 3.7% in December, after increasing by 2.1% in November.
- Planned layoffs, according to survey company Challenger, Gray & Christmas, fell 32% in December and that’s a 13-year low!
- US jobless claims fell by 15,000 to 330,00 in the past week.
- The ADP National Employment Report showed the private sector added 238,000 jobs in December and this was the fastest pace in 13 months, which increases my skepticism about those job figures.
- Good stock market news this week, with Spain’s IBEX rising by 0.7%, Portugal’s PSI 20 adding 1.4% and Greece’s ATG index lifting by 3.3% in one day. These were driven by better economic news from these once written off economies.
My China concern
With the USA, Japan and Europe all seemingly beating economic expectations, it keeps me bullish. I am, however, a little worried about China. It will be my key area of research, apart from the stocks I like for this year, which I’ll release over the next couple of weeks.
The bad news this week was the services sector in China that expanded in December, with a reading of 50.9 but at a slower rate than the month before, which came in at 52.5. It was the weakest expansion in 28 months, which adds to a run of weak data out of China recently.
Back to the positive
On the good news side for us, experts now expect we’ll see a trade surplus later this year helped by rising exports to China, which hit a record high and are now over $92 billion a year! That’s around $4,000 per Aussie and shows how important the China-link is to us.
What I’m hoping to see is that the recovery of the US, Japan and Europe will actually be an enormous shot in the arm for China. The world’s second biggest economy exports heavily to these regions and the GFC’s negative impact hurt the demand for Chinese exports.
More Switzer support
I won’t forget in a hurry this quote from Brian Belski of BMO Capital Markets. Belski thinks he’s seeing the last big bull market of his working life! This is what he actually told CNBC:
“We’ve been very clear over the past several years that we believe that we have entered a 15- to 20-year equity bull market, [a] secular bull market.”
And he’s not alone. Gary Stone from Share Wealth Systems came out this week to tell us he thinks we’re in a secular bull market.
What does secular mean in real people’s language? Try long-term!
I sincerely hope these guys are right because it means we can make some pretty good money together!
Top stocks – how they fared
Numbers that moved the market
China’s services Purchasing Managers Index (PMI) [1] for December revealed the sector slowed to its lowest point since August 2011. On Monday, HSBC reported a PMI of 50.9, down from 52.5 in November. The equivalent survey by China’s National Bureau of Statistics measured a four month low of 54.6. It’s important to note that while the numbers were disappointing, they are both above 50, which is the level which separates expansion in activity from contraction.
Minutes from the US Federal Reserve [2]‘s final meeting of 2013 were released last week, which outlined the reason for the Bank’s plan to pull back their quantitative easing program by US$10 billion per month. The market generally reacted negatively when a pullback was mentioned throughout 2013 and this week was no different, with the Dow ending Thursday 0.41% in the red.
Building approvals fell slightly [3] in November (-1.5%), but the year on year figure showed a solid 22.2% increase in approvals. This was helped along in 2013 by record low interest rates throughout most of the year.
The week ahead
Australia
January 13 Housing finance (November)
January 13 Job advertisements (December)
January 15 Consumer sentiment (January)
January 15 New car sales (November)
January 15 Lending finance (November)
January 16 Inflation gauge (December)
January 16 Employment & unemployment (Dec)
Overseas
January 14 US Retail sales (December)
January 15 US Empire Manufacturing Index (Nov)
January 15 US Producer prices (December)
January 15 US Fed Beige Book
January 16 US Consumer prices (December)
January 16 Philadelphia Federal Reserve Index
January 17 US Industrial production (December)
January 17 US Housing starts (December)
We’re back into the swing of things now with a solid amount of economic data set to be released both in the US and Australia next week.
The main local indicator for the week will be consumer sentiment on Wednesday. A strong Santa Clause rally, rising house prices and general Christmas cheer are all reasons to expect a rise in confidence to start the year.
On Thursday, inflation and employment figures will be released. CBA are predicting 11,000 new jobs for the month of December, which would leave the unemployment rate unchanged at 5.8%.
Across the Pacific there are a number of indicators, including Retail sales on Monday and the Philadelphia Federal Reserve index on Thursday.
Calls of the week
Paul Rickard’s model portfolios [4] gets the top spot here. They didn’t just beat the index, they smashed the index – with the growth oriented portfolio gaining over 27.5% in 2013. Considering the ASX200 was up 20.2% over the same period (including dividends), this was a seriously good result.
England cricket great Ian Botham’s modest prediction on the Ashes result back in June: “given that we’ve got back-to-back Ashes series, if we get a good summer make that 10-0. I’m serious. Why not? I think we’re that much better.” Sorry Ian – I think the final score was 3-5!
Tony Abbott’s call in Sydney’s Daily Telegraph about putting an end to drunken violence in our capital cities. Here here!
Last week’s TV roundup
I was unavailable for the show, so my eldest son Marty took the reigns this week.
Economic expert Marcel von Pfyffer joins Marty to take a look at global economic growth and asset prices [5] in 2014. It’s sure to be interesting as emerging markets prepare for a slight growth pull-back and Janet Yellen takes on the top job at the US Federal Reserve.
Leading investment forecaster and strategist Dr. Ron Bewley shares his stock market and sector prediction [6]s for the coming year, after a successful year of forecasting in 2013.
Our resident charts man, Lance Lai shares his predictions for global stock markets and gold prices [7] in 2014, while reflecting on some of his earlier predictions.
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 mover last week was UGL, with their short position closing by 1.23%. Despite the improvement, UGL is still high on the list with the third largest percentage of shares sold short. Cabcharge attracted new interest, with their short position increasing by 0.8%.
My favourite charts
Chinese services PMI may have disappointed this week, but any slowdown in the mammoth economy is certainly not affecting our trade relationship. In 2013 our exports to the region were worth a record $92 billion dollars – over a third of total exports.
Top five clicked on stories of the week
Peter Switzer: Stocks will rise in 2014 [8]
Tony Featherstone: Opportunities in resource stocks in 2014 [9]
Paul Rickard: Portfolios end year on a high! [4]
Roger Montgomery: A good-value medical opportunity in LifeHealthcare [10]
James Dunn: Buy big global companies in the year of the greenback [11]
Last week’s Switzer Super Reports
Thursday, 9 January 2014: Leave us alone [12]
Monday, 6 January 2014: About bloody time! [13]