Janet to the rescue, Canberra canned and take a tip from Benjamin Franklin

What a week! The stock market-correction’s U-turn, on shoddy US job figures, was made more seriously positive with the world’s most important person – at least in a material world sense – new Fed boss, Janet Yellen, wisely not spooking Wall Street. And, in fact, she gave the market the belief that she would not let her tapering rock confidence or the recovery.

As I write this morning, Wall Street is on track for the best week of gains in 2014, so well done Janet.

Meanwhile, in what might look like a weird indicator to support the bulls, TrimTabs, a firm that analyses market data, noted that there was a big shift out of ETFs that mums and dads investors use. So why is this good news for stocks?

Well, the company’s CEO, David Santschi summed it up this way: “ETF investors tend to be poor market timers, so their pessimism augurs well for stock prices over the short term.” (CNBC)

Against this good omen, the mob at S&P Capital IQ think a big correction is still out there waiting to happen. They argue when markets slide more than 5% in nine days or less, it seldom ends up being a bear market.

Sam Stovall, who is S&P’s chief equity strategist, and who I rate highly, pointed out that the recent pullback happened over 20-29 days, which has been a precursor to a bigger slump. So, maybe we aren’t out of the woods, though he said this before Janet gave the market a hell of a lot of hope that she wouldn’t nuke this bull market with silly, too fast tapering.

“We are firm believers that the S&P 500 is long overdue for a decline of 10% or more,” Stovall said. However, he’s no Doomsday merchant, arguing that we’re in a bull market and a decent correction would create a “buying opportunity.”

History says he is right but history has not seen QE3, tapering and people like Ben Bernanke and Janet Yellen. Regular readers know I have believed in the overdue correction and the buying opportunity strategy and that’s why I argued not long ago that banks, if you were happy with a return of about 10% in total for the year, were a good buy.

Then CBA closed as low as $70.74 on February 5 and is now $75.99 — that’s what dip-buying is about and represents a 7.42% gain!

My likes this week

I liked learning that March 19 is going to be huge day for Federal Parliament and business with 8000 laws to be put up for dumping into a Canberra can. The Government wants two days of repeal, where dumb costly regulations are assessed and kicked out if they are more problematical than they’re worth.

And more to the point, David Byers, the chief executive of the Australian Petroleum Production & Exploration Association revealed this week in The Australian that the Productivity Commission says “unnecessary regulation could be costing Australia about $60 billion – or 4% of GDP each year.”

So, when Bill Shorten asks what plan the Abbott Government has to help create jobs, well, killing dumb regulations looks like a good start.

Data-wise, I liked the NAB Business Confidence index going up from +6.8 to +7.8 but better still, business conditions hitting + 4.4 points, which was a 34-month high!

China gave their doubters a bird salute with exports up 10.6% against a forecast of 0.1% and I loved tourist arrivals going up 6% in December – the lower dollar is working! – but what about the 58,600 Chinese tourists who showed up, which took their annual total to a huge 726,000 – that’s a 13.7% rise. Be nice to any Chinese person you know, we need them like never before!

You had to like CBA profit up 14%, Domino’s up 38.8%, Computershare up 47.4%, Carsales up 17% and others beating expectations, all telling me that this adds to my snowball of confidence, which continues to build.

Over in Europe, there was good banking news and these institutions have often been slammed as dodgy. On Wednesday, Euro-shares rose with investors encouraged by robust banking results and the hope of rising dividends for the sector.

I also like the dollar slipping under US90c after the bad unemployment figure, which while not likeable, at least delivered a lower currency that will help future job creation and profits for companies that many of us are invested in.
And that will help share prices.

In addition, that rise in the unemployment rate should put a brake on the RBA’s interest in pushing interest rates up.

News Corp’s Terry McCrann, on my Switzer program, said the RBA wants to keep rates where they are and only inflation could force their hand. Low interest rates are no good for nervous Nellie super players, who want a bigger exposure to term deposits but they help stocks go higher, which is certainly something I like.

I was happy to receive a tweet from Franklin Templeton, which is “one of the world’s largest asset management groups with over US$844.7 billion in assets under management on behalf of over 25 million private, professional and institutional investors,” if you believe Wikipedia.

The company’s founder was a huge Benjamin Franklin fan and their ticker code is BEN!

Anyway, they tweeted on Thursday that the Australian stock market was priced at a good entry point. I hope they are right and other big US funds agree.

I didn’t like the consumer sentiment number but it was still in positive territory and the jobless news would be worrying consumers but the business confidence news is very bullish.

I didn’t like unemployment going up from 5.8% to 6% but Treasury, last year, said it would go to 6.25% and other economists have had a 6.5% figure for ages.

Jobless stats are a lagged indicator and relate to issues around 6-9 months ago and that’s why I look at current and forward indicators, which are far more positive for the economy.

Taking insurance for red wine drinkers

For red wine drinkers, who want a better excuse for their devoted consumption, scientist Guido Kroemer and his team at the Gustave Roussy Institute in Villejuif, France, found that red wine plus an Asprin work together to kill tetraploid cells, which cause genetic instability linked to the development of cancer!

Taking them together might also be like taking out insurance against a headache the next day after a session, though I am no doctor, just someone who likes to be positive.

Last word to Ben

And I found a relevant Benjamin Franklin observation: “Wine is constant proof that God loves us and loves to see us happy.”

And he might have been a fan of the Switzer Super Report if he was around today with this one: “An investment in knowledge pays the best interest.”

Top stocks – how they fared

Numbers that moved the market

As Janet Yellen stepped into the limelight yet again, investors looked on keenly to see what the new Federal Reserve chair would decide in terms of US monetary policy. The Fed’s decision to continue with existing policy gave the markets the encouragement they needed after a week of pullbacks, with the Dow Jones jumping 1.22% on Tuesday. The Wall Street rise saw investors flock to mining stocks, resulting in an ASX rise of 1.06% on Wednesday.

In China, key trade data was a big talking point of the week, with figures showing the country’s trade surplus rose by 14% year-on-year in January. Meanwhile, exports jumped 10.6% (despite economist predictions of a 0.1% increase) and imports rose 10.0%. As a result, the Aussie dollar rose to 90.64 US cents – the highest level we’ve seen since December.

And on the home front, we saw unemployment lift to 6.0%, up from 5.8% in December. This is the highest rate we’ve seen in ten years. Concerns over unemployment and higher interest rates, saw consumer confidence drop to its lowest level in seven months, with sentiment falling 3.0% in Feb to 100.2pts. Australian business confidence stayed afloat nevertheless, with conditions hitting an almost three year high.

The week ahead

Australia
February 17 Car sales (January)
February 18 Imports of goods (January)
February 18 Reserve Bank Board minutes
February 19 Wage price index (December quarter)
February 20 Detailed jobs data (January)
February 20 Average weekly earnings (November)

Overseas
February 18 US Capital inflows (December)
February 19 US Housing starts (January)
February 19 US Producer prices (January)
February 19 US Federal Reserve minutes
February 20 US Consumer prices (January)
February 20 US Philadelphia Fed (February)
February 20 “Flash” manufacturing (February)
February 20 US Leading index (January)
February 21 US Existing home sales (January)

After a huge week of figures – made even bigger by company reporting season – the Australian data front will be a fair bit quieter this week. The main data to keep an eye on is the wage price index, released by the ABS on Wednesday. September quarter figures showed a slow growth of 2.7% for the year. Economists predict the December quarter figures will be even slower, clocking in around 0.7%. It will also be interesting to have a read of the Reserve Bank Board minutes released on Tuesday.

You can expect a slightly more exciting week of data from overseas, with punters closely anticipating Chinese “flash” manufacturing (PMI) data. Last month’s data was soft at 49.6pts (below the critical 50-mark between expansion and contraction), so it will be interesting to see how our largest trading partner weighs in for February.

In the US there’s a decent raft of data on the horizon, despite Monday’s Presidents Day public holiday. This includes inflation figures for businesses and consumers, released on Wednesday & Thursday respectively. Also keep a watch on the US Federal Reserve minutes if you’re looking for an insight into prospective Fed decisions over coming months.

Calls of the week

You may have noticed a great call from Paul Rickard in this week’s Shortlisted – our newest section which gives insight into the stocks we’re watching over the week. On Monday he called Telstra as a good value stock at $5.01. By Friday they were up to $5.20 after reporting a 9.7% rise in company earnings in the six months to December 31.

On a similar note, my second call of the week goes to none other than the telco giant itself. On the back-foot of this $1.7b profit, Telstra lifted its dividend to 14.5c per share – up 0.5c. This is the first dividend rise we’ve seen from Telstra since 2006.

And finally a mention must go to David Koch, who made a call against paying big bucks to a convicted drug smuggler, after reports Channel Seven (his own network) had paid Schapelle Corby $2m for an exclusive interview. A complementary call goes to the people of Australia – with only one million people tuning into Channel Nine’s Schapelle telefeature on Sunday night.

Food for thought

“Live as if you were to die tomorrow. Learn as if you were to live forever.” – Mahatma Gandhi

Last week’s TV roundup

After a fairly consistent period of losses on the Australian and US markets, we accepted that this was the overdue correction we’ve been waiting for. Then US jobs figures were released and the stock markets overseas and at home starts climbing! So what happened to the correction? To discuss this and more I spoke with chief economist at Morgan’s, Michael Knox.

If you’re looking for reliable market analysis, look no further than Professor Ron Bewley of Woodhall Investment Research. Ron came on the program to share his predictions for market highs and lows over 2014, while analysing the global factors at play. He also shared his energy sector stock picks for all-breeds of investors.

The markets have chucked a U-turn this week, coming up for the fifth consecutive day on Wednesday, after a period of downturn we assumed was the correction. To discuss what is causing this turnaround I welcomed managing director of Arminius Capital, Marcel von Pfyffer. Includes analysis of Aussie, American and European markets.

Earnings season produced some positive and negative – and sometimes, surprising – results this week. To assess these company results, and how they might affect our share portfolios, I spoke with CEO of Montgomery Investment, David Buckland.

PLUS take a look at this month’s Switzer webinar with myself and Paul Rickard. We attracted a record number of attendees and tossed up some great subscriber questions.

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.

There wasn’t a lot of movement in terms of short positions this week. The biggest mover of the week was Acrux (ACR), which was down 1.70%. Meanwhile, GUD (GUD) and Bradken (BKN) stayed flat.

Source: ASX

My favourite charts

This chart appeared on the Switzer TV program this week and comes from Professor Ron Bewley. It shows his revised forecasts for the ASX 200 in 2014 after a month of tumultuous market activity. Ron is predicting an end of year index of 5850 (marked by the black cross) but says the market could creep higher during the year.