How good was Thursday? The S&P/ASX 200 index was up over 108 points but I have to say I liked yesterday (Friday) even better because there wasn’t a big pullback. That has been a trend that’s not really clear to everyone yet but it looks like we’re less reactive on the downside than Wall Street.
That said, the Yanks had another big day, with the Dow up over 200 points before the closing bell, as the greenback lost some ground following the Fed’s “not so fast, we’re not ready to raise ASAP” virtual message to the market.
You know my major investing theme has been that stocks are heading up. The economics of QE and historically low interest rates worldwide have created a rare and weird market situation. And I’ve been repeating, month after month and year after year, since 2009 that buying the dips is the way to go.
I’ve said “this time it IS different” with the trepidation of an economist, a financial adviser and a stock market commentator with a memory. I’ve got away with this for two years and suspect I have at least one year of luck left (it will be more but I am on a watching brief).
One Morningstar study says US bull markets average around 97 months and the S&P 500 puts on about 440 points. However, another study (going back to 1871) says it’s only 67 months. This one has lasted 72 months but the S&P 500 is up over 1423 points!
So, this time IS different.
But it’s different this time, for many reasons. Janet Yellen proved it during the week when the Fed boss virtually told the market that she wasn’t rushing to raise rates. That’s not to say she wouldn’t, if the time is right.
Stock players went “Yahoo!” and the good vibes went right around the world, explaining our 108 point spike. It took the dollar over 78 US cents.
CMC Market’s Michael McCarthy reckons the dollar reacted to foreigners chasing our dividend stocks or forex smarties anticipating it.
Later the dollar fell. In all likelihood that fall was in anticipation of a rate cut from the RBA in April.
That’s by the by.
The more important addition to my “buy the dips” theme is the new theme I canvassed in the second half of 2014. I kept asking experts when our market-ignored stocks (particularly smaller cap companies) would play catch up. We’re seeing that now and I think the lower dollar is helping there.
It clearly has helped the dollar-sensitive stocks such as CSL, Resmed, Macquarie and others, which we were recommending last year.
It was also the time to start investing overseas, other than the US (I couldn’t recommend that until QE became a certainty). Since then it has been mentioned a number of times by yours truly and others in this Report [1].
Another related theme I pushed was that this would be a long drawn out economic cycle, with interest rates so low. That still looks like it’s the case. And the lessons from the 1930s might prove the point and even suggest that things aren’t as different as I thought.
In the 1920s, the bull market went for 44 months. In the 1930s, it went for 167 months, with an annualised average return of 17.2%!
The World War II bull market lasted an unbelievable 181 months. In the more normal times of the 1960s, it was only 77 months.
The 1970s could only hold it for 30 months but the 1980s brought a whopping 155 months (or 13 years)!
The 1990s run to the dotcom bust was 153 months, while the pre-GFC bull market was only 57 months. So the pattern actually suggests we are ready for a long bull market and it often happens when governments or central banks are involved with big issues, such as the Great Depression, World War II and Ronald Reagan!
Maybe this time it’s not different and that makes me even more happy to be bullish! Yahoo!
What I liked this week
- Morgan’s Michael Knox telling me on Monday that he thinks fair value in our stock market is 6150. I love hearing that and then seeing the nice rises this week.
- While the number of jobs lost to the mining sector was 50,000 over the year, the total jobs created rose by 186,500, which was the most in two years.
- The hints, at long last, that the Abbott Government is giving up on its doomsday debt talk whenever it refers to the Budget.
- The PM said the 2015 Budget will be “much less exhilarating” than its predecessor. (I should have been sending the Switzer Super Report [1] to Joe and Tony for the past year, though I have been screaming it on my TV show for at least a year.)
- The market conclusion that another rate cut is coming and April or May are the most likely months. I hope it’s in April so we’ll have another rate cut, a pro-growth Budget on top of a lower dollar and lower petrol prices all helping to boost confidence.
- Citigroup’s target for BHP at $35 and Michael McCarthy of CMC Markets thinking this was on the low side!
- European stock markets greeted some good Greek news, with the FTSE above 7000 for the first time ever! The new government there is showing signs of compromise that are bringing positive noises out of the German Chancellor Angela Merkel. The German DAX was up 1.18%, the Spanish IBEX rose 2.96% and the Athens Composite was 2.9% higher.
- Loved interviewing US economist Arthur Laffer on Tuesday at a lunch in Sydney for the Australian Chamber of Commerce and Industry. Arthur, who was tax advisor to Ronald Reagan, conceived the Laffer Curve, which George Bush Senior called “voodoo economics”. Bush later supported this when he was Vice President to Reagan. You might recall that Laffer’s ‘curve’ featured in the movie Ferris Bueller’s Day Off! I especially liked explaining the curve itself to the audience. Dr Laffer tried first but he left most of the audience looking like they were nonplussed. You see that a lot with economists!
What I didn’t like
- The Dept. of Industry (DOI) tipping iron ore prices averaging US$60.40 a tonne falling to US$55.60 in 2016, after being $US88.10 over 2014!
- The above predictions being at odds with the bullish price predictions for BHP! (I’ll be pursuing this conflict in coming weeks and the question will be: what kind of volume response will there be?)
- The German ZEW economic sentiment survey also rose by less than forecast in March, which is at odds with the recent run of economic and market data there since the euro headed south.
- The dollar at 77.82 US cents this morning but it should pressure the RBA to cut again in April. (I want rate cuts over and done with to speed up the recovery and get our economic life back to normal.)
- The Fed might have removed the word about being “patient” when it comes to a rate rise but it lowered its future rate rise expectations! Are they seeing a slower than expected US economy? This partly explains the weaker dollar but it has helped this overnight rally.
One final point
Given we finished yesterday at 5975.5 and looking at Wall Street’s lead overnight, we could be a chance to take out 6000 next week. That would be nice and I could easily give a pretty big “Yahoo!”
Look out for this on Friday the 27th
It’s my birthday Friday so I’ll be whisked away to some exotic place leaving my colleague Paul (Rickard) and stock picking star Charlie Aitken space to run our monthly webinar. Don’t miss this!
Top stocks – how they fared
[2]
The week in review (click the blue text to read more):
- I answered the question “what keeps you awake at night?” with my worry-wart list [3], but my pro-sleep list certainly outweighs it!
- My colleague Paul Rickard says deciding whether or not it’s too late to invest offshore [4] depends largely on your existing exposure – and also gave you the best ETFs and LICs to consider.
- James Dunn gave you some commodity players in global markets [5], including Brazilian Vale and Anglo-Swiss Glencore.
- This week, the brokers upgraded Downer EDI and Regis Resources [6]. In our second broker report for the week, the brokers upgraded BHP Billiton [7].
- Tony Featherstone gave us three yield opportunities in small and mid-cap land [8], with the WAM Capital LIC, The Russell High Dividend Australian Shares ETF and the Contango MicroCap LIC.
- Professor Ron Bewley gave us the run down on his portfolio [9] and explained why it was the right time for a rebalance.
- And Barrie Dunstan shared one of Warren Buffett’s big secrets [10].
What moved the market (click the blue text to read more):
- Even though the US Fed dropped the word “patient” from its statement [11] on interest rates, the Dow Jones index spiked higher following its release.
- And the anticipation of an upcoming interest rate cut by the RBA sent local shares soaring 108.5 points on Thursday, to 5,950.8.
The week ahead:
Australia:
- Monday March 23 – CBA business sales (February)
- Tuesday March 24 – Weekly consumer confidence
- Tuesday March 24 – Speech by Reserve Bank official
- Wednesday March 25 – Financial Stability Review
- Thursday March 26 – Population data (September Qtr)
- Thursday March 26 – Finance and Wealth (December Qtr)
Overseas:
- Monday March 23 – US Existing home sales (February)
- Tuesday March 24 – US Consumer prices (February)
- Tuesday March 24 – US Home prices (January)
- Tuesday March 24 – US Richmond Fed survey (March)
- Tuesday March 24 – US New home sales (February)
- Tuesday March 24 – “Flash” manufacturing (February)
- Wednesday March 25 – US Durable goods (February)
- Friday March 27 – US Economic growth (December Qtr)
It’s a relatively quiet week data wise in Australia next week, but keep an eye out for business sales on Monday and weekly consumer confidence on Tuesday.
Over in the US, there’s a bit more on with existing home sales, consumer prices, and US economic growth data. There’s also “flash” manufacturing, which covers the US, China and Europe.
Calls of the week (click the blue text to read more):
- Education minister Christopher Pyne declaring “I’m a fixer” following his interview on the Government’s recent back down [12] over higher education reforms with one of our very own Switzer contributors, David Speers. Don’t miss this – it’s hilarious!
- David Bassanese made the call to scrap the GST and replace it with a “much simpler tax to administer, levied on the largest known tax base in the country” – that is – electronic transactions [13].
- Apparently economists don’t have great sex lives, with 0 hits returned on a Google search for this exact topic! However, the biography of John Maynard Keynes – revolutionary economist of the 20th century – might suggest otherwise [14], with a detailed record of his partners by year from 1901!
- And if you don’t have international diversification, is it too late? Paul Rickard explains [4].
Food for thought
You are never too old to set another goal or to dream a new dream.
– C.S.Lewis – Author
Last week’s TV roundup
- I spoke with Jeff Bresnahan about how our super funds are performing [15] and the kinds of returns to expect.
- And CEO of Flight Centre Graham Turner joined the show to talk about the company’s recent price rise [16].
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.
[17]Source: ASIC
My favourite charts:
Super vs. Cash over 10 years
[18]
Jeff Bresnahan of SuperRatings gave this great example of long-term growth with these returns on $100,000 over 10 years. The red line is the cash option, and as you can see by the blue line, shares beat cash hands down!
Biggest quarterly jobs increase in 2 years!
[19]
I love a good piece of economic data, and this CommSec chart shows just that, with the biggest quarterly increase in employment in two years. In the three months to February, employment rose by 76,300.
Top 5 most clicked on stories
- Paul Rickard: Is it too late to invest offshore? [4]
- Peter Switzer: What keeps me awake at night? [3]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [6]
- James Dunn: Beyond BHP and Rio, commodity players in global markets [5]
- Charlie Aitken: Yield still king and NAB wears the crown [20]
Recent Switzer Super Reports
- Thursday, 19 March – The vibe of the thing [21]
- Monday, 16 March – How to sleep soundly [22]