Despite a nice 16.8 point gain on Friday for the S&P/ASX 200 index, I felt it was a nothing week and my quick check of the historical prices proved it. We ended at 5336.9 this week and finished last week at 5338.1 – a 1.2 point loss, which equals nothing!
But the week was not a complete waste of time, with most media outlets preoccupied with dames, knights and the Bolt amendment to racism legislation. However, they virtually ignored the RBA boss uttering some really important words.
In a nutshell, he said the Bank was upgrading its growth numbers from 2.8% to 3%, and that’s after they were once at 2.5%! In this country, 3% growth stems the rising tide of unemployment and this admission by Glenn Stevens adds support to my building snowball of confidence prediction that I have been making since the Abbott government was elected.
If my 6000 call on the S&P/ASX 200 index is going to happen, then a stronger economy should underpin better sales, profits and share prices, though Roger Montgomery says there is no link between growth and the stock market. However, when I pressed him that individual companies could be beneficiaries of a stronger economy, he conceded that and it’s never easy to win a point off Roger.
One final thought on economic growth and what stock markets might do. If you take economic growth numbers and run them up against what a stock market does, you might be looking at the wrong thing. Growth numbers are always late and they’re from the proverbial rear view mirror. Investors buy stocks on what they think will happen and so I reckon stock markets react to future growth expectations rather than actual growth.
Australian growth is heading up and it’s why I hope tough talk around a horror budget is just that – talk – because I need higher expectations of economic growth to be in place to help stock prices head in the direction of 6000.
That damn dollar
On the flipside, the stronger economy has led to thoughts that rate rises might be closer than the experts have been thinking and that has pushed that damn Aussie dollar to US92.67 cents, which won’t help those companies sweating on a weaker currency.
That said, AMP’s Shane Oliver is still punting on a drooping dollar. “The broad trend in the dollar is likely to remain down, reflecting softer commodity prices, a reversion to levels that offset Australia’s high cost base and a decline in Australia’s growth relative to that in the US,” he said.
I hope he’s right. I think when the Yanks end tapering, the greenback will spike and our dollar will wilt, which will also help the stock market.
Remember this – every cent the Australian dollar falls against the US dollar adds $US110 million to BHP’s net profits! And Stephen Miller, head of bond investment at the world’s biggest investment firm, Blackrock, has tipped the dollar could drop to 80 US cents. And that was only in December last year.
The Aussie dollar does follow the resource cycle and that should also take it down from these elevated levels.
I have to say the Aussie dollar defies theory and my economic training, and for that matter, most investment experts’ training! Paul Theroux has a useful take on reliability when he advised: “Gain a reputation for being unreliable and you will never be asked to do a thing.”
Stocks to watch
Roger Montgomery thinks Kathmandu is a classic baby boomer business but it’s now fair value, though his CEO, David Buckland did tip us this months ago when it was much lower. The top stocks he holds are Seek, CSL, Challenger, Woolworths and JB Hi-Fi.
Charlie Aitken assures us that our big four banks are still worthwhile punts, with CBA and Westpac the best because they will leverage off the East Coast economic recovery. I like them too but I also like NAB with the UK really improving, which should help their investments there. And ANZ is still an Asian-exposure play, which could be a medium-term reward investment.
Explaining myself
A number of subscribers have wondered what I meant when I said that I was “fully invested in stocks”. This is what I mean. For my SMSF, I’m taking the risky play of being fully invested in stocks and I’ve been that way since 2009 – I’ve got to take my own advice. Of course, I hold a wad of cash inside my SMSF too, in case I see value in the market. That cash comes from quarterly compulsory super contributions. However, if there was a 10% plus correction, I’d make a non-concessional contribution to my SMSF to buy more stocks at lower prices. One day, I will go conservative but I’m just making hay while the sun shines. Of course, this is not a strategy I’d recommend to my financial planning clients but, unlike them, I am watching my investments 24/7.
Of course, when I get nervous and change my share allocation, you will be the first to hear about it.
Why read the Switzer Super Report?
US legendary thought leader, Jim Rohn once observed: “Formal education will make you a living; self-education will make you a fortune.”
The Saturday morning take-out
The US market was up nearly 150 points in early trade but the end of quarter profit-taking took the wind out of the Dow’s sails. This looks like the second-weekly loss on a trot for Wall Street. But this is a pretty good effort when you think about the following:
Russian troops on Ukraine’s border + China’s weakness + tapering continues + high US stocks prices + weather-affected economic data. Even with all this, the market does not dive.
Economics post-the big freeze will be important for market confidence, as we approach that old question: will it be a sell in May and go away year for the Yanks?
The latest survey by the American Association of Individual Investors showed uncertainty is rising, with bullishness down 5.6%, though neutral sentiment rose 3.2% to 40.2%. And that’s a nine-year high! This means the US is nervous but not in panic mode.
Putin could be an issue but I can’t guess geopolitical dramas, so I reckon economic data will determine the “sell in May” question.
And next week is huge for economic data in the US and here as well, with the RBA meeting a big watch issue, while the Americans get the jobs report.
Hit the road
It’s time to hit the road and that’s relevant with my son Marty riding the final leg of the Duchenne Muscular Dystrophy ride from Adelaide to Melbourne. And he’ll do it with the PM this afternoon. He was talked into it on air by Jack Singleton – son of John – when Marty hosted my TV show over January. It’s a terrible disease for young kids and Jack is a champion in the way he gets on his bike for a good cause but I suspect Marty will have a sore butt tonight!
Top stocks – how they fared
Numbers that moved the market
US Consumer confidence rose to a six-month high of 82.3 in March from 78.3, according to The Conference Board [1].
The US economy grew at an annual rate of 2.6 per cent in the fourth quarter of 2014, according to the US Department of Commerce’s Bureau of Economic Analysis’ third estimate [2]. While it was better than the previous estimate, it was below economists’ expectations.
The HSBC Flash PMI for China [3], which looks at the manufacturing sector, dropped to 48.1 in March from 48.5. A reading under 50 indicates a slowdown.
And more on this below, but Reserve Bank governor Glenn Stevens suggested that the Australian economy could grow at 3% rather than the expected 2.8%!
The Week Ahead
Australia
March 31 Private sector credit (February)
March 31 Monthly inflation gauge (March)
April 1 Reserve Bank Board meeting
April 1 RP Data/Rismark Home Value (March)
April 2 Job vacancies (February)
April 2 Building approvals (February)
April 3 Retail spending (February)
April 3 International trade (February)
April 3 Speech by Reserve Bank Governor
Overseas
April 1 China NBS purchasing managers (March)
April 1 US Auto sales (March)
April 1 US ISM manufacturing (March)
April 2 US ADP private payrolls (March)
April 3 US ISM services (March)
April 4 US Non-farm payrolls (March)
A big week locally next week with the inflation figure for March out on Monday, followed by the Reserve Bank’s monthly meeting on Tuesday. Also on Tuesday we get RP Data/Rismark Home value data, then on Wednesday we’ll find out how the retailers are going with retail spending figures. Over in the US, keep an eye out for the Institute for Supply Management’s manufacturing and services indexes. Then there’s the big market mover on Friday night – US employment data.
Calls of the week
Charlie Aitken is ignoring the doomsayers [4] and is still bullish on the big four Australian banks. He explains why that is the case in this week’s article.
Glenn Stevens uttered words this week that I longed to hear: “There is early encouraging evidence that the so-called handover from mining-led demand growth to broader private-demand growth is beginning.” As I mentioned above, he also suggested the 2.8% growth prediction for the economy might by more like 3%, which I’ve been banging on about for six months [5]!
And arise, Sir Tony. From the left field this week, Tony Abbott by-passed his cabinet and announced he is reintroducing knights and dames. Former Governor General Quentin Bryce and new GG General Peter Cosgrove will be the first to receive the honours.
Food for thought
“Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.” Calvin Coolidge
Last week’s TV roundup
This week I caught up with David Murray to find out just what’s happening with Murray Inquiry [6], which could have wide-ranging effects on regulation for banks.
Perpetual’s Matt Williams shared his views on the economy [7] and the stocks he likes right now.
Paul Rickard and I looked at the important question [8], why hasn’t the Aussie stock market done as well as the US stock market?
And AMP’s Peter Burgess joined me on Switzer for a round up of all the recent SMSF legislation [9].
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 (note the increases to UGL and Cochlear).
My favourite charts
And an interesting chart from Simon Bond showed on my Switzer program this week [10] – X marks the spot. This chart from the US shows that routine occupations (old jobs like blue collar manufacturing) are on the decline, while nonroutine occupations (like IT-type jobs) are increasing.
Simon says: “What that creates is fear, and what that creates is change. They’re two things people don’t like. They don’t like change and they don’t like fear…we worry what the kids of today are going to do. They’re going to universities to come out in four years time and apply for jobs that might not even exist, but there will be new jobs.”
What it’s really all about is structural change.
Top five clicked stories of the week
– Peter Switzer – What’s wrong with our stock market? [11]
– Rudi Filapek-Vandyck – Buy, Sell, Hold – what the brokers say [12]
– Roger Montgomery – Carsales has plenty of potential [13]
– James Dunn – Five education and training must-have companies [14]
– Ron Bewley – What not to buy [15]
Last week’s Switzer Super Reports
Thursday, 27 March 2014: Back in the USSR Download [16]
Monday, 24 March 2014: In from the cold Download [17]