It’s been a week when loose lips have been sinking ships and, simultaneously, it’s been a week when I wished so many people hadn’t said what they said.
First we had Tony Abbott, who allowed his lips to be an accessory to crazy thinking around a debt levy. I wished he hadn’t said that. I hope he and Joe drop that idea by Tuesday week. It would work but it’s not necessary. And it led Charlie Aitken to say something I wished he hadn’t when he looked at the debt levy media madness and mayhem and at the Aussie stock slide this week. Charlie called this a “Canberra correction”! I wish he hadn’t said this as he beat me to the punch – I wish I’d said it!
Charlie argues that banks, which are a nice proxy for GDP and consumer discretionary stocks, are so related to tax cuts and hikes and both these sectors were sinkers this week.
I’m a big supporter of rationalising the dumb spending earmarked in the Commission of Audit but the reported debt levy will take $800 from someone on $80,000. This is the type of person who spends and borrows to keep the economy growing. If it takes $8,000 off someone who’s on $400,000, it adds to the craziness!
Obviously, Donald Sterling, who owns the nearly-all-black Clippers team, really sunk his basketball business with a big mouth/small brain explosion, when he asked his girlfriend, with the emphasis on “girl”, to stop bringing black people to the game! We all wish he hadn’t said that.
New expert on the Switzer block
I liked hearing the views of the UBS head of Australian Equities, Jakov Males, who said we were “mid cycle”, which is industry code for ‘we’ve got a few years before the bull market is done and dusted’. I invited Jakov on my TV show because I noticed UBS put a buy on QBE. While that notification didn’t come directly from his division, he supported the sentiment, which I thought many of you would like to hear.
He also shared his view on some preferred stocks. He still likes the big banks, as does my colleague Paul Rickard. And he had a very positive view on Resmed. He agreed with my view that stocks such as Resmed would do well when the currency fell but it was more than that – he liked its cash on the balance sheet and its position in its industry. Jakov will tour again on Switzer TV.
Putin versus the US economy
Wall St was down overnight but nothing dramatic. It was primarily because of Putin’s land grab in the Ukraine, with unrest there outpointing the positivity from the job numbers.
These were really good numbers and make my bullish view on the US economic recovery and, therefore, stocks not misplaced.
In April, the Yanks created 288,000 new jobs, up against an expectation of 210,000. That’s a big beat! The importance of this result is that it shows that hiring spiked once the big freeze in the US thawed out. This augurs well for the big watch figure that’s three months away – the second quarter economic growth number.
The first quarter was disappointing but like others, I blamed the weather. This job number shows that businesses do play catch up when Jack Frost screws up supply in the short run. So that means there should be a boomer of a number for US growth for Q2. If it doesn’t show, there could be a sell off, though I’m punting against that outcome.
One negative was a big fall in people looking for work – 806,000 went back to the couch and the TV – which took unemployment from 6.7% in March to 6.3%. This is my only worry, though you have to like the fact that US job creation has gone from an average figure of 167,000 per month over the November to January period to an average 238,000 across February to April.
Sal Guatieri, an economist at BMO Capital Markets, summed it up succinctly for Huffington Post, stressing that the numbers say the big uptick in hiring “signals that American companies are optimistic the economy will snap back smartly after the largely weather-related slump in the first quarter.”
My outside the square play of the week
Brooks, the famous running shoe company, which celebrated 100 years of being in business, marked the event by turning out a shoe with Warren Buffett’s image on the inner sole! Though he doesn’t look like an athlete, Buffet has been one of the best market competitors of all time. Berkshire Hathaway invested in the Seattle-based Brooks in 2006 and holds 29% of the company.
And with all this emergency debt talk around at the moment, let me remind you that most economists and market smarties don’t want the upcoming Budget to derail our creeping economic recovery.
Australia’s net debt, which is the proper number to look at, will be 16.2% of gross domestic product by mid 2019 without policy changes. Anyone comparing us to Greece, where the equivalent number will be closer to 200%, is either a politician, a radio shock jock or plain loopy.
The problem for Australia is to kill off silly spending and get the non-mining part of the economy growing and that’s when Government revenue will roll in.
This (slightly blurry) chart shows we’re at the bottom of this list of countries – France, Germany, Greece, Ireland, Italy, Japan, the UK and US – when it comes to debt. Honorary professor at UNSW’s Australian School of Business, Raja Junankar, said “if we listen to the politicians, it appears that the Australian economy is suffering from a major crisis of ballooning government debt and an impending crash. This is patently not the case – the way the economy has continued to grow shows Australia really is the miracle economy.”
Sure, we do have to beat future excess spending commitments put in train by past governments. However, this goal shouldn’t hurt the economy and our stock prices now! I hope there’s no more Canberra correction!
Top Stocks – how they fared
Numbers that moved the market
Australia’s manufacturing data disappointed again, with Performance of Manufacturing Index (PMI) [1] falling by 3.1 points in April to 44.8. China’s PMI [2] rose to 50.4 in April, up from 50.3 last year.
The U.S. Federal Open Market Committee meeting on Wednesday announced good economic prospects [3] for the country, despite a tiny GDP rate increase in the first quarter of just 0.1%. My guess is that they are waiting for the rate to surge as the U.S comes out of its slow winter! The Fed also said data suggests a pick up in the economy [4], so they have continued their tapering of quantitative easing by reducing monthly bond purchases from $55 billion to $45 billion.
And the U.S continued to be a bunch of optimists this week [5], as consumer sentiment rose in April to 84.10 from 80 in March – a nine month high. U.S. Consumer confidence [6] on the other hand, fell to 82.3 from the revised March figure of 83.9.
And Western Australia still holds the gold for top-performing economy in the nation, according to Commsec’s latest State of the States report [7]. Northern Territory came in second, and New South Wales lifted from fifth spot to take the bronze.
The Week Ahead
Australia
May 5 – Building approvals (March)
May 5 – Performance of Services (April)
May 5 – TD Inflation gauge (April)
May 6 – Reserve Bank Board meeting
May 6 – International trade (March)
May 6 – Victoria State Budget
May 7 – Retail Trade (March and March quarter)
May 8 – Employment (April)
May 8 – WA State Budget
May 9 – Statement on Monetary Policy
Overseas
May 5 – US ISM services (April)
May 6 – US International trade (March)
May 7 – US Productivity & Labour Costs (March quarter)
May 7 – US Consumer credit (March)
May 8 – China Trade (April)
May 9 – China inflation (April)
May 9 – US Wholesale sales & inventories (March)
May is going to be a big one both in Australia and overseas, with some major market moving data coming out at the top of next week. On Monday, the Performance of Services for April, and data on inflation will be released. On Tuesday, the Reserve Board will meet and will come out with an interest rate decision, but we don’t need to be too nervous about any changes happening here. Wednesday we’ll see Retail Trade data released for the March month and quarter by the Bureau of Statistics, and on Friday, a statement on Monetary Policy by will be issued by the Reserve Bank.
And we seem to have passed the ‘quiet time’ baton to our overseas counterparts, who have a much slower week ahead. Among the highlights are the Supply Management (ISM) gauge on services activity, due out from the United States on Monday. Later on in the week we’ll have information on China’s trade and inflation, and the US will release its wholesale sales and inventory figures.
Calls of the Week
This week, Charlie Aitken gave some out of character advice to readers [8], and told them to consider ‘stepping off the gas’ for bank investments;
“The major Australian banks are now more accurately described as ‘fair value’ for what we know today and on that basis I am downgrading our top down view of the sector to neutral for the first time in 2.5 years.”
Paul Rickard tells us [9] to not be ruffled by a 242 page Product Disclosure Statement. The Genworth Mortgage Insurance Australia Limited IPO is priced to sell. Yield investors will “discover a mono-line insurance business that will in most years, provide an attractive income return”. However, the business is “incredibly capital intensive” – so invest in moderation.
And this week, ‘Captain Abbott’ said he would draw back his ambitious paid parental leave scheme [10], because of a “budget emergency.”
Food for thought
“To be an investor you must be a believer in a better tomorrow.” Benjamin Graham.
Last week’s TV roundup
This week, Mike Kendall joined me [11] on Super TV, to explain why banks have been a tad ‘on the nose’ as of late.
What tough love will SMSF holders receive when the ATO introduces new penalties on July 1? Check out [12] the valuable information Peter Burgess has for all SMSF trustees.
How is L Capital Asia (LLC), an investment fund inspired and owned by Louis Vuitton Moet Hennessey, putting Asia on the map for luxury goods? Ravi Thakran explained their business strategies [13], and says China can play a major role in the company’s growth.
Also on Super TV [14], Mark Paton reminds us why diversification is paramount for any portfolio, and why fixed income is an asset we should consider diversifying into.
Finally, what five stocks are flying under the radar? Find out which five stocks [15] Richard Hemming thinks you might be missing out on.
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 in the top 20 this week was Myer, with their short position opening by 1.08%. Further short selling saw M2 Group add another 0.25%, following last week’s increase of 2.26%.
My favourite charts
This week, Charlie Aitken reminded us [8] what the ASX bank accumulation index has achieved over the last two and a half years. It’s been a huge ride, he’s downgraded the sector to neutral.
And let’s take a look at the astonishing progress of Ramsay Health Care since [16] 1998, after the sad passing of Paul Ramsay on Thursday. His $3.3 billion stake in the private hospital operator will be left to the Paul Ramsay Foundation, a honourable legacy to leave behind.
Top five clicked stories of the week
- Peter Switzer: Dollar to fall – buy these stocks [17]
- James Dunn: Dividend cutters to beware of [18]
- Paul Rickard: The next hot IPO – Genworth [9]
- Rudi Filapek-Vandyk: Buy, Sell, Hold – what the brokers say [19]
- Penny Pryor: Shortlisted [20]
Last week’s Switzer Super Reports
Monday, 28 April, 2014: Down, down – the dollar to go down [21]
Thursday, 1 May, 2014: Stepping off the gas [22]
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.
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