For me, this week has been one of Budgets, breakfasts, Black Adders and bull market questions. It has also been a week where I lost three of my television programs (a long story of plane delays, etc.) during a time when I’d talked to more than 3,500 people around the country across three breakfast speeches!
But against that, I had the pleasure of sharing the platform, eating breakfast with and listening to the wisdom, the occasional bias and the clarity of thought of John Howard, with whom I did two post-Budget breakfast engagements for PwC in Brisbane and Perth.
In Perth, I had the additional pleasure of sharing the platform and interviewing not only our ex-PM but also former Labor Finance Minister, Lindsay Tanner, who’s one of the smartest and well-balanced ALP pollies I’ve met.
The first show in Brisbane has to be the biggest breakfast in Australia, with 2,200 people showing up, and there was a waiting list! Perth PwC is pretty new to this post-Budget brekkie game but still they got over a 1000 attendees. It underlines how unique and odd our country is in paying so much attention to the Budget! It’s uniquely Australian and, as an economist as well as a financial adviser, I’m really proud of the way people care about what the Government’s plan is to play around with their finances. In fact, it’s illogical that other countries don’t show as much interest in the budgeting of their elected officials.
On that subject, I always give our annual Budget a name. In recent years, there was the Seinfeld Budget – a budget about nothing! The ‘How to win friends and influence voters’ Budget came next, followed up by last year’s ‘Tell him his dreaming Budget’ (which I renamed the Sayonara Budget, for obvious reasons!). So this year, I called Joe and Tony’s first fiscal strategy the Black Adder budget because there’s a “cunning plan” buried in their numbers.
In reality, John Howard and Peter Costello’s 1996 Budget cuts and overall restrictive policy decisions were much tougher than this 2014-15 Budget. So a lot more promises could have been broken and trust lost with voters. What I don’t trust are the economic forecasts.
Treasury says we’ll grow at 2.5% next financial year, then 3% and then 3.5%. I think next year we’ll see 3% growth. So does the Reserve Bank (RBA). I’m knocked out by the RBA’s 2015-16 guess, which is 4.25%!
So if the RBA economists are better than Treasuries (and I think they are), we’ll grow faster and the deficit will disappear quicker. So Joe and Tony will look like promise-breakers who are really good deficit destroyers by 2016, the time of the next election.
I also think the bull market should still be alive and keeping things positive but we will be closer to the next crash so Budget-repair will be seen as a wise thing. Their unreliability when it comes to promises will be downgraded as an important quality. They will cop it, however, whenever they make a pre-election promise!
I thought the Budget quote of the week was Tony Abbott’s obviously rehearsed comeback to a question about him doing things differently to John Howard, after Mr Howard said he supported Family Tax Benefit B because it was not welfare but a tax break for families having kids because they’re expensive little critters – my words not his (but they are!).
“There are some things that were absolutely right when we had surpluses of $20 billion a year and there are quite different things, which are absolutely right, when we have deficits of $50 billion a year, and that is what we are dealing with,” the PM argued. That really makes sense.
On the subject of the bull markets, we had some tests this week. The talk-down merchants came out in force, such that I had to Google the name “Soros” to see if he was joining in the exit of the stock market, with the bond market’s yields falling, despite the fact that most sensible people who can do economics think the US economy is getting stronger, so bond yields should rise, not fall.
Meantime, Wall St was down strongly for two days, when stocks should be going up, while bond prices should be falling as bond yields rise. Craziness has been prevailing this week and no one knows why.
Not even smarties on Wall St can work it out. I was unnerved a little when Ralph Acampora, a US technical expert, said he had a “sick feeling” that stocks could drop 25%!
This came as the boring old bond market in the US saw the important 10-year bond rate drop through a crucial yield level of 2.5%.
Of course, there has been a 12% drop in the Russell 3000 index, a small cap index sometimes seen as the canary in the coalmine.
Against that, this 12% dive in the Russell could be a sign that it’s time to get into this market, as this latest dive could be the overdue correction. Of course, a correction could spread to the Dow and the S&P 500 but I can’t see any good reason for a 25% dumping but a 10% one would be an overdue buying opportunity.
By the way, my Googling did show that Soros was in the news. Guys like him use the media very effectively. Let’s track the Soros news to see if it’s panic time.
So 23 hours ago (I’m writing this at 6.04 this morning) the WSJ says “Soros sells out of JP Morgan, Bank of America and Citigroup”. This could make me nervous but he did this before these banks reported badly a few weeks ago, so it’s not a recent thing. Against that, only five hours ago, Bloomberg reported Soros threw money at Herbalife Ltd, buying 1.7 million shares taking his holding to 4.9 million, which would be worth around $281 million.
George is not heading for the doors on stocks when he’s buying a company that has lost 27% in the first three months of 2014. So I’m little less nervous about the market.
My final take on the Budget came on Thursday when I was interviewing Messrs Howard and Tanner. We were dealing with Labor’s attack on broken promises and a Seinfeld justification for Tony’s broken promises (or lies) came to me, which I shared with the audience.
In one infamous episode, George Costanza, a character known for his flexible values explained to Seinfeld: “Jerry, just remember, it’s not a lie if YOU believe it.”
Top stocks – how they fared
Numbers that moved the market
This week, NAB business confidence rose on Monday from 4.4 to 5.8 points.
The 10 year United States Government Bond decreased to 2.52% in May, from 2.65% in April.
And CBA’s 2013 March Quarter trading update revealed that its unaudited cash earnings totalled $2.2 billion, up from $1.9 billion last year – that’s an increase of approximately 15%.
The week ahead
Australia
May 19 – International Merchandise Imports (April)
May 20 – Reserve Bank Board Minutes
May 20 – RBA Assistant Governor Debelle speech
May 21 – Consumer Sentiment (May)
May 21 – Wage Price Index (March Quarter)
Overseas
May 21 – US FOMC Minutes
May 22 – US Chicago Fed National Activity Index (April)
May 22 – US Initial Jobless Claims
May 22 – US Existing Home Sales (April)
May 22 – US Leading Index (April)
May 22 – China Flash Manufacturing PMI (May)
May 23 – US New Home Sales (April)
It’s a fairly quiet week for Australia after all the Budget hype, with a small number of events on the calendar. On Tuesday, the Reserve Bank will release the minutes of their last Board meeting, and we’ll find out if there is anything else to know other than interest rates are on hold. The RBA Assistant Governor, Guy Debelle, will give a speech to the Financial Services Institute of Australia luncheon in Adelaide. On Wednesday, Westpac and the Melbourne Institute will reveal their consumer sentiment survey for May, and on Thursday, the Bureau of Statistics will release data on wages.
Overseas, the US Federal Reserve will release on Wednesday evening the minutes of their last meeting. On Thursday night, data for US existing home sales for April along with the regional US Chicago Federal Reserve index and data on Jobless claims will be released. On Thursday, Markit will issue flash PMIs for China and the Eurozone.
Calls of the week
Clive Palmer fell asleep during question time this week, and took to Twitter to explain that it was Abbott’s fault after all;
‘‘Tony Abbott sent me to sleep during question time avoiding questions about his cruel & heartless budget.’’
Charlie Aitken made the call that BHP Billiton under Andrew Mackenzie is set to move higher, but says investors do not yet appreciate how ‘dead on’ the company is with delivering their commitments.
And Sarah Ferguson delivered a zinger with her tough first question to Joe Hockey post Budget;
“Is it liberating for a politician to decide election promises don’t matter?”
Food for thought
The best way to have a good idea is to have a lot of ideas. – Linus Pauling
Last week’s TV roundup
It turns out the tough budget wasn’t all that tough on SMSF trustees after all. In our special Switzer Super TV – Budget edition, Paul Rickard outlines three changes to super which are mostly positive, and gives an explanation of the Budget’s main points.
There hasn’t been a huge sell off in May, so is this good for the market going forward? Anthony Serhan from Morningstar joined me on Super TV to explain where the market stands, and which stocks have long term value.
And find out what Manny Pohl from Flagship Investments thinks of Tuesday night’s Budget, and if it’s made him change his mind on his favourite stock picks.
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.
This week, the biggest mover was again Leighton Holdings. Shorts increased by a further 1.69% – with ACS now controlling almost 70%, watch out for the “short squeeze”.
Source: ASIC
My favourite charts
Down, down – deficit down!
Top five clicked on stories
Peter Switzer: Read this and buy these stocks
Rudi Filapek-Vandyk: Buy, Sell, Hold – what the brokers say
Charlie Aitken: Crown Resorts (CWN) – a buy with a $21.30 target
Charlie Aitken: BHP Billiton – still on message
Tony Featherstone: IPO Watch – three new LICs
Recent Switzer Super Reports
Tuesday, 12 May, 2014: The wheels on the bus
Thursday, 15 May, 2014: Heavy Lifting
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