Switzer on Saturday

Money, Markets and Malcolm’s Maelstrom

Founder and Publisher of the Switzer Report
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To set the scene, I’m en route to Paris via Abu Dhabi and I’m reflecting on a HUGE week for economic data, as well as decisions. As my plane cuts through the skies, let me cut through the claptrap of the week, with Jonesy, Bolt and Malcolm giving us plenty of that, while I set my sights on what will be important for our SMSFs! (By the way, all three are colleagues of mine and so I’m conflicted but as all three have given us great media this week, I just have to say, I’ll concentrate on the more important – making money!)

We’ve just lived through the week of living dangerously and I think we got away with it. The week ahead, however, might be remembered as the week we got real!

Let me reset the scene with the best news I’ve encountered, coming from the respected technical analyst, Gary Stone. Gary told me on my Switzer program that he thinks we’ll end up at 6100 some time this year! As you know, I’m at 6000 and Macquarie is at 5950. So I feel like my early big call has merit. But that wasn’t the end of good news, with the legendary AFR doyen of personal investment and finance news, Barry Dunstan, reporting that both PIMCO’s Bill Gross and GMO’s Jeremy Grantham have given up their bearish ways to run with the bulls!

Now this good news was pumped up by the Super Mario Draghi coming out with a revised plan to give the Eurozone additional monetary stimulation and European stock markets liked what they heard, despite the general belief that our Italian central banker did not reveal his big bazooka.

The Yanks initially seemed underwhelmed but changed their minds when hedge fund manager/guru, David Tepper of Appaloosa Management, said all that he was previously worried about was not worrying him now!

Tepper has a great track record. When this guy speaks, a lot of professionals listen. He was spooked by a China slowdown, the Ukraine mess, the European Central Bank challenges and the slowdown in the US. For him to say he was now less worried proved to be a fillip for Wall St. The Dow Jones index rose by 98.6 points or 0.6% to record highs on Thursday, the S&P 500 rose by 0.7% to record highs as well and the Nasdaq gained a solid 44.6 points or 1.1%.

Without doubt, this looked like a good week for optimists like yours truly.

As I sit in this flying tin can, the only big issue to take on board is what has happened to US employment? I’ll get that info for you when I land in Abu Dhabi and complete this piece for my Saturday send. But until then, let’s go back in time and look at the week that was – and it was a good’un!

Let’s lie local

The economic show and tell was an economist’s delight this week. It showed two big things. First, the economy was powering along until March but the Budget has probably put an obstacle in the way of the snowball of confidence that was building nicely.

So, this week we learnt:

  • The Performance of Manufacturing index rose by 4.4 points to 49.2 in May and that’s progress for a troubled sector.
  • The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.4% in May to stand 2.9% higher than a year ago. So inflation is not a worry for the RBA.
  • Company gross operating profits rose by 3.1% in the March quarter. Profits hit record highs of $270.8 billion in the year to March, up 7.8% on a year ago. This is the fastest growth in 2½ years.
  • Retail trade rose for the 12th straight month, up by 0.2% in April. Department stores did best, which should be good for Myer and DJs.
  • The RBA basically told us we can expect low interest rates for a long time, which has to be good for stocks!
  • GDP growth in the March quarter was 1.1% or 3.5% for the year. I call it 4.4% growth by simply multiplying it by four like the Yanks do. Our 15-year average is only 3.1%.
  • Note the biggest drag on growth was a fall in inventories of 0.6 percentage points but this augurs well for future stock or inventory build-ups, which will help growth.

But it wasn’t all good news with RP Data-Rismark Home Value Index of capital city home prices showing a fall by 1.9% in May – the biggest fall since December 2008. However home prices are up 10.7% over the year. On the other hand, this will make the RBA happy, which should keep rates low and help stocks.

Meanwhile dwelling approvals fell by 5.6% in April – the third straight month of falls.

As you might have noted, much of the news above was pre-May. Next week we get a plethora of April/May data so the impact of the Budget will be initially gained but we’ll need three months before we see the fuller impact. There’s also a lot of China and US data that could help or hurt stocks at a time when a pullback looks overdue.

Taking stock, the bottom line for me is that our economy was doing well, until the Budget, so Joe and Tony need to sell our positive economic story and simply explain that the hard Budget decisions will be a long run economic plus for jobs, profits and share prices!

To stocks in focus and David Buckland reckons Flight Centre has been slugged unfairly and looks like value. He likes a small one called Life Healthcare and a recent IPO called iSentia, the old Media Monitors and basically a monopoly in this country. That’s good for money making!

On the Turnbull blow up, as I say, I’m conflicted. I was Malcolm’s patrol captain at North Bondi Surf Club when we were both at university. Alan Jones has raved about our financial planning business being based on flat fees, taking no commissions and, in fact, rebating fees to clients when they come to us. With Andrew Bolt, he works each night with my 2GB colleague Steve Price, with whom Paul Rickard and I do Tuesday night’s Super Show. When I’ve met Andrew, he’s always better than some of his extreme views!

The Abu Dhabi Conclusion

Well, I’m off the plane and the Yanks have found 217,000 jobs in May, which means they have lived through the best four months of job creation since the 1990s and all of the jobs lost during the GFC have been recovered! And yep, Wall Street liked it.

Top Stocks – how they fared

Numbers that moved the market

Our GDP lifted by a huge 1.1% (seasonally adjusted) in the March quarter – this is the fastest economic growth rate we’ve seen in two years!

ECB announced new stimulus measures – firstly, it cut the benchmark rate to 0.15% which is a record low, and reduced the deposit rate to minus 0.1 %.

China’s official PMI beat expectations, rising to 50.8 in May from April’s 50.4.

The week ahead

Australia

Tuesday June 10 – Housing finance (April)
Tuesday June 10 – NAB Business survey (May)
Tuesday June 10 – ANZ Job advertisements (May)
Wednesday June 11 – Consumer confidence (June)
Thursday June 12 – Employment/unemployment (May)
Thursday June 12 – Credit & debit card lending (April)
Friday June 13 – Lending finance (April)

Overseas

Sunday June 8 – China trade (May)
Tuesday June 10 – China inflation (May)
Wednesday June 11 – US Federal Budget (May)
Thursday June 12 – US Retail Sales (May)
Friday June 13 – China monthly data (May)
Friday June 13 – US Producer prices (May)
Friday June 13 – US Consumer sentiment (June)

Next week we find out the all important employment figures, as well as the monthly consumer confidence index. It will be interesting to see just what the real impact of the Budget has been on consumer confidence. On Thursday, the Reserve Bank will publish data on credit and debit card lending, and broader lending finance figures will be released on Friday.

Overseas, China is in the spotlight with figures on trade and inflation. Later in the week, information on China’s investments, production and retail sales during May will be released. The US also has a busy week, particularly with monthly data on the Federal Budget on Wednesday, and their producer prices and estimates of consumer sentiment released on Friday.

Calls of the week:

You mustn’t miss this interview from Sydney radio broadcaster Alan Jones dictating to Malcolm Turnbull that he has “no hope, ever, of being the leader.” It goes for nearly 25 minutes and makes for some entertaining listening!

Charlie Aitken made the call that investors should accumulate and hold GI Dynamics shares for the next few years – he thinks that EndoBarrier technology will accrue great returns to the company.

Singapore-based Frasers Centrepoint surprised investors this week after bidding $2.59 billion in cash for Australand.

And Gary stone said the market will get to 6,100 – we like it!

Food for thought

“Do not go where the path may lead, go instead where there is no path and leave a trail.”

― Ralph Waldo Emerson

Last week’s TV roundup

Infrastructure bonds can be a great investment option for people with self-managed super funds. To explain why, CEO of FIIG, Mark Paton, joins Super TV.

What changes do you need to know about before the end of financial year? From changes to contribution caps, to the best time to maximise your contributions, Paul Rickard explains how to get your SMSF just right before June 30.

Is Manny Pohl from ECP Asset Management worried about the market, and will he continue to invest in high dividend paying stocks? He reveals his favourites – and those with potential – on Super TV.

In this special Super Sessions update, we reflect on our market during the month of May. Find out what impact dividends have had, and what sectors have been performing – plus much more!

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 ALQ, who had its shares sold short increase by 0.70%.to 8.90%.

My favourite charts

Australia’s exports to China have catapulted to over $100 billion dollars, helping our economy’s GDP increase during the March quarter.

And here’s a look at the other major components helping out our GDP at the moment. A decline in inventories subtracted 0.6% from GDP in the March quarter – arguably a bullish point for growth in the June Quarter.

Source: ABS

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