One turn of phrase I’ve always laughed at is Eurotrash. I find it amusing to see inter-EU rivalry but it is grossly unfair. To date, the French in shops and bars I frequent have been treating this big galoot with the respect my schoolboy French does not deserve!
I came across the pejorative term in the 1970s in London where there was a lot of rivalry with their cousins across the channel.
Apparently the Yanks like to use it too but part of my sojourn to Europe was to get a feel for the eurozone as it remains a worrying fly in the ointment that I’m most concerned about.
I’m hoping that my bullish view on stocks won’t be trashed by Europe letting the global economic and market team down.
I noted US big call merchant Harry Dent, who’s always scaring people around the world in order to sell his books, was grilled on CNBC this past week about his misplaced big calls. Now he says the Dow will be at 6000 by 2016. I never take these guys too seriously but 2016 could be a sell off year. But 6000? That’s the kind of number that would help you sell books!
Harry, on his own admission, has made some big calls in the past and some have come true. However, big call merchants do rely on us not having a memory. Let me Google Harry for 2012 and see what he was saying. There was a 2012 CNBC YouTube argument with Harry and then he was saying 6000 by 2015. So is he moving the goalposts?!
Interestingly, then he was saying Europe would bring the market down. Of course, this was right in the middle of the PIIGS problem where Portugal, Ireland, Italy, Greece and Spain were in real debt trouble.
Europe has been progressing but not as fast as anyone would like. Last week I pointed out that the Poms are on an economic comeback and the Germans are also benefiting from a low euro.
France, where I am currently, is not looking great, though our spending has helped the economy! “France is trailing the rest of Europe,” BNP Paribas’ Dominique Barbet recently concluded and it comes as both consumer and business investment is weak and growth is flat. If it wasn’t for inventories and government spending, the economy would be going backwards.
And this comes as train workers have been on strike for over a week. Now air traffic controllers have joined the strike and I’m starting to worry about whether we’ll get home! (I have to be in Paris by Saturday to meet up with the former assistant Treasurer, David Bradbury, who is working now for the OECD, in a taskforce trying to work out how to make the likes of Apple pay more tax!)
The French love life and put on a good show for tourists but they do have a 35 hour week and their productivity isn’t good. They’re living in the past and could be the weak link in a pretty weak chain called the eurozone.
“That said, Fitch [1], Moody’s and Standard [2] & Poor’s have in recent months upgraded the ratings of peripheral eurozone countries, such as Ireland [3] and Spain [4], as the bloc emerged from recession and concerns about the sovereign debt crisis receded,” The Irish Times cheerily reported.
Surprisingly, the Greeks are on the improve, with a recent report by the European Commission helping Greece to receive €6.3 billion (or $8.7 billion) in bailout funds that creditors had withheld for months because of concerns the government was not reforming its economy fast enough.
That said, Greek debt, which is now at 177% of GDP, will be 125% of GDP in 2020 and around 112% in 2022.
My current conclusion is that Europe is going to be a slow burn up but I don’t see it being the catastrophe that will make Harry Dent look like a genius.
Confession of a so-called bull
I’m sometimes referred to as a permanent bull on stocks. That’s not true, as one day I will tell you in this very newsletter when I am spooked and it could be time to lower your exposure to stocks.
Then when the market dives, I’ll be trying to give you the clue to get back in. Imagine your yield on CBA stocks if you took my advice in 2008. After Lehman Brothers failed in September 2008, I started to look for signs that the US economy, which had a supportive government and central bank, was turning around so we created a special blog on www.switzer.com.au [5] called Good News Daily. When everyone was advising wrist-cutting if you were in stocks, I found reasons to believe the US economy would not go into a Great Depression. The market turned around on March 9 so if you’d bought my optimistic story say by December, you might have bought CBA at $17.45 on January 22! If you took the calendar year dividend of $3.83, that investment would be now yielding you 21% before franking credits! They’re the kinds of returns you can get when you’re nearly always a bull!
What I liked this week
- Our market was up higher this week, despite the Iraq irritation.
- Ahead of the close and just when I am due to hit the sack in Southern France – well, it is nearly 10 pm and it’s still light! – both the Dow and S&P 500 were in record high close territory, and on Monday I will argue that this is a pretty good place to be!
- The revelation that our market is up over 6% over the past six months and I am not adding in dividends. If you throw in dividends, we’re up 17% for the financial year! Thank God I’m a bull.
What I didn’t like
- Janet Yellen, the Fed boss, soothing market concerns that she might raise interest rates too early. This is good news for Wall St but our market needs a lower dollar but we’re going to have to wait.
- Matt Sherwood of Perpetual telling us the RBA has “lost the war against the Australian dollar”. They could cut rates but they won’t and so we’re waiting for Janet.
My big hope
I hope the US recovers strongly over the next four months and the forex market moves on the greenback and the Oz dollar dives for Christmas.
It would make my Switzer on Wall St TV program for the first week in December a little more expensive but my gains on my stocks portfolio will more than make up!
(Memo to self: get stocks in portfolio that will benefit from a lower dollar. The lesson is to buy early, suck up the short-term loss and laugh your way to the bank when things change!)
Final Dent
Harry once called Dow 35,000!
Top stocks – how they fared
Numbers that moved the market
The US Federal Reserve Chair [6], Janet Yellen, announced the central bank will be keeping interest rates low.
Shell slashed their share [7] in Woodside Petroleum from 23% to 4.5%. Shareholders are expected to approve Woodside’s plans to buy back $US2.7 billion shares from Shell.
Also this week, the IMF downgraded [8] their near term growth outlook for the United States.
The week ahead
Australia
Wednesday June 25 – Reserve Bank Deputy Governor speaks at the Lowy institute
Wednesday June 25 – Resources & Energy Quarterly
Thursday June 26 – Financial accounts (March quarter)
Thursday June 26 – Job vacancies (May)
Overseas
Monday June 23 – US Existing home sales (May)
Monday June 23 – China “flash” manufacturing (June)
Tuesday June 24 – US Home prices (April)
Tuesday June 24 – US Consumer confidence (June)
Tuesday June 24 – US New home sales (May)
Tuesday June 24 – US Richmond Fed index (May)
Wednesday June 25 – US Durable goods orders (May)
Wednesday June 25 – US Economic growth (March quarter)
Wednesday June 25 – US “flash” manufacturing (June)
Thursday June 26 – US Personal income/spending (May)
It’s a very quiet week ahead for Australia, with only a few key economic pieces of information released. On Wednesday, the Reserve Bank Deputy Governor, Phillip Lowe, will moderate a discussion about the G20 at the Lowy Institute in Melbourne. On Thursday, the Australian Bureau of Statistics will issue its Financial Accounts for the March quarter, and tell us where job vacancies have been for the three months to May.
Overseas, the US is in the spotlight – with home sales and home prices data released for May and April respectively. Other important US data, to be released on Tuesday night, includes US consumer confidence for June, and data from the US Richmond Federal Reserve survey. Revised US economic growth measures for the March quarter will be released on Wednesday, as well as the Purchasing Managers Index for June. China’s manufacturing data for June will be released at the top of week.
Calls of the week:
The Reserve Bank Board [9] made the call that GDP growth will continue below trend for the rest of 2014, but is bullish about housing construction.
Gary Stone says our market will still reach 6,100 by the end of the year [10] – he predicts this will happen on the back of better prices for Australian commodities.
The Japanese showed that not every World Cup loser has to be sore – they brought rubbish bags to a game and graciously cleaned up the stadium after their loss [11] to Ivory Coast!
And NSW have finally ended their 8-year origin drought. [12] “We had to draw a line in the sand some time,” back-rower Ryan Hoffman said.
Food for thought
The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails – William Arthur Ward
Last week’s TV roundup
Tony Negline explains the function of the Seniors Health Card [13], and how to qualify. He also outlines important changes to contribution caps, and changes to insurance that trustees should be aware of before June 30.
Our Switzer Super Report regular, Gary Stone, joins Marty Switzer to run through the charts [10]. He gives his expert opinion on the ASX200, as well as oil, and iron ore, and tells us whether or not we should be investing in mining stocks.
Rudi Filapek-Vandyk from FNArena shares his views on the market. [14] He also tells us what the brokers are doing, and like always, gives his expert opinion about his favourite stock picks.
And is it time to invest more in conservative assets? [15] To explain, Paul Foster of AMP Capital joins Switzer TV.
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 Acrux (ACR), who had its short position increase by 1.90%.
My favourite charts
Manufacturing over the decades – and the growth in ‘Professional, Scientific and Technical Services’ employment.
Poor old Tassie haven’t gone too well with their population growth rate, while NSW population grew by its fastest rate in four years and has helped lift our economy.
And on Super TV this week, Lance Lai showed us that we are still steadily heading towards that 6,000 mark.
Top five clicked on stories
- Tony Featherstone – The best stock ideas for the next five years [16]
- Charlie Aitken – Wait for the buying opportunities – part 1 [17]
- Peter Switzer – How worrying is Iraq for stocks? [18]
- Paul Rickard – Chasing Yield – AMP’s Corporate Bond Fund [19]
- Rudi Filapek-Vandyk – Buy, sell, hold – what the broker say [20]
Recent Switzer Super Reports
- Monday, 16 June 2014: A history lesson [21]
- Thursday, 19 June 2014: Money for nothing [22]