Bye bye Stu, buy buy BOQ, and is Joe running on empty?

Another good week for the good guys with CBA, Telstra, Suncorp and CSL (the kinds of stocks we’ve liked) all delivering for SMSF trustees. Excuse my bias but I do think our SMSF fraternity are the good guys. We hope, through this relationship we have with you, that we can give you guys the good oil as well.

On that subject, it was nice to see Charlie Aitken’s beloved Crown deliver. It was actually on my TV program that I recalled his East Coast of Australia recovery thesis, which included the likes of Suncorp and BOQ.

The latter I liked because of Stuart Grimshaw, (the now departing CEO, who’s going to head up the biggest pawn shop business in the US) and the fact that every property expert on my show was telling me that south-east Queensland property was coming back from the dead. Charlie’s ravings talked me into Suncorp and the dividend but I’m nervous about insurance companies because I have a memory!

On BOQ

Grimshaw’s departure is sad, as he’s a good performer. Note the share price spike over the past year or so, which we plugged strongly here. Like all great leaders, however, he has assembled a team of leaders around him and I’ll be surprised if the interim CEO, John Sutton, doesn’t get the main gig. Given I reckon this will happen, any sell off linked to Stuart’s departure should be a buying opportunity, which I’ll be happy to avail myself of.

So I’m singing bye, bye Stuart goodbye and buy, buy, BOQ, good buy! And I should add that my SMSF thanks Stu for his efforts.

Correcting the correction carry on

Morgan’s chief economist, Michael Knox, still thinks a correction will happen over September and October setting us up for an end-of-year rally. His econometrics tells him that the S&P 500 index in the US is fair value at 1830 but its all-time high is 1991.39. It closed Friday at 1955 so there’s a long drop possible.

If, say, geopolitical concerns met the usual spookiness of September (when US tax payments can hit the stock market and fair value shows up) it would only be an 8% fall, which isn’t a correction. Officially, 10% is a correction. I think only something really scary could make this happen, as dip buyers like me should stop a progressive drop of stocks by 10%.

Adding to this story, reports overnight say that George Soros, who has made some of the biggest market bets of all time, has now punted against the S&P 500. Soros doesn’t always get it right but the momentum of his money didn’t make a big impression on the key market index on Friday, which was down a measly 0.11 of a point! However, this major move against the S&P 500 at this time, when September is renowned for sell offs, can’t be ignored.

Of course, if US company reporting remains better than expected, then fair value levels would sneak up anyway, which again could limit the extent of the market’s drop. That’s what I’m expecting but geopolitical curve balls are worrying me. More on this later.

What I liked this week

Roger Montgomery (who, like other fund managers such as Geoff Wilson, has been holding a lot of cash) is now going public saying he expects a stocks boom! No timing is specified but it conforms with my argument that even if you endure a correction, you can buy into it and expect stocks to be higher in a year’s time. This coincides with the third year of a US election cycle, which historically is good for stocks.
CSL reporting well and the market warming to the company. This has been one of the companies I recommended for when the dollar eventually falls. Although the company’s CEO doesn’t seem too fussed on the impact of a dollar drop (which is a good sign that he likes the company’s outlook anyway), the extra benefit of an eventual lower dollar is a bonus.
Business lending rising 12.1% in June. We’ve needed to see banks and business get their ya ya’s out and doing stuff since the GFC. This is a good omen. More on that below.
Weaker than expected US retail sales didn’t stop Wall Street rallying. How did they do that? The positivity of the Yanks can’t be underestimated.
This from Vladimir Putin: “We will do all we can… to stop the bloodshed in Ukraine.” Surely, we can trust someone who rides a bear!
Experts, who warn about being a little more defensive in a stock market like the US, where they’ve created lots of all-time highs, are now saying that you should look at emerging markets! They must be comfortable about stocks for 2015 to suggest that.

What I didn’t like

Charlie Aitken doing a Roberto Duran on Telstra virtually saying “no more”, now rating it a hold. This is what Charlie said yesterday: “Anyway you cut it, TLS delivered a great set of numbers in FY14 and is arguably Australia’s most strategically important company in this increasingly digital economy. The Australian economy simply can’t open for business each day without TLS’s products, services and networks. Looking forward to FY15 and TLS guided to “broadly flat” total income and “broadly flat” EBITDA. Free cash flow will be again a solid $5b (ish). But with still positive JAWS there will be EPS growth in FY15, albeit it won’t be +14.3% again. My view is TLS EPS will rise +3% in FY15 to 35.5c and the all-important dividend will be 30cff (84% payout ratio). At last night’s (that was Thursday) closing price of $5.62 that puts TLS on a FY15 P/E of 15.8x and prospective dividend yield of 5.33%ff. To me, that now appears “fair value” for that combination of FY15 attributes.”
The overnight news that Ukraine’s military reporting had taken out a Russian convoy, which Russia has denied. The worrying related move was the drop in bond yields and the German Dax dropped 1.44%! (This Ukraine/Russia thing could put us all on a bear!)
The 0.2% fall in GDP in Germany, France’s coming in at zero for the June quarter! Germany’s pullback is partially Ukraine/Russia related but when you throw in the recession-bound Italy, Europe is disappointing.
Dr John Hewson still worried about everything from Europe to what will replace the mining boom here in Australia. I enjoyed the interview with him on my show last Wednesday night but I did use my Steve Keen farewell for him by saying: “I hope you’re wrong.” Keen usually says: “I hope so too.” And the Doc in his typical combative way replied: “And Steve was wrong!”
(All three of us taught Economics at UNSW in the early 1980s. John employed me and probably hired Steve as well.)
Those analysts who think the US economy is being “held together by string and rubber bands” because of the impact of QE3 and low interest rates. This unfair thesis that ignores the economic and company improvements will be tested in coming months, as QE3 ends and markets start guessing when the first rate rise will happen.
Joe’s analysis (for his exact call see below), which concluded that poor people don’t drive much. He needs some better advisers or he needs to listen to the ones he has got! By the way, even if it were true and it’s not, using the word “poor”! That’s poor! We economists created terms such as low income Australians to avoid people hating our cold-hearted analysis. Joe’s a mate so I don’t like joining in with the critics but he has to lift his game selling the Budget for the economy’s and the market’s sake.

Worse still, it has helped satirists like Alex Shean, whose father sent this to me:

Top stocks – how they fared

Numbers that moved the market

Business confidence increased in July from +7.8 to +11, which is a 10-month high!

Chinese retail sales rose at an annual rate of 12.2% in July – a healthy figure for our largest trading partner.

Earnings season tasted sweet for Telstra, who reported an annual profit of $4.3 billion, announced a $1 billion off-market share buyback, and will give their shareholders an increased final dividend of 15c, fully franked.

Total lending finance figures lifted by 7.6% in June, which is a six and a half year high! This growth was large, but came off the back of a material lift in commercial finance lending – up 12.1% after a 5.9% fall in May.

The week ahead:

Australia:

Monday August 18 – New car sales (July)
Tuesday August 19 – ANZ Roy Morgan Consumer Confidence
Tuesday August 19 – Reserve Bank Board minutes
Tuesday August 19 – Imports of goods (July)
Wednesday August 20 – Testimony by RBA Governor

Overseas:

Tuesday August 19 – US Consumer prices (July)
Tuesday August 19 – US Housing Starts (July)
Wednesday August 20 – US FOMC minutes
Thursday August 21 – “Flash” manufacturing surveys
Thursday August 21 – US Philadelphia Fed survey (August)
Thursday August 21 – US Existing home sales (July)
Thursday August 21 – US Leading index (August)

The Reserve Bank is in focus next week, with the minutes of the last Board meeting published on Tuesday, and on Wednesday, Governor Glenn Stevens will deliver his twice yearly statement to the House of Representatives Standing Committee on Economics.

Compared to Australia’s little black book of economic events, the US has a fair bit of top shelf data on their agenda. The week will kick off on Tuesday with US Consumer Prices and US Housing Starts – both issued for the month of July – while the all-important Fed meeting minutes on Wednesday might include a whisper about any upcoming rate climbs. Thursday sees US data on manufacturing and the US Philly Fed survey, and alongside these manufacturing readings will be data on US existing home sales for July, and the index of leading indicators for August.

Calls of the Week:

Jimmy Fallon made a special tribute to comedic genius Robin Williams this week, and described him as the “Muhammad Ali” of comedy.

Joe Hockey made the call that “the poorest people either don’t have cars, or actually don’t drive very far’’ this week when he tried to justify his increase to the fuel excise on ABC radio.

And Tony Featherstone said that OnTheHouse Holdings, Nearmap, and iBuy Group are three tech companies that have all the traits of a takeover target – so keep your eyes on this list for any interesting action!

Food for thought

You have to learn the rules of the game. And then you have to play better than anyone else – Albert Einstein.

Last week’s TV roundup

Domino’s delivered more than just good pizza this week, with a stellar earnings profit boosting share prices. So what other stocks are shining during earnings season, and which stocks should we be holding? Tim Samway from Hyperion Asset Management told me exactly how he will be investing moving forward on Super TV.

With the Aussie dollar tipped to slide over the coming year, should we be exposing ourselves to international stocks? Nick Griffin from K2 Asset Management explained how we can make some great investment decisions off-shore.

In this Super Sessions update, Paul Rickard and I talk about growth stocks and where you can find them, and take a close look at how you can access international markets using exchange traded funds (ETFs).

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 Cochlear (COH), who had its short position decrease by 1.67% to 16.06%.