Switzer on Saturday

Murky markets but the dollar to the rescue!

Founder and Publisher of the Switzer Report
Print This Post A A A

Well at last the dollar has started to fall, along with iron ore prices, and the stock market gave up 1.2% over the week, in case you lost count. And those with great memories tell me it’s the worst week in six.

Apart from the miners, the big banks and Telstra had a rough time, which doesn’t bother me as it creates an opportunity to buy more of these quality companies, provided you’re happy with nice little gains dominated by income over the next year.

You might be wondering why the market hasn’t greeted the overdue drop in the dollar with glee. Well, blame the exodus of foreign investors, who might be thinking “let’s get out before that currency crashes!” Of course, it won’t. In fact, Westpac’s Bill Evans thinks it will only go to 90 US cents this year. This could be too conservative but it shows that long-term economic watchers aren’t expecting a 1986 Banana Republic re-run, where the dollar headed towards the 50 US cents region. This morning it’s 90.73 US cents.

The storm before the blue skies?

I reckon we’ll see some volatility over the coming month, as the Fed ends QE3 in October and the Yanks start contemplating an earlier rise in rates. Data over the next few months will determine it all but this is why the greenback is rising and the Oz dollar is drooping.

Once markets cope with the new reality of less money supply growth in the US and rising rates because the American economy is growing nicely, then the focus will come back on Australia, with a lower currency and an economy on the comeback trail.

How do I know that? Those dodgy employment numbers prove it! Sure, I don’t believe the 121,000 jobs in one month but if the ABS is only one-quarter right, then 30,000 new jobs are a great sign. If it’s only half-right, then it would mean 60,000 jobs!

Don’t forget the ANZ job ads number has risen 10 months in a row and is now at a 17-month high. I’ve been tipping a good 2015, powered by a lower dollar and low interest rates. Evans thinks the RBA won’t move on rates until the third quarter next year. That’ll help.

Understand this: we’re in a rebalancing phase from mining-dependence to housing. Later, other industries and the lower dollar will help.

One piece of bull dust I’m tired of

This from Insync Fund Managers portfolio manager Nitesh Patel: “Australian banks certainly look expensive relative to their global peers.” (SMH)

But at least Nitesh had a smart additional comment that will assure SMSF dividend players that being bank fans isn’t necessarily dumb.

“It will likely continue to be a mistake to short Aussie banks but better value bank stocks are available in the US and Europe,” he said.

That might be true that other banks could have more capital gain in them but it doesn’t mean our banks will be duds.

Also, I reckon a lower dollar will push the index up over 2015. A rising tides lifts all boats but certainly banks will be weighed down by their previous great performances. That said, I can see an improving economy in the company of low interest rates has to be good for their bottom lines, especially as they’re getting used to cutting costs.

Do you feel lucky?

We are a forgiving lot but, as I predicted, QBE would be a gainer if the dollar fell and it did spike a tick over 4% this week. This stock, however, is still for the thrill-seekers. I’ll try and corner the CEO this week to see if he can allay our fears that the sickening surprises of the past are over.

Important point of the week

Sinking iron ore prices hurt the likes of BHP and Rio and littlies like BC Iron but a lower dollar will offset some of these losses. And don’t be surprised if China does something that will actually help iron ore prices, as the year heads towards the festive season. The Chinese leadership reaffirmed its belief that their economy will grow at 7.5%.

What will I buy if we get a bit of a sell off?

I like Wesfarmers – Goyder is a smart CEO but as Woolworths heads into the $35 region, I’m getting close to going long this long-term good performer that has had difficulties mastering Masters. However, I’m seeing their ads for the first time and I suspect they’ll eventually cut the mustard.

What I liked…apart from the lower dollar

  • Those job numbers.
  • My interview with Bill Evans – not for what I asked but what Bill said.
  • Shane Oliver’s call that the $A goes to around 80 US cents and “it will provide a great shot in the arm for trade-exposed industries, such as manufacturers, tourist operators and higher education institutions, which is just what the economy needs.”
  • The Westpac consumer sentiment survey found that bank deposits and paying down debt continue to be seen as the wisest place for savings, with less than 10% of those surveyed seeing shares as the wisest place. In 2000, just before tech wreck, the latter peaked at 34%. Why is this good news? You don’t get crashes until taxi drivers start giving tips. Currently they’re still asking for them, which means a crash is a way off!
  • The US deficit shrank 22% in the first 11 months of the Yank’s financial year. That’s what economic growth does to deficits and why Joe and Tony have to go for growth.
  • The Yen fell to 107 versus the greenback, the lowest in six years, making it a great place for a holiday.
  • Overnight, US consumer sentiment came in at 84.6 and above expectations and the August retail sales figure was a strong 0.6%.
  • The prices of fear assets – gold and oil – are coming down.
  • Finals footy — go the Roosters and the Swans!

What worried me?

  • The Scots making an important independence decision that could rock currencies and markets (my grandfather was a Scot so I can tease them)!
  • Housing bubble talk and big bank bashing by journalists, desperate for a negative story (Residex’s John Edwards ‘pooh poohs’ bubble talk).
  • Shane Oliver from AMP reminding me that “September historically is the weakest month of the year for US shares.” And this comes as the Fed meeting next week is spooking Wall Street (see it as a buying opportunity)!
  • The good form of Port Power. David Koch is the chairman and my dilemma is best described by Groucho Marx that no one is entirely unhappy about the failure of a friend. Go the Swans!

Top stocks – how they fared

The week in review

One of the main pieces of feedback from our subscribers is that there just isn’t enough time to stay on top of all of the emails and information they receive each week. That’s why we’ve introduced a new section in our Saturday newsletter The Week in Review. Here, I’ll give you a very brief review of the key take-out of each story from the past week, with a link to read more, if you’re interested.

  • Charlie Aitken told us that we have too much exposure to Aussie dollar-earning Australian shares. He tipped Crown, Servcorp and Westcorp for good exposure to a rising US dollar.
  • The 12 stocks in Tony Featherstone’s Takeover Target series are up an average 2.7% since August 13 – this week, he added iSelect.
  • Ron Bewley reviewed his yield portfolio – its performance is on track and his spare dividends might get parked in Scentre. He’s also looking to sell TLS as part of the buy-back.
  • George Lucas let us snoop into his SMSF – it favours international equities (especially from Japan) and holds about half cash.
  • I think the Aussie dollar will come down when the Reserve Bank decides to hike rates. When it does, stocks like Macquarie Group, Navitas, Amcor, Fortescue, QBE, and STW could benefit.
  • Paul answered which vehicle (LICs or ETFs) were better – he says the answer comes down to the premium or discount that the investment is trading at. Vanguard is Paul Rickard’s top ETF, while Milton is his preferred LIC.

Numbers that moved the market:

Employment lifted by a record high of 121,000 in August, which even surprised the optimists like yours truly!

The ANZ/Roy Morgan weekly consumer confidence index rose 0.6% in the first week of September.

US consumer credit rose by $26.01 billion in July, the biggest rise since Nov 2011, and well ahead of expectations. U.S jobless claims also hit a 10-week high at 315,000.

The week ahead:

Australia:

Monday September 15 – New vehicle sales (Aug)
Tuesday September 16 – Weekly Consumer Sentiment
Tuesday September 16 – Speech by RBA Official
Tuesday September 16 – Minutes of Reserve Bank Board meeting
Tuesday September 16 – Agricultural commodities (September Qtr)
Wednesday September 17 – Data on imports (August)
Thursday September 18 – Detailed employment data (August)
Thursday September 18 – Reserve Bank Bulletin

Overseas

Monday September 15 – US Industrial production (August)
Tuesday September 16 – US Producer prices (August)
Tuesday September 16 – US Federal Reserve meeting
Wednesday September 17 – US Consumer prices (August)
Thursday September 18 – US Housing starts (August)
Friday September 19 – US Leading Index (August)

The majority of our local economic data comes out on Tuesday next week, including the minutes of the Reserve Bank Board meeting held a fortnight earlier, and the weekly ANZ/Roy Morgan consumer sentiment survey. On Wednesday, we’ll see how consumer and business spending is faring with August imports data, and on Thursday the ABS will deliver comprehensive employment data, also for August. And keep an eye out for the quarterly Reserve Bank Bulletin publication, out on Thursday.

Overseas data takes the spotlight next week – the big ones include US Industrial production figures and US producer prices (both for August) out on Monday, and the US Federal Open Market Committee (FOMC) will meet over two days, starting Tuesday. US Consumer prices for August will also be released midweek.

Calls of the week:

Here at the Switzer Super Report, we’ve been saying that you need to increase your portfolio’s international exposure for a while now. This week, Charlie Aitken made the call that we should hold “more Australian listed stocks with a high proportion of US dollar revenue”.

Burger King in Japan will be launching their ‘’The Kuro burgers’’, which are black in colour! This is what they include – ketchup coloured by squid ink, beef patties with black pepper, and bread and cheese flavoured with bamboo charcoal. Feeling peckish?

Source: News.com.au

Bill Evans of Westpac said he expects the Reserve Bank will tighten interest rates in the third quarter of next year!

And maybe Australian voting, like our new submarines, should be outsourced too, to make the process more efficient and save us millions? Clark and Dawe from the ABC made this hilarious call as they parodied the recent industry decision made by Abbott.

Food for thought

Listen with the intent to understand, not the intent to reply.

– American educator and author, Stephen Covey.

Last week’s TV roundup

Should you accept the Telstra off market buyback? Former CEO of CommSec and Switzer Super Report co-founder, Paul Rickard, demystifies the process and explains why it is good for some, but not all.

With the bulk of earnings’ season done and dusted, market watcher and regular Switzer Super Report contributor, James Dunn, gave his take on the companies with the goods.

Exchange-traded funds, or ETFs, are becoming increasingly popular with investors. This week, Russel Chesler of Market Vectors puts the spotlight on an ETF linked to Australian property.

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, who had its short position increase by a significant 6.69%.

Source: ASIC

My favourite charts:

Job ads stick it to dreary jobless headlines!

Source: ANZ/Roy Morgan research

Job advertisements lifted 1.5% in August and reached a 17-month high. If only those pessimistic job headlines could drop off, and the media covered this sort of optimism instead!

Dandy dividend darlings

Source: CommSec

With the bulk of earnings’ season over, CommSec took a look at the dividends paid out by 141 companies from the ASX 200 this financial year, and they called it a cash bonanza! The above graph shows the rise in dividend payouts since the 2010 financial year.

Top five clicked on stories:

Recent Switzer Super Reports

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.