Switzer on Saturday

Open sesame, Scotland the sensible and stay with stocks

Founder and Publisher of the Switzer Report
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I tipped it could be a challenging week for stocks and by Thursday we were off 2% on the S&P/ASX 200 index. Imagine what might have happened if there was bad news!

In D-week for decision time in Scotland, the Fed and even for our Reserve Bank came up with the right decision for our bottom lines.

The positive reaction on Wall Street ahead of the Fed meeting (the WSJ reported that those crucial words “considerable period of time” would not be removed from the central bank’s statement) showed us that when it looks like rates will rise, the stock market will fall and it won’t be pretty. It will probably be the trigger for that overdue correction because both the Dow and the S&P 500 index look to be closing in record high territory this morning, as I write.

Scotland the sensible

The markets liked what they saw from the bonny, bonny votes in this crucial referendum.

The EU, which includes Great Britain, didn’t need one of its few economic bright stars to lose GDP, create market uncertainty, take stocks in the wrong the direction and breed independence movements in other European countries.

In the end, it looks like 55% of Scots said ‘no’. Financial outfits, such as Lloyds, closed up 1.3%, while RBS put on 2.5%. It’s good news for NAB, as the only really exposed Aussie bank in the UK. It didn’t need this curve ball just when reports on its Clydesdale Bank were on the improve and new CEO, Andrew Thorburn, looks like he’d love to sell the operation.

Open sesame

US market experts think Scotland plus Alibaba’s $US22 billion debut on the US stock market helped boost the indexes again into all-time high territory.

“It’s a combination of Alibaba coming to market as well as the election in Scotland; there was underlying concern that that may not go well,” said Paul Nolte, senior vice president, portfolio manager at Kingsview Asset Management on CNBC.

But it’s not just that. As the lawyer in that great Aussie film The Castle would’ve said “it’s the vibe”. And the vibe has been good for stocks and optimists or bulls on the market, like yours truly. It doesn’t just show with Alibaba (which set its price at $68 but opened at $92.70, nearly got to $100 and is now said to be worth $US228 billion), or just with US market indexes shooting higher. Even our RBA is saying the right things.

Best thing I heard this week

It came from the RBA’s assistant governor, Christopher Kent, who said our economy showed “tangible signs of a pick up in non-mining investment”. But he went further to tell any pessimists on our economy that “the gradual pick-up in the growth of non-mining economic activity over the past year augurs well for investment.”

This links in nicely for someone like me who keeps telling you that I like stocks for 2015.

What did I like this week

  • The RBA reiterating that there’ll be “a period of stability in interest rates”.
  • The dollar falling under 90 US cents, despite the Fed chickening out on the expectation that it would be taking out those words I mentioned above, which would’ve made the market think that the first rate rise was closer than thought. The dollar this morning is 89.3 US cents!
  • The UBS call of Scott Haslem and George Tharenou that the dollar could correct down to as low as 73 US cents! (Note this if you’re borrowing overseas at low rates.)
  • Ron Bewley’s work that sees him analyse what hundreds of analysts are thinking. Ron now says earnings’ estimates are rising and his capital gain expectations for Aussie stocks are also rising, as you’d expect. But it’s good news.
  • Subscriber feedback on how they like Ron’s work but sometimes don’t fully understand him. Don’t worry, you’re not alone. I’ve decided to do a Ron Bewley for Dummies but I’ll call it Bewley for Normal People.

What I didn’t like

  • Charlie going too negative on the banks. That’s his call and it could suit some investors more than others. People who invest on the philosophy that you never go broke taking profit would agree. That said, my view for long-term, yield playing investors is that the banks are looking like better value, as the share price falls and dividends are not under threat. (I’m doing my big bank test on Monday so stay tuned.)
  • Not much else. You must know me by now – I like not disliking much!

Be happy and lucky Jack Ma-style

Alibaba’s founder Jack Ma, who’s feeling pretty rich today, rang the bell with eight of his customers because eight is lucky in China. But wait there’s more. His share of ownership is 8.8%! The price of the float was set on the 18th of September and the initial price was $68!

I know it’s silly superstitious stuff but in some Chinese dialects, the words for ‘eight’ and ‘fortune’ are similar. Well, I can work with that, given how lucky Jack has been and I won’t be forgetting it fast.

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. Here is a brief review of the key take-outs from the past week.

Numbers that moved the market:

China’s industrial production increased by an annual rate of 6.9% in August– its slowest pace in about five and a half years.

In better news this week, the dollar dipped below US 90c for the first time since March.

And Janet Yellen and the rest of the US Federal team chickened out! They reaffirmed interest rate settings will remain at current levels for a “considerable time.” They will hike eventually, but it might be later than everyone thought.

The week ahead:

Australia

Wednesday September 24 – Financial Stability Review
Thursday September 25 – Population data (March quarter)
Thursday September 25 – Financial accounts (June quarter)
Thursday September 25 – Job vacancies (August)

Overseas

Monday September 22 – US Existing home sales (August)
Tuesday September 23 – “Flash” manufacturing (September)
Tuesday September 23 – FHFA Home prices (July)
Wednesday September 24 – US New home sales (August)
Thursday September 25 – US Durable goods orders (August)
Friday September 26 – US Economic growth (June quarter)
Friday September 26 – US Consumer sentiment (Sept)

There isn’t too much coming out of Aussie financial land next week in the form of major economic indicators, but we do have the RBA’s bi-annual Financial Stability Review to look forward to. This publication will include commentary on mortgage lending, which is a pretty hot topic right now!

Overseas it’s a different story, with plenty of bubbling data on the US of A boiler. The important “Chicago Federal Reserve National Activity Index’’, and data on existing home sales kicks off the week. Markit’s “flash’’ readings on manufacturing data in the US, Europe and China will follow. The other big ones in the US include revised economic growth figures and consumer sentiment levels for September.

Calls of the week:

To lampoon the many references to Braveheart ahead of Scotland’s independence vote, comedian John Oliver said “nothing screams Scottish freedom quite like a millionaire-Australian-anti-Semite-on-horseback”.

Geoff Wilson shone the light on seven small cap darlings to come out of reporting season, including Slater & Gordon, CSG Limited, Infomedia, Corporate Travel Management, Veda Group, and Mantra Group, and Ardent Leisure. Can I remind readers too that I’ve been backing Ardent Leisure since early this year!

Davis Stratton and Margaret Pomeranz made the call to pull the curtain on their film-review program, At the Movies, which will end a 28-year partnership. It didn’t take 28 years, but David said it did take a little while to warm to Margaret because she was a “bit overbearing… for a little person”.

Food for thought

Successful people ask better questions, and as a result, they get better answers.

– Life coach and self-help author, Tony Robbins.

Last week’s TV roundup

Is it too late to buy dollar sensitive stocks? Regular Switzer Super Report contributor Charlie Aitken said it’s more about what you should be selling, and what you’re getting out of your portfolio.

Professor Ron Bewley revealed what sectors are showing the best potential with his “Hot Chip’’ portfolio! Find out how you can pamper your portfolio here.

With the dollar diving and foreigners exiting the stock market, are there any takeover targets left? Tom Elliott of Beulah Capital revealed which companies he’s keeping an eye on.

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 Myer, who had its short position increase by 2.52%, to 15.45%.

Source: ASIC

My favourite charts:

The Aussie dollar dips!

Source: TradingView, ForexCrunch

Ahead of the US Fed meeting this week, the Aussie dollar dipped below US 90 cents, but lifted again following the US cash rate statement. I’m optimistic that it will continue to go lower!

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