One of my most important tasks in my working life is to be a human thermometer, perpetually checking the heat of the stock market so I can, hopefully, alert all my subscribers and financial planning clients when I think this bull market is over. Along the way, I want to pick corrections and pullbacks right and, as an important bonus, I want to use my sources, research and expert friends to give you investment ideas, which often are individual stocks.
This isn’t an easy job, but someone has to do it.
The history of stock markets shows that those who try to time the stock market usually lose because they’re often out of the market when the really big up days and periods of rapid stock price appreciation happen. It’s the price of being a scaredy-cat.
On 6 March 2009, the All Ords closed at a low of 3111.7 and finished the year at 4882.7! That was a 57% gain! As someone who was warning from late 2008 that US Government and Fed programs (to rescue the US economy, its banking and insurance system, its auto industry to avoid a Great Depression MkII) would work, I needed a year like 2009!
I was 100% invested in stocks and so I liked 2012, when the worst of the GFC crash was behind us (and I thank Mario Draghi and his famous utterance “whatever it takes”). I liked QE3, and Ben Bernanke will always be a hero of mine in the world of economics and money making!
This week, I hosted a panel session for mortgage insurer Genworth, which launched its Home Grown: Mortgage Industry Perspectives report. Aussie Home Loans founder and mortgage market legend, John Symond, was a panel member and he scoffed at housing bubble talk. He said he has been shocked at the subdued reaction to such low interest rates. He is in a ‘this time it is different’ frame of mind on housing sales and prices.
His view on the sector was consistent with Macquarie’s view that, economically-speaking, we’re in a slow grind higher cycle, where GDP growth will be positive and getting better, but won’t be shooting the lights out stuff.
If we add the economic predictions to the stock market predictions I like, then put your seat belt on for a mild ride higher. And hell, that’s what I want! Let the stock market grind higher – that will do me.
For anyone who doubts John’s views, let me throw in that two risk officers, one from Bendigo and Adelaide Bank, Tim Piper, and the other, Dirk McLeish from Westpac were on a unity ticket with the man who first uttered “At Aussie, we’ll save you!”
That’s what I heard that kept my bullish ways nicely satisfied and this is what I read on Barron’s website that I loved seeing or reading: “The first stage of the bull market was a revaluation to something resembling reasonable levels, as it dawned on investors that the world wasn’t going to end,” says Stephen Auth, chief investment officer at Federated Investors. “The second stage began this summer with a transition to the view that the economy is accelerating and that earnings are poised to increase significantly in the coming years.”
But wait, there’s more!
JPMorgan strategist, Tom Lee, summed it up well with: “We’re in a secular bull market that will last at least another three years.”
Tom could be a bit too excited but it makes me comfortable believing that this grind higher has at least two years.
Obviously, I loved seeing the Dow close above the 16,000 level this week but more than that, I loved hearing the money inflows into the US stock market are the biggest in 13 years. And, at the same time, the Barclay’s Aggregate Bond Index is down 1.43% year-to-date, which explains why investors are rejecting bonds and warming to the idea of playing the stock market.
Charlie’s Angels
Charlie is shopping at Woolies and he’s doing it online, where there was 42% growth in 2012-13. Next year’s spend is tipped to be $1 billion and 3.2 million WOW Apps have been downloaded! He’s not having a taper tantrum, arguing that any possible correction linked to the tapering of QE3 will be trumped by better economic readings. I agree and would see it as a buying opportunity. He thinks Magellan could be losing its way. And he’s taking out insurance by going back to the future with QBE!
Can we trust economists?
Morgans chief economist, Michael Knox, shared this yarn with me last week. It goes back to the time when Ronald Reagan, as US president, went to Moscow and Leonard Brezhnev put on a military parade to show off the USSR’s potential to inflict damage on the West.
There were planes, missiles, tanks and goose-stepping soldiers but at the back of the parade was a group of badly dressed, disheveled-looking academic types. Reagan asked: “Who is this lot who’ve joined the parade?” To which Brezhnev said: “Why they are our economists.” Reagan asked why economists would be in the parade and Brezhnev replied: “What? Haven’t you seen the damage they can inflict?”
One final point on damage I like. During the week, RBA boss, Glenn Stevens, said intervention could be used to weaken the dollar and, this morning, the Aussie is US91.60c! That’s damage that Aussie travellers to the USA won’t like – but it’s great for the economy.
Top stocks – how they fared
Numbers that moved the market
Last week Janet Yellen, the nominee for the position of US Federal Reserve chairperson, defended the central bank’s bond purchasing program, saying it boosted economic growth and the benefits exceeded the risks. In somewhat of a contradiction, the minutes from the Fed’s latest meeting, released this week, show that QE could be pulled back much sooner than expected. According to the minutes, “some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.”
November’s Philadelphia Federal Reserve (Philly Fed) Business Outlook Survey showed that manufacturing in the region continued to expand, albeit at a slower rate than last month. The main index from the report, the Diffusion Index, was 6.5, down from 19.8 in October. It’s still a positive number, which means manufacturing continued to expand.
Flash PMI numbers were also released this week, showing estimates of how manufacturing has been performing across a number of regions. The results were:
USA – 54.3 (up from 51.8 in October). This is a contradiction to Thursday’s Philly Fed findings.
Eurozone – 51.5 (down from 51.9 in October). A three month low.
China – 50.4 (down from 50.9 in October). A two month low.
The week ahead
Australia
November 26 Population projections
November 26 Speech by RBA Deputy Governor
November 27 Construction work (Sept quarter)
November 28 Business investment (Sept quarter)
November 28 New home sales (October)
November 29 Private sector credit (October)
Overseas
November 25 US Pending home sales (October)
November 26 US Housing starts (Sept & October)
November 26 US Case Shiller home prices (September)
November 26 US Consumer confidence (November)
November 26 US Richmond Fed index (November)
November 27 US Durable goods orders (October)
November 27 US Consumer sentiment (November)
November 27 US Leading index (October)
This week the ABS will release their projections for Australia’s population up to 2101. As Craig James pointed out this week, the data has obvious importance for businesses, government agencies and planners to assess the needs of the economy such as infrastructure, homes and resources.
Also on Tuesday (the 26th), the RBA’s Deputy Governor Phillip Lowe will give a speech at a productivity conference on Tuesday. Following Glenn Stevens’ speech on the anniversary of the floating of the Aussie dollar last week, close attention will be paid to any reference to the currency.
And in the US we will see more indicators on manufacturing, with the Richmond Fed releasing their manufacturing index. There have been mixed report so far from the Philly Fed and Markit’s PMI surveys, so it will be interesting to see the result of this report.
Calls of the week
Glenn Stevens’ warning that the RBA may intervene in currency markets to push the value of the dollar down. He made the comments in a speech to the Australian Business Economists for the 30th anniversary of the float of the Aussie dollar.
Gary Grey’s call to follow in Kevin Rudd’s footsteps – not by resigning from politics but by having an embarrassing snack in parliament. You can watch the video here.
Ten’s call to sack one of the presenters of their new breakfast show, Wake Up, after less than three weeks on air.
The Australian’s call to publish the top salaries of individual employees at the ABC. Top of the list of journalists was Tony Jones ($356k), but he is still yet to hit what Kerry O’Brien was on ($365k) in 2009/10 while presenting The 7.30 Report. Leigh Sales, who now presents 7.30, is on $280k.
Last week’s TV roundup
Strong commodity prices for coal and iron ore have helped BHP and RIO’s share prices see some strong gains of late. To find out if the gains are sustainable and what could be waiting around the corner I caught up with our resident chartist, Gary Stone.
The market saw a bit of descent this week, so is this the start of an overdue correction? To get the inside scoop, CommSec’s Tom Piotrowski joined me on the show.
Mark Donaldson is a textbook success story – finding opportunity in an adverse upbringing and translating it into a meaningful and successful career in the SAS. In 2009 he was awarded the army’s highest honour, the Victoria Cross, and he has recently released his book The Crossroad – A Story of Life, Death and the SAS.
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.
Making its way into the top 20 this week was Atlas Iron, which became 1.36% shorter over the past 7 days. Meanwhile, despite closing its short positions by almost 1% this week, Cochlear still remains the shortest stock on the market.
My favourite charts
Growth that money can’t buy
This chart is nothing short of incredible. The Bitcoin story continues, with more and more mainstream companies accepting the currency. This week a US Senate committee heard that the virtual currency is a “legal means of exchange”, which saw the value skyrocket.
Despite taking a breather over the past couple of weeks, the All Ordinaries Accumulation index, which factors in dividends, is still just one per cent off its record high which it reached late last month.
Top five clicked on stories of the week
Paul Rickard: Why you couldn’t buy Freelancer.com (and how to get your hands on the next hot float)
Charlie Aitken: QBE a buy on QE tapering
James Dunn: Battle of the banks – regionals v big four
Tony Featherstone: Is it time to buy mining services stocks?
Peter Switzer: Has the Santa Claus rally come early or are there more gifts on the way?
Last week’s Switzer Super Reports
Thursday, 21 November 2013: Countdown to taper
Monday, 18 November 2013: It’s beginning to look a lot like Christmas
