Currency, Crowing and Crowe

Many in Sydney went all week wanting to see the NRL grand final between Russell Crowe’s Bunnies and the Bulldogs but I have to say I’ve been sweating on one thing – the US jobs Report. And it was worth the wait. I knew instantly when, at 5am, I saw the Dow up 207 points (or 1.55%) with an hour left to trade!

My next instant inquiry was: “What happened to the dollar?” And yep, it was down to 86.7 US cents, which really is a big vote of confidence for the US economy, as well as the greenback.

Don’t want to be an early buying bunny

My next big anticipation is still not the “will the Bunnies beat the Bulldogs?” (which I’d like to see for a few desperate friends and family).

What I can’t wait to see is how our stock market responds on Monday.

I honestly don’t know. It’s a 50:50 bet. If I ruled the world, I’d make everyone buy on Monday. So, why?

We did lose about 7% at our worst over September but ended up down 6%. Dip buyers returned. And just as foreign investors exited the week before to take the stock market and the dollar down in tandem, this week saw the reverse later in the week, where the currency again was back at 88 US cents. This confirms my contention, which I suggested last week, that once a dollar bottom base is perceived to be in place, the foreigners will come back. And yep, they won’t be afraid to buy our banks because that damn yield is attractive.

So what happens on Monday will be the pull factor of a dollar at 86.7 US cents, a market that has nearly had a real correction (a 10% drop), an economy getting better and where company earnings are tipped to improve, especially aided by a lower currency.

Against this, there could be so much optimism on the US’s recovery that the greenback is seen to go higher. Our dollar will be seen as a dropper, which could temporarily increase the foreign selling of stocks and currency, but it will only create another buying opportunity.

Buying opportunity?

Last week, the S&P/ASX 200 index closed on a low of 5264.20. After gaining Tuesday and Wednesday, we dropped on Thursday, rebounding on Friday. For the week, it was a 5-point gain, so it hasn’t been convincing.

By the way, I’m not telling you to buy on Monday but I’d watch the trend as it’s your friend, as they say, until it bends. Of course, if you’re a bit of a punter, you would buy. Even if you do and the market does move down again, I don’t think it will be far, given the US reaction to the Jobs Report.

Conclusion? We’re now in buying opportunity territory, even if we’re not at the bottom.

The US Jobs Report

It’s 82 days before Christmas but it might have come early for the Yanks, with the numbers on jobs beating the consensus.

How good? Well, try 248,000 jobs when 215,000 was the guess from the experts and unemployment fell to 5.9% from 6.1% but it was as high as 6.7% in March!

What this shows is that this is not a jobless recovery but merely a slower job creating recovery. That’s because the Great Recession was one of the worst slumps in recent US history.

This comment from Forbes this morning sums it up: “Finally we’ve got some balance back in the US economy,” said Dr. Patricia Buckley, director for economic policy and analysis for Deloitte, pointing out that job additions are on a clear acceleration path average of 227,000 jobs per month in the first nine months of the year. This is up from 186,000 average in 2012 and 194,000 in 2013. Job growth has averaged 213,000 a month for the past 12 months.

What I liked

The return of foreign investors when the dollar hit 86.8 US cents.
Dip buying generally.
Charlie liking a couple of banks!
The run of economic data: from consumer confidence to credit to retail to Chinese manufacturing to house prices to home sales to car sales, which are at a record high for September. All these justify my cautious optimism for the economy and that the RBA won’t be rushing to raise interest rates.
Interviewing the biggest winner from TEN’s Biggest Loser program – exercise queen Michelle Bridges.
Interviewing army hero Matina Jewell, who wrote Caught in the Crossfire. What a gutsy young woman!

What I didn’t like

Ebola in the US.
Another geopolitical challenge to the stock market with the Hong Kong protests and the officialdom’s handling of it.
People asking me about my 6000 call. I’m really felling for Kamal right now: “Why are people so unkind?”

Last word

Santa Claus might have done a dry run with the Jobs Report but he will be coming to town with a nice rally in December. Sure, 6000 might be a stretch but I always said this as a means to talk you into believing in stocks for 2014. And they will deliver and I will have something to crow about, just like Russell if the Bunnies win!

Top stocks – how they fared

The week in review

I’m not too worried about it, but I explained how a death cross could occur when the Russell 2000 index average over 50 days is lower than that over 200 days, and it’s just happened.

You can spot a blue chip by looking at a company’s Return on Equity, balance sheet and capital structure, global footprint, and by being strategic about valuation – some insightful investment tips by Tony Featherstone.

After looking into his market crystal ball and seeing an unwinding yield trade, Charlie Aitken says the capital beneficiaries will be “growth at a reasonable price stocks” (or GARP stocks) like Macquarie and NAB.

This week the brokers upgraded BHP, Pacific Brands, and Seven West Media, and downgraded Treasury Wine Estates.

If you want to sign up for the Medibank Private IPO, pre-registration closes on October 15 – Penny Pryor explained how to register and revisited Paul Rickard’s positive analysis of the listing opportunity.

What moved the market:

Dwelling approvals rose 3.0% in August to 16,810 (seasonally adjusted), growing for the second straight month.

Protestors fighting for democracy in Hong Kong, in what is known as the “Umbrella Revolution”, rattled markets this week.

Image: Vincent Yu/Associated Press, Mashable.com

And one confirmed case of Ebola in the US certainly frightened Wall Street!

The week ahead:

Australia

Monday October 6 – Inflation gauge (September)
Monday October 6 – Job advertisements (September)
Tuesday October 7 – Tourist arrivals (August)
Tuesday October 7 – Reserve Bank Board meeting
Thursday October 9 – Employment/unemployment (September)
Friday October 10 – Housing finance (August)
Friday October 10 – Speech by RBA official

Overseas

Monday October 6 – US Federal Reserve Chair testimony
Wednesday October 8 – US Federal Reserve meeting minutes
Wednesday October 8 – China HSBC Services (September)
Thursday October 9 – US Wholesale sales (August)

Despite a public holiday in NSW, ACT, QLD and SA on Monday, the ASX will be open for trading. We will also see the monthly inflation gauge and job ads. The Reserve Bank will take the spotlight on Tuesday where the Board will discuss all things interest rates, but it’s unlikely that there will be any surprises here!

Other key data to be released includes employment figures on Thursday and housing finance data on Friday.

It’s a shoe-string kind of week overseas, with little economic data on the agenda. However there are some important ones to keep your eye on, like the speech from Fed Reserve Chair Janet Yellen on Monday, and the Fed Reserve minutes out on Wednesday night.

Calls of the week:

Although Treasurer Joe Hockey denies retreating from his tough budget this week – the Government has offered to “restructure” some welfare bills so changes backed by Labor and the Greens can pass through the Senate.

Deputy leader of the opposition, Tanya Plibersek, had this to say about Tony Abbott weighing in on the burka debate this week – “Well I’d prefer if Tony Abbott didn’t get about in his Speedos, but it’s a free country.” Fair point.

Source: Sydney Morning Herald, 2 October 2014

Soon after Abbott called the burka confronting, he called for Speaker Bronwyn Bishop and Senate President Stephen Parry to drop some proposed changes which would have required women wearing a burka in Parliament House to sit in a glass-enclosed public gallery.

Lending is back in the spotlight after RBA official Malcolm Edey said “something will be done” to reduce lending risks and expects “at least a preliminary announcement before the end of the year.” The RBA is currently weighing up potential rules with the Australian Prudential Regulation Authority (APRA).

And in this week’s SSR, James Dunn said you should back biotech companies like Bionomics, Viralytics, Mesoblast, and Avita Medical if you’re looking for some speculative stocks to add to the edges of your portfolio.

Food for thought

Intelligence without ambition is a bird without wings – Spanish surrealist artist, Salvador Dali.

Last week’s TV roundup

If you can’t get enough of James Dunn’s biotech bonanza, he also explained the benefits from adding these stocks to your portfolio on Super TV this week.

The Author of Deep Value, Toby Carlisle, revealed how you can find a company whose intrinsic value is far greater than the share market price. Learn all about it here.

Is Chief Economist of BIS Shrapnel – Dr Frank Gelber – worried about those question marks hovering over the current housing cycle, the vulnerability of our banks, and our economic recovery?

And I only asked for three, but Rudi Filapek-Vandyck gave me a whopping 10 stocks rated “outperform” by the brokers!

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 UGL, who had its short position increase by 0.86% to 8.52%. Fortescue Metals came in second after its short position increased by 0.77% to 8.61%.

My favourite charts:

Housing bubble balderdash!

Source: RP Data/created with Datawrapper

The above chart shows the monthly change in house prices in each capital city in September. As you can see, five Aussie capitals recorded a fall in values over the month, which gives me reason to say that housing bubble talk is bull dust!

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