Switzer on Saturday

Overdue oddity and oozing oil

Founder and Publisher of the Switzer Report
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I know it’s a cliché but “be careful what you wish for” applies because I did actually ask for what we got out of the US last week. While this might sound off, we’re probably going through an OK oddity.

You see, here in Australia, we’ve been going through a correction phase linked to the lower dollar and the exodus of foreign investors. On my calculations, we’re down 8.7% since our S&P/ASX 200 index closing-high, in September, of 5685.5. And given Friday’s bad day at the office, we could easily make correction territory of 10% plus soon, with our index off 108.4 points (or 2.05%).

We were getting the overdue correction I’ve been talking about for ages but I feared if the Yanks delayed theirs, then we’d have to go lower again when they sold off ‘big time’. As the old saying goes: “when Wall Street sneezes, the rest of the world catches a cold”. It was my hope that we cope with the germs over October, avoiding a crash (which I still think is very unlikely) then setting us up for a solid stock market comeback in November and December.

That was then. This is NOW.

This has been my hope all year long so the US embracing volatility now is a good thing. What hasn’t worked out for me and my expectations is Europe. China is also softer than I hoped for but not by that much. Its softness has contributed to lower iron ore prices but the biggest reason for the latter is enormous supply that BHP and Rio will benefit from being around the lowest cost producers in the world, and with a lower Aussie dollar.

But the biggest disappointment has been Europe’s slow growth. And we can’t ignore Vladimir Putin’s role in hurting Germany’s growth. Leading German economic institutes on Friday reduced growth forecasts, tipping the German economy to grow by 1.3% in 2014 and 1.2% in 2015.

This came as the IMF took down its 2014 growth guess by 0.1% to 3.3%. Since April, this has been marked down 0.4%. The IMF is most worried about the Russia/Ukraine drama, developments in the Middle East and a triple-dip recession in the Eurozone.

The latter has been disappointing but only less so that the European Central Bank’s Mario Draghi, who’s talked the talk with “whatever it takes” and using terms like “bazooka” but hasn’t walked the walk. Admittedly, the structure of the Eurozone doesn’t help but his results, so far, have been underwhelming.

Against that, US and UK growth are the bright spots, with the Poms set to grow at 3.2% this year, which will be better than us!

Also, that freeze up problem in the US has slowed up the Yank’s growth trajectory and not only hurt world growth numbers but hit my more optimistic calls for stocks this year.

Though I think I’ll have more credibility in late December, I could never have expected the big freeze in the US and that creep Vladimir Putin making a play for Ukraine.

What I liked this week

  • The ABS admitting to a statistical stuff up, which means I can trust ANZ job ads not the official figures.
  • Job ads showed four months of raw number rises, with the annual jump at 7.9% and 11 months straight of trend rises!
  • Getting the correction process in the US started.
  • ST Wong of Prime Value and Michael McCarthy of CMC Markets both liking Oil Search, just when oil prices fell. There was a lot of bottom buying of oil shares in the US on Friday night. By the way, Wong likes it for its gas and MM sees it as a contrarian play.
  • Woolworths at $33 – I’ve been waiting for a better price.
  • The revelation that the second-half’s earnings outlook is looking promising, just as the falling dollar is making P/Es more attractive.
  • Now we have falling share prices (P), with earnings (E) expected to impress!
  • Michael Knox tipped the S&P 500 was due to approach fair value of around 1880 but we were already in that space and therefore should be poised for a comeback.
  • BOQ’s record cash profit of $301.2 million, up 20%, even beating its own expectations. This is a good sign for Queensland as well and it comes as NSW is really growing nicely.
  • The RP Data CoreLogic Hedonic Australian Home Value index of capital city home prices rose by 0.1% in September, to be up 9.3% on a year ago, which might slow down the beat up merchants talking about a housing bubble.

 What I didn’t like

  • Anything linked to IS.
  • Waking up to some scary closes on Wall Street, despite the fact I’ve been sweating on the Yanks embracing a correction.
  • The thought that next week could even be worse for Wall Street volatility.
  • Most of this email from an ex-student, who works with one of the world’s best fund managers in New York: “I would think SP500 will test the 1895-1905 area as next major support. My guess is it bounces from there. If it doesn’t resume confidently from that level, then that will be a little scary.”

Anyone for tennis or technicals?

Today is supposed to be lunch and tennis with Lance Lai and his family but given what happened on Wall Street this week, I’m sure Lance will bring charts and technical analysis. He’s that kind of guy!

Top stocks – how they fared

The week in review (click the blue text to read more):

 What moved the market (click the blue text to read more):

The week ahead:

Australia

Monday October 13 – Lending finance (August)
Monday October 13 – Credit & debit card lending (August)
Tuesday October 14 – NAB Business survey (September)
Tuesday October 14 – Speech by Reserve Bank official
Wednesday October 15 – Building activity (June quarter)
Wednesday October 15 – Consumer confidence (October)
Wednesday October 15 – New vehicle sales (September)
Thursday October 16 – Detailed employment data (September)
Thursday October 16 – Speech by Reserve Bank official

Overseas

Monday October 13 – China Trade (September)
Wednesday October 15 – China Inflation (September)
Wednesday October 15 – US Retail sales (September)
Wednesday October 15 – US Producer prices (September)
Thursday October 16 – US Industrial production (September)
Thursday October 16 – US Philadelphia Fed index (October)
Friday October 17 – US Housing starts (September)

There are plenty of key economic indicators out next week. One will be lending finance figures released by the ABS on Monday – it’s safe to say they will be paying close attention to their data after that job numbers doozy! On the same day the Reserve Bank of Australia (RBA) will issue data on credit and debit card lending. Consumer confidence and new vehicle sales are released on Wednesday, and on Thursday, RBA Assistant Governor of Financial Markets Guy Debelle will speak at an industry forum.

China will release trade and inflation figures next week, and there are a few key pieces to look to in the US. These include retail sales and producer prices out mid-week, and on Thursday, numbers for industrial production and the Philly Fed Survey. The US ends their week with data on housing starts.

Calls of the week (click the blue text to read more):

  • Mining giant Rio Tinto told Swiss based company Glencore to “sod off’’ after they pitched a $182 billion merger offer.
  • The ABS conceded that recent employment figures are indeed a little dubious! They will reset their seasonally adjusted reporting model for July, August and September to show revised numbers.
  • In this week’s SSR, Tony Featherstone made the call that ‘Vision Eye Institute’ has takeover potential and to put it on your watch list.
  • And speaking of takeover targets, shareholders of travel group company Wotif.com voted ‘yes’ to a $700 million takeover by Expedia.

Food for thought

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”

– Peter Lynch, BusinessWeek, September 2014.

Last week’s TV roundup

Where is the stock market likely to head in the coming months? Gary Stone of Share Wealth Systems brought his forecasts – and his charts – to Super TV.

It’s your last chance to sign up to the Medibank Private IPO, with pre-registration closing on Wednesday. Find out why we think it’s a “no-brainer.”

Are the big four rock solid? Of late, there have been some suggestions that the lending of the banks to real estate borrowers has left their balance sheets exposed. Switzer expert, David Bassanese, shared his views on the matter.

And Roger Montgomery has been looking into his crystal ball and told us what it said about where this volatile market is headed!

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 Regis Resources, who had its short position increase by 1.42% to 11.20%.

Source: ASIC

My favourite charts:

Dial up is nearly dead!

Source: ABS

At the end of June 2014, there were 12,483,000 internet subscribers in Australia – with over 98% in broadband.

Your questions

And speaking of internet users, here’s a chart which shows what Switzer Super Report subscribers like to ask the experts – questions on SMSF strategies and stocks are most popular.

Top five most clicked on stories

Recent Switzer Super Reports

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