Well, Reserve Bank Assistant Governor, Guy Debelle, did say there’d be a violent market reaction and it was taken he was alluding to a coming crisis. However he didn’t actually say in what direction! Yep, in case you haven’t heard, Wall Street has had a violent reaction to the positive, which proves the old cliché – don’t fight the Fed.
In this case, it possibly applies to the European Central Bank, which partly explains this triple-digit spike in the Dow Jones.
But it’s not all just central bank stuff that’s driven the Dow up 263 points overnight. It’s that good old boy and girl called the US consumer.
You know, we keep hearing that markets are affected by ebola, the onward advance of ISIS, the soon to be shirt-fronted pest Putin, the possible triple-dip recession in Europe, question marks over China and a struggling Japan. But the Yanks’ latest read on consumer confidence has come in at a seven-year high! The Thomson Reuters/University of Michigan October reading on consumer sentiment came in at 86.4, the highest since July 2007!
This revelation adds to my contention that the falling oil price is a gift to economies, as this is a critical cost to business and a big personal slug on households, so it would come as a hip pocket relief. Sure, it hurts oil investors but with supply on the increase, with the US now up there as a global producer, prices like iron ore had to fall (my video with Rudi Filapek Vandyke on www.switzer.com.au [1] should be watched by oil and LNG investors).
It’s not just US consumers to the rescue of Wall Street, with company earnings adding to the positivity. Both Morgan Stanley and General Electric beat the estimates on profits and these have added to other great reports from the likes of Citigroup.
But wait there’s even more and this is HUGE!
The European Central Bank announced that an Act will operate, as of tomorrow that permits it to buy covered bonds, which is likely to have an impact akin to Quantitative Easing or QE3 (as it’s known).
How do I know this is a positive development? Well, Italian, Greek and Spanish bonds became attractive again, with prices going up and yield going down, which means fear about these economies, governments and their bonds abated.
Conclusion? Don’t fight the Fed but maybe don’t fight that less influential ECB!
What I liked this week
- Positive rumblings out of the Russia-Ukraine talks, which suggest a peace deal is possible! This would be great for Germany and Europe.
- Charlie Aitken giving Telstra the thumbs up again.
- The buying of stocks, especially when I’d run with headings on my Switzer Super Report [2] such as “Keep the faith” and “Stocks down, get ready to buy.”
- The Wall Street comeback overnight.
- Car sales in September were up 0.8% on a year ago – the first annual increase in over a year. We need to see the local consumer act rationally to these unbelievably low interest rates, though our rush to real estate is very rational.
What I didn’t like
- Guy Debelle’s unhelpful comment about a “violent market” reaction.
- The media’s misinterpretation of Debelle’s comments, as he was referring to the bond market, not the stock market. Too many in the media don’t understand the difference!
- The media’s scare campaign once Guy came up with his unhelpful comment.
- The volatility we saw this week and the nagging doubt that there could be another test to this newfound market positivity.
I remain very positive on stocks, especially with the ECB’s new strategy ahead, the positive US consumer and the likely run of earnings reports from the US. But volatility is back and that can rock optimism and confidence very quickly.
That said, if this happens, like this week, I’ll probably be telling you it’s a buying opportunity, unless things change dramatically.
And that’s my job – to detect dramatic developments.
Top stocks – how they fared
The week in review (click the blue text to read more):
- I reminded you [3] to buy in gloom and sell in boom, and that we’ll see that overdue sell off or correction in the US over the next few weeks.
- You might want to tell your kids or grandkids that they’re better off putting money into their super rather than paying off the mortgage, says Paul Rickard. [4]
- James Dunn revealed EAL, EServGlobal, Ingenia, Laserbond, and Smartpay as five bargain stocks [5] you can grab for under 50 cents!
- Telstra is back in the buy books after a great dividend yield forecast for the year ahead, according to Charlie Aitken. [6]
- Ron Bewley’s blue chip portfolio [7] has survived and outperformed these market falls.
- Geoff Wilson tipped [8] Aristocrat Leisure, Austal Ships and Infomedia as stock winners from the falling Aussie dollar.
- This week the brokers [9] upgraded BHP and Iluka, and downgraded Alumina.
- The brokers [10] also upgraded Lend Lease, Mirvac and NIB.
- And collectibles now account for 10% of ‘ultra high net worth’ individuals’ portfolios, says Alistair Bailey. [11]
What moved the market (click the blue text to read more):
- China’s positive trade data [12] – in September, exports rose 15.3% and imports rose 7% from a year earlier.
- Disappointing US Retail sales [13] – they fell 0.3% in September from a month earlier.
- A second case of Ebola [14] in the US.
- And the NAB business confidence index [15] fell from +7.5 points to +4.9 points in September.
The week ahead:
Australia
Monday October 20 – Speech by Reserve Bank official
Tuesday October 21 – Reserve Bank Board Minutes
Tuesday October 21 – Speech by Reserve Bank official
Wednesday October 22 – Consumer Price Index (Sept quarter)
Thursday October 23 – Speech by Reserve Bank official
Overseas
Tuesday October 21 – Chinese monthly data (September)
Tuesday October 21 – Chinese GDP (Sept quarter)
Tuesday October 21 – US Existing home sales (September)
Wednesday October 22 – US Consumer prices (September)
Thursday October 23 – US FHFA home prices (August)
Thursday October 23 – US, Europe, China “flash” manufacturing
Friday October 24 – US Leading Index (September)
Friday October 24 – US New Home Sales (September)
Next week it’s largely about the RBA, with a number of Reserve Bank officials making speeches – let’s just hope they don’t use the word ‘violent’ in any of them! We also have the minutes of the last Board meeting released on Tuesday, and there’s one important piece of data being released on Wednesday – the consumer price index for the September quarter.
It’s a little more varied overseas, with quite a few important economic indicators coming from the US. Data on Existing Home Sales for September comes out on Tuesday, followed by US consumer prices on Wednesday. The US leading index and US new home sales are both out Friday, and the US, Europe and China will each reveal their manufacturing figures on Thursday.
Calls of the week (click the blue text to read more):
- After PM Tony Abbott said he would ‘shirt-front’ Russia’s Vladimir Putin [16] at Brisbane’s G20 Summit, a Russian official hinted how Abbott’s passion for riding bicycles could not ‘out-macho’ Putin’s judo skills!
- Assistant Governor of the Reserve Bank of Australia, Guy Debelle, [17] said there could be a ‘violent’ market reaction when a sell off comes – might I remind you, he was talking about the bond market, not stocks!
- And Aussie NRL star Jarryd Hayne [18] of the Parramatta Eels made the call to quit rugby league, to play NFL in the US!
Food for thought
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
– American business magnate, investor and philanthropist, Warren Buffett.
Last week’s TV roundup
- Can Rudi Filapek Vandyck from FN Arena give us the courage to be a buyer, when everyone wants to be a seller? Find out here! [19]
- And because you love Rudi so much, we extended his time on the show! Here’s part two of the interview. [20]
- Our king of technical charts, Lance Lai, [21] is back to tell us where the leading world markets are headed next.
- And the market losing close to 10% has created a buying opportunity for stocks [22], but what ones are screaming ‘buy me’? Hyperion Asset Management’s Tim Samway tells us what stocks he’s got 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 Fortescue Metals Group, who has its position sold short by 0.87% to 9.92%.
Source: ASIC
My favourite charts:
Dwelling Starts drive growth!
Source: HIA, ABS
Total dwelling starts in Australia have lifted to a 19-year high, with 180,408 starts in the year to June.
Top five most clicked on stories
- Peter Switzer – Stocks will fall, get ready to buy! [3]
- James Dunn – Five stocks under 50 cents [5]
- Charlie Aitken – Telstra – back to buy [6]
- Gary Stone – ASX200 nearing support [23]
- Paul Rickard – Your home loan or your super? [4]
Recent Switzer Super Reports
- Thursday, 16 October, 2014: Fortune favours the brave [24]
- Monday, 13 October, 2014: The sky is falling [25]