Switzer on Saturday

Wall Street Worrying and Warnie

Founder and Publisher of the Switzer Report
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Oil remained the centre of attention again last night on Wall Street. Indices finished mixed – off their best levels for the day as oil prices continued to fall. The Dow Jones added half a point, while the broader S&P 500 fell 4 points. Despite our sell off on Friday, the futures market points to some further weakness when our market opens on Monday.

Meanwhile, last Saturday I was at the Abu Dhabi Grand Prix trials ahead of the race on Sunday. The AFL’s Andrew Demetriou was in our party and, at lunch, we were joined by Shane Warne, who proved to be good company, though his darker hair makes him look a lot less like Warnie! But I digress.

The race circuit, if you call it that, was about 25 minutes from the hotel. We were picked up by a car, with a driver that could neither speak nor read English. And given the fact that we took two and a half hours to get back to the hotel, he obviously can’t read Arabic!

Apart from wanting to kill the guy after an hour and a half of driving in every direction but the right one (my colleagues’ iPhone and App/map with a GPS function told us that), he reminded me of lots of investors out there who try to build wealth without a plan, without knowledge and without expert help!

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When you read this, I’ll be winging my way to Wall Street where I’ll be doing my show next week. I have interviews lined up with three guys, who kept me positive on stocks from late 2008 to now.

Morgan Stanley’s David Darst, not only was right on the money, his analysis of the right sectors was spot on. S&P Capital IQ’s Sam Stovall’s grasp of the historical significance of market developments over the period was often a source of my insights on what were important trends on Wall Street and what it might mean for our market.

On a day-to-day basis, another US expert I follow is Art Cashin, the director of floor operations for UBS on the New York Stock Exchange. He’s been there for 47 years and is seen as one of the most accurate and entertaining analysts on what factors are driving markets.

Next week’s report will be filled with their views on the market for 2015, on when the Fed will raise rates, the course of the US economy, what sectors are poised for a good year and a whole lot more.

Before I get there, I wanted to read Tanya Branwhite’s take on the investment road ahead. She is Macquarie’s head of equity strategy and has a good reputation.

She advises, and I agree, that you need to have exposure to “international earners”, especially as the dollar falls. As a consequence, she now likes WFD or Westfield Corp and law firm Slater & Gordon. And surprise, surprise, Telstra is back in favour, as she isn’t expecting huge returns in the near term. The bank she likes is CBA, despite the future threat of the Murray Inquiry. If Christopher Joye of the AFR is right when he said big bank shares could fall by 10-15%, I’ll be a buyer and I won’t be alone!

By the way, she has replaced her light exposure to ANZ with NAB, for those who think this bank is due for a change of luck with a new CEO.

Tanya, who builds Macquarie’s thematic portfolios, is exiting Super Retail Group (SUL), SAI Global (SAI), Mirvac (MGR) and Fortescue (FMG).

And she has BHP at underweight because she thinks the over-supply worry is set to continue.

She thinks we’re locked into a long grind higher cycle. Therefore you need high growth, such as CSL since September or a company like Telstra and CBA, that can deliver dividends and possibly some growth.

What I liked

  • Wednesday when the dollar fell and our market gained 1.2% — this is what I’ve been wishing and hoping for months. I knew it would help. Imagine when we fall to 80 US cents!
  • In the US, orders for durable goods in October went up, new single-family home sales rose for a third straight month, consumer confidence rose to a seven-year high in November and GDP came in at 3.9% instead of a predicted 3.3%.
  • The analysis that falling oil prices helps the US consumer and this beast drives two-thirds of the US economy!
  • Deputy Governor, Phil Lowe, who hinted that if the dollar remains stupidly high — my words not his — then the RBA could cut rates! And the dollar dropped. Keep the pressure on Phil.
  • The influential German Ifo business sentiment index rose from 103.2 to 104.7 in November.
  • The European Commission aims to provide up to 300 billion euros ($375 billion) of additional public and private investment over the next three years in order to create jobs, growth and competitiveness. About bloody time but better late than never!
  • Based on falls in the wholesale price, prices at the petrol pump will ease towards $1.25 a litre in the next fortnight. This is not only a household income plus, it’s huge for the economy and then our stock market.
  • After telling you that Goldman Sachs’ economist, Tim Toohey, had downgraded his economic growth number from 2.3% to 2%, I have surveyed others this week. Paul Bloxham (HSBC) is 3.25%, Phil Ruthven (IBISWorld) is 3% plus, Marcel von Pfyffer (Arminius Capital) is at 2.5%. CommSec’s Craig James has 3%. And Shane Oliver thinks 3% and higher by year’s end. Love those with a 3% plus view!

This chart of the dollar over two years.

And this Chart of CSL, especially since the fall in currency and the share price reaction since September, which we encouraged you to believe!

What I didn’t like

  • Doubts were raised about any forthcoming stimulus by the European Central Bank, with the German Bundesbank President Jens Weidmann saying measures could face ‘legal limits’. These Germans are real pests.
  • Tuesday’s market drop after the rise on Monday but you can blame the Germans — see above.

My pre-Christmas wish

I’m hoping my arrival in the US will help the Black Friday sales and this spills over to Mega Monday or Cyber Monday sales. This then would add to the run of good economic data and the momentum of the market wiping out any worries, so we can have a nice big finish to the year.

Top stocks – how they fared

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

  • This week I explained the significance of positivity when it comes to the economy.
  • QBE Insurance, ResMed and Cochlear are some US dollar exposed stocks with good prospects, says James Dunn.
  • Paul Rickard told you all about the tax issues of investing for your kids or grandchildren this festive season, and he also explored bank accounts for minors.
  • Bluescope Steel and Programmed Maintenance were in the good books, while DUET was downgraded by the brokers. CSR and Wesfarmers also got the thumbs up this week.
  • Challenger is a good play on a strong structural theme, according to Charlie Aitken.
  • Tony Featherstone explored the fizziness of Coca-Cola.
  • Xpress Super CEO, Olivia Long, reflected on her SMSF strategies in a My SMSF update.
  • And you should really give an F about FoFA! Tony Negline explained what the repeal of the government reforms might mean for you.

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

  • The cut in the one-year RMB benchmark loan interest rate by 0.4 percentage points to 5.6% by the People’s bank of China – got the local market off to a good start on Monday.
  • The ANZ/Roy Morgan consumer confidence rating rose by 1.2% in the week to November 23, after falling by 1.6 per cent the previous week.
  • The consortium of oil exporting countries – OPEC – meeting on Thursday night failed to offer the market any measure of confidence around the flailing oil price.

The week ahead:

Australia
• Monday December 1 – RP Data-CoreLogic home prices (November)
• Monday December 1 – Business indicators (September quarter)
• Monday December 1 – TD Securities inflation gauge (November)
• Tuesday December 2 – Reserve Bank Board meeting
• Tuesday December 2 – Building approvals (October)
• Tuesday December 2 – Balance of payments (September quarter)
• Wednesday December 3 – Economic growth (September quarter)
• Thursday December 4 – Retail trade (October)
• Thursday December 4 – International trade (October)
• Friday December 5 – Arrivals & departures (October)

Overseas
• Monday December 1 – US ISM manufacturing (November)
• Monday December 1 – China manufacturing purchasing index (Nov)
• Wednesday December 3 – US Beige Book
• Wednesday December 3 – US ADP national employment (November)
• Wednesday December 3 – US ISM services (November)
• Wednesday December 3 – China services purchasing index (November)
• Friday December 5 – US Non-farm payrolls (November)

Summer is serving up a whole lot of economic data after a relatively quiet couple of weeks. Keep your eyes peeled on the economic growth data for the September quarter – out mid-week – and also retail trade figures for October, out Thursday. Other important measures include a gauge on inflationary pressures by TB Securities for November, and the Reserve Bank Board meets for the last time this year.

Overseas it’s slightly less busy, but a very important piece of data to pay attention to is the US Non-Farm payrolls for November, which closes the week. The US Beige Book out Wednesday is also an influential indicator of the conditions across Federal Reserve districts.

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

  • It seems the world of social media can even trip up its masters. Twitter’s chief financial officer Anthony Noto tweeted about his plans to buy a company, sharing business details which were clearly meant for a private message.
  • Defence Minister David Johnston got himself into trouble when he said he wouldn’t trust the Australian Submarine Corporation to “build a canoe”. He was then forced to apologise to the Senate, telling them he “did not intend to cause offence”.
  • In yet still more trouble in Canberra this week, speaker Bronwyn Bishop ejected 18 members of the opposition Thursday in a record number of expulsions. She said Labor’s behaviour was “an absolute disgrace” but the record brought her impartiality into question again.

Food for thought

  • Formal education will make you a living; self-education will make you a fortune.

– Jim Rohn, American entrepreneur

Last week’s TV roundup

What’s going to be the big take-out message from the Murray Inquiry? Christopher Joye of the AFR tells us what he thinks, on Super TV.

On the day when Medibank Private went public, Phil Ruthven – IBIS World chairman – shared his insights on privatisation trends.

And oil prices continue to plummet, so what can we expect from here? For a chat on the energy space and our local market, Switzer Super Report expert Rudi Filapek-Vandyck visited Super TV.

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.

The week the biggest mover was UGL Limited, who had its position sold short increase by 0.96%, to 12.61%.

Source: ASIC

My favourite charts:

Double Double, Oil and Trouble

Source: Nasdaq.com

Oil prices have taken a clobbering this week, and it looks like they are going to be averaging lower in 2015 compared to this year, according to Switzer expert Rudi Filapek-Vandyck. The chart above shows the oil plummet over the past three months.

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