By now, most of my regular readers would know I’ve taken my Sky News Business TV program to Wall Street and New York City. Last time we were here, the US market was around 4,500 points lower! Ooh ah!
In fact, we saw Al Pacino play The Merchant of Venice on Broadway. He was terrific but it was disappointing he wasn’t able to slip in an “ooh ah” in the role.
Right now, with the stock market scaring some investors, I must confess I’ve been having Pacino moments nearly all week, with the nervousness around plummeting oil and iron ore prices hurting our stock market and spooking some of my readers.
You know my position: this is temporary. Eventually the fundamentals will dominate and the promising view for 2015 – market and economy-wise – will prevail. I didn’t get my 6000 on the S&P/ASX 200 this year but I will next year.
I like to be realistic about stock markets, which means you can’t be too jumpy about short-term hiccups and sell-offs when you like the longer-term view. I want to stay out of worrying about these developments but, like Pacino in Godfather 2, “Just when I thought I was out, they pull me back in.”
And I guess that’s my lot, given that my job is to tell you how I’m seeing this short-term market problem.
Oil: pros beat the cons
It has looked like a dramatic week but the market is down a bit (over 2% for the week). What’s annoying is that we started the year at 5352.20. We are down for the year and so term deposits were a better bet, so far, but maybe Santa Claus will bring a rally to at least make stock playing for 2014 worth the trouble.
Mind you, I know we look at our performance annually but, in reality, it should be a financial year thing because that’s when the tax is due. Last year we had about a 17% total return from stocks. On a two-year basis, therefore, what are you whinging about?
The past few weeks of oil problems have summed up this year – unexpected curve balls that have made economic and market progress difficult everywhere, except the all-important USA. The Yanks have made the biggest bet on expansionary monetary policy (or QE). If they failed to get the economy up, unemployment down and stocks surging, then the world would have ended up in a Great Depression.
Over 2015 we need to see Europe, China and hopefully Japan make progress so the Fed can raise interest rates and start pushing the US into a more normal economic setting.
The European Central Bank has to make progress with the Germans and a version of QE3 has to be implemented to give the Eurozone the economic lift it badly needs.
I suspect China will use monetary easing to keep growth around 7% and this will be sufficient to help global demand, though it won’t be enough to lift iron ore prices. You have to remember that the iron ore price slump has three facets to it. First, China demand has wilted a tad. Second, the US dollar is rising and this brings commodity prices down and third, the likes of BHP and Rio are flooding the market to KO smaller producers with high cost production processes. This is a short-term pain for longer-term gain play.
Also commodity prices will go higher when Europe and Japan start adding to global demand, which will be helped by the growth of other emerging economies such as Vietnam, the Phillippines and Indonesia. You have to have a long view in the stocks game and that’s why some bargain hunters are buying Santos at $7 and BHP at $28 or so.
And lower oil costs for business and the income effects for consumers linked to lower petrol costs could well be the stimuli that will help 2015 outshine 2014.
What went wrong in 2015?
My optimism for stocks was based on not seeing the nearly unseeable. What were they? Try these:
- The big freeze in the US that held back US growth for nearly six months.
- Vladimir Putin and the Ukraine play.
- The negative impact of the sales tax hike in Japan, though it was crazy to try it just when the economy was starting to fly.
- The collapse of iron ore prices – a fall was expected but not a huge slump.
- This oil price slide, which is being driven by OPEC to hurt higher cost producers, who are increasing supplies.
- The European Central Bank’s Mario Draghi having so much trouble to get a QE program actually implemented.
- Joe Hockey’s Budget and the negativity it has had on consumers and business.
- How long it took to get the dollar to dive to the current levels, which should set us up for a better year in 2015.
That was a lot of curve balls!
Seven Pillars of Wisdom
Seven Pillars of Wisdom was a great book by T.E. Lawrence (or Lawrence of Arabia as he has become known). His description of a colleague, who was so good at seeing the odd that he completely missed the even, reminds me of what some investors are doing right now.
Their focus is on the short-term not on the long term. Unless you’re a trader or speculator, we play a long game and it means you buy good companies when the share price screams out at you that “this is good value”. People buying Woodside are thinking that now and they could be a bit early. In two years’ time, I’m certain they’ll be on the money.
What I liked
- 42,700 jobs in November and almost 170,000 full-time jobs have been created in the 11 months of 2014, with just over 100,000 being full-time. Did your newspaper tell you that?
- The participation rate rose in November, which is a positive economic sign.
- This observation from CommSec’s Craig James: “Interestingly, personal borrowing lifted by 6.5% in October and while it’s rising from a low base, it’s now up almost 10% on a year ago. In addition, it’s very likely that consumers are tapping into the cheaper equity in their homes and low mortgage rates for additional needs. Encouragingly, the lift in borrowings seems to be translating through to a pickup in spending, with solid retail sales figures over the last few months.”
- US retail sales rose by 0.7% in November – well ahead of expectations of 0.4%.
What I didn’t like
- The consumer confidence drop.
- The business confidence drop.
- The business conditions drop, though this reading is trending up.
- Me thinking a rate cut next year MIGHT be on the cards! (I hope our economy looks strong enough by February that the RBA says we don’t need a cut.)
Pro payback for Putin
War, sanctions and the fall in the oil price have led to inflation and a collapsing ruble in Russia and prostitutes have had enough. In the Arctic port of Murmansk, the price per hour of brothel services has been raised by up to 40%! The news agency, FlashNord, reported: “One brothel owner quoted in the article said ‘the girls can’t work at a loss’.”
International pressure might not move Putin to back off on the Ukraine but working girls and their clients might. Ooh ah!
P.S. Apparently Al said ‘Hoo ah’ but it sounds like ‘Ooh ah’ to me.
Top stocks – how they fared
The week in review (click the blue text to read more):
- I think exposure to an energy ETF [1] could pay off big for longer-term investors who are prepared to wait for a rebound!
- My colleague Paul Rickard shared part 2 of his Investing for your kids or grandchildren [2] series – this one looks at how to buy shares for minors. And here’s part 1 [3] for a recap.
- Qantas, Air New Zealand, Sydney Airport and Aurizon are set to benefit [4] from falling oil prices, says James Dunn.
- 10 things you need to know about IPOs [5] to make money were listed by Tony Featherstone.
- Challenger and Corporate Travel were upgraded by the brokers [6] this week, but Metcash got the thumbs down. Some of the banks [7], like Bendigo & Adelaide and CBA, also received an upgrade.
- Qantas [8] delivered the goods for Charlie Aitken in 2014.
- And Barrie Dunstan [9] isn’t breaking a sweat over the Murray Inquiry.
What moved the market (click the blue text to read more):
- The oil price slump , triggered by a number of predictions that oversupply will continue into 2015 – Morgan Stanley [10] cut its 2015 forecast for Brent crude to as low as $US53 a barrel, and OPEC [11] said it expects its demand for crude next year will be its lowest since 2003.
- Political uncertainty in Greece after Prime Minister Antonis Samaras called for an early parliamentary vote [12] on a new head of state.
- Aussie employment [13] lifted by 42,700 in November after rising 13,700 in October, which means the job market is doing better than suggestions made by the negative nellies who focussed on the lift in the unemployment rate from 6.2% to 6.3%.
- A surprisingly weak consumer sentiment report [14] from the Westpac/Melbourne Institute, which hit a three year low of 91.1 after falling 5.7% in December. NAB business conditions [15] also took a blow, falling from 12.6 points to 5.4 points in November, while the business confidence index fell from 4.5 points to 1.2 points.
- And some positive news for retailers after US retail sales [16] hit $US 449.3 billion in November – that’s a solid lift of 0.7% on the previous month.
The week ahead:
Australia
Monday December 15 – Motor vehicle sales (November)
Tuesday December 16 – Roy Morgan weekly consumer sentiment
Tuesday December 16 – Reserve Bank Board minutes
Tuesday December 16 – Speech by Reserve Bank official
Thursday December 18 – Population (June quarter)
Thursday December 18 – Financial accounts (September quarter)
Thursday December 18 – Detailed employment (November)
Overseas
Monday December 15 – US Empire anufacturing Index (December)
Monday December 15 – US Industrial Production (November)
Monday December 15 – US NAHB Housing Market Index (November)
Tuesday December 16 – US Housing starts (November)
Tuesday December 16 – US Building sermits (November)
Tuesday December 16 – US, Europe, China “flash” manufacturing
Wednesday December 17 – US Consumer prices (November)
Wednesday December 17 – US Federal Reserve meeting
Wednesday December 17 – US Current account balance (Sept Qtr)
Thursday December 18 – US Philadelphia Fed (December)
Thursday November 18 – US Leading index (November)
As we edge closer to Christmas, the Reserve Bank takes the spotlight on our local economic calendar. First up is the release of the Reserve Bank Board minutes on Tuesday, which analysts will forensically investigate for any new comments! On the same day, the RBA Assistant Governor Guy Debelle will make a speech.
Overseas, there’s a heap of US data on the agenda with the US Empire State Manufacturing Index kicking off the week. The US consumer price index – the main measure of economy-wide inflation – will be released on Wednesday, but the focus will be on the US Federal Reserve board meeting. The influential Philly Fed survey will come out on Thursday.
Calls of the week (click the blue text to read more):
- “Shirtfront” was selected as the ‘’word of the year’’ by the Australian National Dictionary Centre [17], standing out for its presence in Aussie politics and the media after Prime Minister Tony Abbott used the word in a press conference on raising the issue of the downed Malaysian Airways flight MH17 with Russian President, Vladimir Putin.
- Switzer Super Report contributor Geoff Wilson made the call [18] that small caps IPH and Slater & Gordon have good potential for growth in 2015.
- My colleague Paul Rickard gave his take on David Murray’s ‘super slam’ [19] released this week – he says the Inquiry is too focussed on the recommendation to introduce a comprehensive income product for retirement – especially when the age pension provides a fall back.
- And Marilynne Paspaley of Paspaley Pearls dynasty, who once said she was “…a Territorian, and more precisely a Darwinite”, lost her bid to dodge land tax [20] on her luxury $6.5 million dollar home in Darling Point after an investigation mooted her claim that it was her primary place of residence!
Food for thought
Great things are done by a series of small things brought together.
Dutch artist Vincent Van Gogh
Last week’s TV roundup
- Where is our market headed, and what would a lift in US interest rates mean for stocks? Paul Rickard and I gave you our insights on what 2015 has in store [21] for investors.
- In an exclusive interview from the Big Apple [22], I interviewed international investor and serious player on Wall Street, Jan van Eck of Van Eck Global and ETF business, Market Vectors.
- The oil price continued to plunge this week, and with OPEC not meeting until June 2015 and Saudi Arabia reaffirming it has no plans to curb output, it doesn’t look like it will bounce back anytime soon. We found out what Michael Heffernan of Lonsec had to say [23] on the matter.
- And in this Super Sessions update, Paul Rickard and Marty Switzer outline the major recommendations of the Murray Inquiry and tell you the implications it could have [24] for super.
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 Super Retail, with its short position increasing by 0.73% to 9.09%. JB Hi-Fi followed, with a short position increase of 0.42% to 12.83%.
Source: ASIC
My favourite charts:
Job ads jump for sixth consecutive month
Source: ANZ
Journos might be focussing on the rise of the unemployment rate but I like looking to the positives, like the all-important forward indicator – job ads – that jumped 0.7% in November [25] which was the sixth consecutive month it’s been on the up! The chart above shows the total rise in job ads (orange trend line) across newspaper (dark blue) and internet (light blue), with the internet driving positive activity.
Top five most clicked on stories
- Peter Switzer: One sector ETF that COULD be a ripper! [1]
- Geoff Wilson: My small cap picks for 2015 – finding growth [18]
- Charlie Aitken: My forecast for 2015 and US dollar stocks to buy [26]
- James Dunn: Companies to profit from falling oil prices [4]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [6]
Recent Switzer Super Reports
- Thursday, 11 December 2014 – Jingle Bells [27]
- Monday, 8 December 2014 – You little ripper [28]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.