Greeks, Geeks and Going Up!

Founder and Publisher of the Switzer Report
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The huge news for this week is that the Aussie stock market has now had seven days in a row of rises! And I love the fact that Wall Street didn’t achieve the same seven on a trot result. It suggests we don’t need the New York Stock Exchange to lead the way in 2015.

Of course, last year proved that anyway, as the S&P 500 was up about 11% while our S&P/ASX 200 index crept up 1.1%. However, as Shane Oliver reminded me on Thursday on my TV programme, with dividends and franking credits we were up about 7%.

By the way, if this news annoys you because you didn’t get a result as good as that, then you need to look at your portfolio of stocks. You could be taking a two to three year view on your stocks, which means the companies that fared poorly last year could do better this year or the year after. Stocks that react to a lower dollar are classic shares in this respect, though many of these started to move at the end of last year and we tipped that.

If you’re long mining services companies, then there could be a much longer wait. So be careful!

Why are we up 5.4% since Jan 16?

  • ‘Rates are going to fall’ expectations! This might not happen on Tuesday but Terry McCrann says they will fall and I’ve always thought he has a ‘deep throat’ at the RBA. He denies that but he would, wouldn’t he?
  • Lower interest rates, if they show up, make dividend stocks really attractive. Consistent with this view, the CBA is now $89.33. The 24/7 watchers say it actually hit $90, albeit briefly. Charlie Aitken changed his mind on banks last week and was spot on, though Paul Rickard and I never lost faith!
  • The dollar is falling, which is great for the stocks we recommended last year such as CSL, Resmed and Macquarie, which this week got the tick of approval from Charlie. We’ve been MQG fans and this two-year chart tells me we have been on the money:

    This shows that the “millionaires factory” has gone from $37 to $62 in two years with a new business model, which makes CEO Nick Moore look like a genius! You might recall he had to re-invent Macquarie after the GFC and it looks like he has.
  • The ECB’s QE program has raised spirits for stock markets.
  • There is a dividend chase on because of the expected lower rates ahead but also because reporting season is coming up and dividend payers attract those who like collecting ‘free’ money!

What I liked

  • The 3.3% rise in stocks for the week.
  • With the falling dollar, the break even price for iron ore for Rio is now $US34. A month ago, it was $US43! That’s why this has happened to the Rio share price since January 27:

    Making $2 on $55 isn’t a bad four-day return!
  • The European stock markets’ positivity, despite the Greek election result!
  • The Apple result – the biggest profit in corporate history of $US18 billion in the first quarter – showing we’ve all been converted to iPhone geeks. Steve Job’s love child sold 74.5 million iPhones in three months, especially in China where it’s now the number one smartphone maker after once being at number six!
  • Japan’s job availability rose in December to its best level in 22 years, while the unemployment rate improved to 3.4%. If the 3rd most important economy comes good to help the US prop up the global economy, it will be good for stocks and the Oz economy.
  • Oil rose about $US4 a barrel overnight (the best day for oil since June 2012), so maybe the oil price rout is over but I’m only guessing on this one.
  • The Socceroos nailing the UAE 2-0 in the Asian Cup semi-final!

What I didn’t like

  • Listed company Bradken failed to win over its suitor and lost 42%! I’ve never recommended it but a lot of people hold the company.
  • Woodside down 9.8% on the oil price slide – off a huge 14.5% over January to $US49 a barrel! The crude spike overnight should reverse this on Monday.
  • The reaction to the inflation number, where the 0.7% jump in underlying inflation was seen as a bad thing. Around the world, central banks are praying for inflation rather than deflation or disinflation and we get stressed about an actual inflation rate of 1.7%. That’s Goldilocks stuff!
  • Everything Greek this week – the election result, the Phil the Greek knighthood and Nick ‘the Greek’ Kyrgios being beaten by Andy Murray. This kid will be a good’un but he needs a little time.
  • US GDP came in, overnight, at only 2.6% in the fourth quarter after a 5% (annualized) number in the third quarter. The forecast was 3% and the result will keep the Fed on the interest rate sidelines for longer than some were tipping, which should help stocks.

My big hopes

The US jobs report gives a big tick of approval to the Yanks’ economy, which is now copping a bit of buffeting from a rising greenback and a weaker world economy. The irrepressible Americans can grow with a strong dollar but it needs a growing and more healthy global economy to supplement the US consumer, which is responsible for about 70% of the economy’s growth! So a good jobs story will say positive potential things about consumption in the States.

Tony Abbott outlines a positive plan for the economy on Monday at the National Press Club. He and we need a good showing from the country’s leader, who really has been in the doldrums.

Top stocks – how they fared

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

  • I told you why it’s time to consider an exchange-traded fund over Europe to make money out of their recent QE program.
  • The brokers upgraded AMP and WorleyParsons, and downgraded Amcor. Santos and Myer Holdings also got an upgrade this week.
  • This week’s Fundie – David Buckland – had some lessons we could learn from Arrium’s fall from favour.
  • Barrie Dunstan explained the tax issues surrounding super-sized SMSFs.
  • Charlie Aitken gave his high conviction stock picks, and also upgraded Macquarie Group.
  • Tony Featherstone listed 14 potential “curveballs” the market could face, and how you might play them.
  • And if you’ve made excess non-concessional contributions to your super fund after 2013, Tony Negline has some great news for you!

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

  • The US Fed meeting – the Board plans to remain “patient” but rates could be bumped up sooner than anticipated if employment and inflation come in ahead of expectations.
  • U.S. crude oil prices also fell further, which was a big driver of falls in the US.
  • Greek voters electing the leftist anti-austerity Syriza Party, led by Alexis Tspiras.
  • The latest inflation figures, which rose 0.2% in the December quarter and 1.7% in the year to December 2014.
  • And a lower Aussie dollar, which fell below 78 US cents.

The week ahead:

Australia

  • Monday February 2 – Monthly home prices (January)
  • Monday February 2 – Inflation gauge (January)
  • Tuesday February 3 – Reserve Bank Board meeting
  • Tuesday February 3 – International trade (December)
  • Tuesday February 3 – Building approvals (December)
  • Thursday February 5 – Retail trade (December)
  • Friday February 6 – Statement on Monetary Policy

Overseas

  • Sunday February 1 – China purchasing managers (January)
  • Monday February 2 – China HSBC PMI (January)
  • Monday February 2 – US ISM manufacturing (January)
  • Monday February 2 – US Personal income (December)
  • Monday February 2 – US Construction spending (December)
  • Tuesday February 3 – US Auto sales (January)
  • Wednesday February 4 – US ISM services (January)
  • Wednesday February 4 – US ADP employment (December)
  • Thursday February 5 – US Challenger job layoffs (January)
  • Thursday February 5 – US International trade (December)
  • Friday February 6 – US Non-farm payrolls (January)

There’s a big line up of Aussie economic data due next week, but the big focus has to be the first Reserve Bank Board meeting of 2015 on Tuesday. The RBA will finally reveal its highly anticipated stance on interest rate settings and answer those analysts who’ve been tipping a ‘sure-thing’ rate cut.

Overseas, attention will be on the monthly US non-farm payrolls data released on Friday, which will indicate how employment is fairing. Let’s hope jobs numbers and wages are on the up.

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

  • Tony Abbott’s brain explosion, giving Prince Philip a knighthood!
  • Terry McCrann said the Reserve Bank will “almost certainly” cut interest rates at its first meeting of 2015 on Tuesday.
  • Australian tennis veteran Lleyton Hewitt said he will play his final – and 20th – Australian Open in 2016, before drawing the curtain on his career.
  • And Switzer Super Report expert James Dunn says Magellan, Newcrest Mining and Ramsay could be up for an upgrade prior to the February interim reporting season.

Food for thought

An investment in knowledge pays the best interest.

– Benjamin Franklin – one of the Founding Fathers of the United States.

Last week’s TV roundup

  • What does the Greek election result mean for Europe and our investments? George Boubouras from Contango Asset Management shares his views on the matter on Super TV.
  • Political analyst and Switzer expert Malcolm Mackerras gives his take on the Queensland election. Does he think the Abbott Government looks like a oncer? Find out here.
  • Econometrician and Switzer Super Report expert, Ron Bewley, uses his mathematical methods to test out what sectors are hot and what ones are not!

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, one of the biggest movers was Atlas Iron – it’s short position increased by 0.94% to 11.66%. Cardno followed with it’s short position increasing by 0.64% to 10.94%.

Source: ASIC

My favourite charts:

Dollar down, stocks up!

Above is a chart of the Aussie dollar this week, diving below 78 US cents! That’s going to help dollar sensitive companies and of course, our market – which has had a solid start to 2015!

The chart below shows the stellar performance of the S&P/ASX200 during the last week.

Source: Yahoo!7 Finance, 30 January 2015

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