Leadership, Living Long and Loved Leaders Lost!

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We can’t complain when the S&P/ASX 200 index is still up 0.8% for the week, which means since the January 16 low of 5267.4 (when the oil-price-driven slump ended), we’re now up 12.5%. With such a solid gain in a month and a half, we have to be tolerant of any dips in the month ahead.

While it looks like Prime Minister Tony Abbott must beware the Ides of March, Wall Street investors can feel fairly comfortable about the month.

The Yanks have long had a leadership role for other stock markets and with its economy still the best performer of the bigger and more important contributors to global demand, it’s worthwhile to look at what March has done over the past 20 years.

CNBC showed that the S&P 500 index over the last two decades was up 70% of the time. The Dow does better, up 75% of the time. (By the way, the S&P 500 is up 1.7% for the year so far, underlining how our direction mirrors Wall Street but that we’re definitely in a bigger catch up mode.)

OK, the month itself has some nice form, so the key question is: has company reporting done enough to make you want to remain long stocks in March?

With the season pretty well over, my TV buddy, Dr Shane Oliver from AMP Capital, has summed it up: “While there have been lots of hits and misses, overall results have been better than feared.” The numbers get down to 55% of results have beaten expectations against a norm of 45%. I’ll take that as a good. Then 66% have seen profits rise from a year ago, which is an OK trend in a half-year where economic growth was low, oil prices slumped and the mining sector continued to de-boom.

Just over one in two companies saw their share price spike on the day of reporting, which is a positive sign and 62% have increased their dividends.

Anyone complaining about that, apart from wanting the number to be higher, is hard to please considering what the economy has been doing. The chart below gets better when the yellow and red boxes shrink and the blue box (company profits above expectations) grows. If you look closely, you can see that since the 2008 starting date of the GFC, this last reporting season brought the best “above market expectations” result for profits. And I’ll take that as a good omen for stocks as well!

What I liked this week

Tipping Flight Centre on Monday, seeing it report on Tuesday and spiking 15%! I never invest and expect for such as thing but it’s nice when it happens.
Janet Yellen not saying anything about a looming interest rate rise to spook stock markets.
My call that Europe was the place to invest this year keeps getting reinforced by other commentators I respect, plus the Euro-news is getting better and that even includes negotiations with the Greeks!
This from European Central Bank President Draghi: The “outlook [for Europe] is more positive that it was a few months ago”. It comes as bank lending is rising, the positive effects of lower oil prices are flowing through and confidence readings are on the improve. In fact, European stocks are up about 14% this year, even topping us but a QE program will do that and it makes dividend payers look attractive.
This fact: European multinational companies that a lot of funds and ETFs invest in can raise 70-80% of their revenues from outside of the Continent. It means they are leveraged to a global economy and it’s why I watch global economic trends.
Hanging out with Peter Costello on Friday at our Switzer/Sky News Leadership Lunch, along with David Murray, AMP Capital’s CEO Stephen Dunne and ex-NSW Premier, Kristina Keneally. Costello knows his stuff and is unbelievably entertaining, as the 550 guests at the lunch found out. When I bumped into him, I threw this ‘fact’ out there that the Government is paying $110 million a day on interest. I doubted it and so, after 12 years as Treasurer, he was bound to get it right. He instantly said: “That’s wrong. It’s what we borrow a day.” He then contacted his assistant in Melbourne and came back with some numbers. Then he and Murray, with some help from me, worked out the interest bill is $30 million a day! Still big.
Looking for positive economic signs to vindicate my “the economy will pick up in the second-half” call, I liked this on Friday – private sector lending rose by a healthy 0.6% in January. Annual credit growth lifted to 6.2% and is the strongest growth in six years.
The business investment number during the week wasn’t good as mining-related investment falls, with the boom petering out, but check this out: “Investment outside mining and manufacturing hit a record high of $62 billion in 2014, up 10.7% on the year and the strongest calendar year gain in seven years.” (CommSec) This is good news for the biggest employing sector – services.
How the lower dollar helped Qantas’ profit in many ways and cranked up the Oz dollar value of the BHP dividend.
This from Sam White, of the famous Ray White Real Estate family: that he was bemused to see fathers like him reading the Switzer Report on their smartphones while watching their kids play sport on Saturdays.

What I didn’t like

Realizing our loss, looking at the leadership problems in Canberra and seeing someone like Peter Costello, with all his experience, not in a position to lead this country.
Talk from economists that they expect another rate cut but the RBA can wait! Given rate reductions work off a long time lag, I ask: why wait?
This economy, with an OK profit season, needs to see this leadership uncertainty cleaned up ASAP and ending the rate cut cycle around the same time could be the boost we need. The fact we haven’t got this happening is another thing I don’t like.
The Oz dollar at 78.17 US cents – and that’s why we should see another rate cut.

Top stocks – how they fared

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

I gave you some lessons you can learn from the Toll takeover, as well as other takeover potentials and catch up companies.
My colleague Paul Rickard revealed the best rates on cash and term deposits, and ME bank is one of the standouts.
James Dunn gave a rundown of the latest earnings reports.
This week’s Fundie from Investors Mutual, Anton Tagliaferro, explained how Ansell can offer top-flight protection in your portfolio.
Infomedia is one little Aussie battler company that Roger Montgomery says has the potential for a bright future.
This week, the brokers upgraded BHP and Flight Centre and downgraded Brambles. The brokers also upgraded Charter Hall Retail and Evolution Mining.
Geoff Wilson says he’s confident Macquarie Group will continue to show superior earnings growth in the next 12 months.
And Domino’s CEO Don Meij revealed the strategy behind his company that continues to deliver.

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

BHP Billiton’s good half-year earnings report boosted the Aussie share market on Tuesday.
The Dow and S&P 500 hit record highs following the Fed Reserve chair Janet Yellen’s cautious commentary on raising interest rates this year.
And weak Aussie capital expenditure figures, which fell by 2.2% in the December quarter to $37.5 billion, boosted expectations for another interest rate cut by the RBA at their March meeting next week.

The week ahead:

Australia:

Monday March 2 – CoreLogic RP Data Home Prices (Feb)
Monday March 2 – Monthly Inflation Gauge (February)
Monday March 2 – Business indicators (December quarter)
Tuesday March 3 – Balance of payments (Dec quarter)
Tuesday March 3 – Building approvals (January)
Tuesday March 3 – Reserve Bank Board Meeting
Wednesday March 4 – Economic Growth (December quarter)
Thursday March 5 – Speech by RBA official
Thursday March 5 – Retail trade (January)
Thursday March 5 – International trade (January)

Overseas:

Sunday March 1 – China Purchasing Managers (February)
Monday March 2 – US ISM manufacturing (February)
Monday March 2 – US Personal income (January)
Wednesday March 4 – US ADP employment report (February)
Wednesday March 4 – US Federal Reserve Beige Book
Friday March 6 – US Non-farm payrolls (February)
Friday March 6 – US Trade Balance (January)

The Autumn season kicks off with a bang next week with a number of important economic indicators on the table. The latest manufacturing activity gauge, along with the Business Indicators publication from the ABS, are among the mass of data released on Monday. The biggest hype next week surrounds Tuesday’s RBA meeting, when the “will they or won’t they?” question on a second interest rate cut will finally be answered. On Wednesday, GDP figures for the December quarter are released.

Overseas, US employment figures are the standout, with the US Non-farm payrolls for February out on Friday. This data will give us a good idea of how jobs growth is fairing and also provides us with the unemployment rate.

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

Prime Minister Tony Abbott and Treasurer Joe Hockey announced proposals that would require foreign investors of new or existing residential properties to cough up a $5000 application fee to the Foreign Investment Review Board for those properties worth up to $1 million. If the property is $1 million, that will mean a $10,000 fee and then 1% for each additional $1 million!
Our very own Charlie Aitken said Crown remains a high-conviction buy and has set the long-term price target at $24.40.
And the world’s most successful investor Warren Buffett revealed that to stay youthful, he likes to eat like a six-year-old and that he’s “one quarter Coca-Cola”, consuming up to five per day. “I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old…It’s the safest course I can take.”

Food for thought

Obstacles are things a person sees when he takes his eyes off his goal.

E. Joseph Cossman – Businessman

Last week’s TV roundup

Former CEO of CommSec and Switzer Super Report expert, Paul Rickard, answers some tough questions on the Toll takeover offer, and tells us the messages he’s taking from reporting season.
I think our debt is not a big worry just now, but I am willing to believe that I could be wrong, and that’s why I’ve assembled my debt panel! George Boubouras of Contango Asset Management, Marcel von Pfyffer of Arminius Capital, Stephen Halmarick of Colonial First State and The Australian’s Adam Creighton, discuss the size of the nation’s debt and if there really is a “budget emergency”. Here’s part 2 and part 3!
And international fund manager, Nick Griffin of K2 Asset Management, tells us how we can respond to the current investment environment.

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 Monadelphous Group, with its short position increasing by 1.50% to 9.80%. Primary Health Care also starred, debuting in the top 20 at 9.20%.

Source: ASIC

My favourite charts:

The new yield stock!

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.[table “58” not found /]

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