Great news! The US rally has hit an obstacle! The Dow has dropped over 200 points but it’s happening for the best of obstacle reasons. Yep, those irrepressible Yanks got a great jobs number, with new employment positions in February rising by 295,000, which KO’d experts’ expectations of 240,000. And it pushed the unemployment rate down to 5.5%, which the Fed thinks is close to what ‘full employment’ might be in a new world.
This was not only a great number, it showed up when the States has endured a really bitter winter but it didn’t stop employers from creating new jobs.
Why have stock markets slumped? It’s simple. With unemployment heading down towards 5%, how can the Fed justify virtual 0% interest rates? This is a truly brilliant development for those of us who believed in the US economic recovery but it has pushed the greenback up, which can also affect stocks. Our dollar is now down to 77.09 US cents, after being around 78 US cents all week.
And what a weird week at home! Of course, it was ruined by the craziness of a Reserve Bank that thinks there’s wisdom in waiting to see if the economy will give it good reason to do what it thinks it will have to do – that is, cut interest rates! When I heard every credible economist tell me that the RBA has a clear easing bias, my natural reaction was: “Well, why would you wait, given the fact that interest rate cuts work with a lag?”
Clearly, if they cut in April or May, I’ll be forced to call the RBA Board a bunch of nincompoops. I hope I don’t have to do that, not to be nice to the ‘experts’ on the Board, but to recognise that the RBA got it right and didn’t force innocent Aussies on to the unemployment queue or into bankruptcy courts!
The week in review
In case you weren’t counting, the S&P/ASX 200 index was down 0.5% for the week and you can blame the RBA for that! On Tuesday, the index went to 5996.90 – only 3.1 points short of the 6000-level I tipped for 2014 – and that dumb decision to keep the cash rate at 2.25% can be valued at around 100 points on the index!
Undoubtedly, if the central bank had cut rates, I’d be crowing about the long awaited 6000-level but that will have to wait for another time.
With reporting season over, we’re now in the hands of economic data revelations and geo-political events. I think we will see a better second half for the Oz economy in 2015 and I’m sweating on some good data out of the US and Europe, as the QE program kicks in. As I said, however, “I’m sweating” on those outcomes.
Similarly, my fingers are crossed on Chinese and Japanese economic data. If it all surprises on the high side, then stock markets will be off to the races. Adding to the no-help from the RBA was a fall in iron ore prices that drove BHP down 3% for the week, while Rio lost 6.2%!
I think this is a temporary hiccup. Given I think the RBA will cut in April, I like the predictions of my Switzer Daily (www.switzer.com.au [1]) star writer, David Bassanese, who thinks the Oz dollar will be 68 US cents by year’s end!
Not only will this help a whole pile of small cap stocks on the index, it makes investment in the US an exchange rate special. In addition, it makes stocks, such as CSL, Resmed and Macquarie that earn a lot of income in the US, set to go higher.
On the index, we’ve had a great start to the year. Only a left-field, positive economic event is likely to help us threaten the 6000-level soon, but we will crack it this year. Any major drops remain, as they have since March 2009, a buy-the-dip opportunity.
Don’t believe these dopes and drama queens, who are predicting doom for stocks this year. The morons, who were taking out ads saying: “Prepare for the stock market crash in 2014”, have now simply changed 2014 to 2015!
A crash will come, one day, but I’m betting it’s not this year.
What I liked
- The bounce back on Tuesday when the ‘no cut’ decision took the index from a high of 5996.9 to a low of 5903.2 but the market closed at 5933.6.
- Retail sales were up 0.4% in January. That’s the eighth month in a row! The overall annual rise is only 3.6%, the weakest in 16 months. It’s a nice rise anyway and department stores did well.
- US bond yields rose on the jobs news, which is another trend towards normalcy. Recent falls in bond yields reflected fears that deflation was a possibility and maybe the American economic recovery was not to be trusted.
- How Albert Edwards of Societe Generale in the US might feel today, after questioning the economic recovery. “The downturn in US profits is accelerating and it is not just an energy issue or because of a rising US dollar – a broad swathe of US economic data has disappointed in February,” he told CNBC. He’d be having a Homer Simpson “Doh!” moment.
- The Federal Chamber of Automotive Industries says there were 90,424 new vehicles sold in February, up 4.2% on February 2014, with SUV sales up 23.8% on a year ago.
- Roger Montgomery actually liking a lot of stocks after reporting season, including Challenger, ANZ, Bendigo and Adelaide Bank, Henderson Group, Magellan and Isentia! I haven’t seen him like a lot of stocks for a long time.
What I didn’t like
- The Tuesday decision not to cut interest rates was silly, especially so if the RBA cuts in April. If we need lower rates, why wait? Let’s get this ‘party’ started.
- The economic growth number on Wednesday, which said the annual number was a too low 2.5%. If you take the December quarter result of only 0.5% and annualize it, it’s only 2%. We need 3% plus growth for unemployment to fall and we need
this to happen to get confidence up. - The national average Australian price of petrol rose by 4.3 cents per litre, to a 9-week high 124.1 cents per litre. We’re losing a positive force for growth, though it has helped the stock market.
- The politicization of the Intergenerational Report but it’s understandable as Joe and Tony are fighting for their political survival. Despite all the fears the Report generates, I expect a soft Budget to get economic growth happening and political popularity rising for the Government.
- The reality that the Fed will have to get serious about thinking about a rate rise, which should hurt stocks but only in the short run. Eventually, the job number and the rate rise will be confirmation that QE has worked, which will be good for stocks.
This stuff is not good for hairlines!
Top stocks – how they fared
[2]The week in review (click the blue text to read more):
- This week [3] I told you why you need to work out if you’re a trader or an investor. Don’t confuse the two – it might cost you money!
- Paul Rickard conducted a portfolio review [4] for February – our income portfolio is up 12.37%, while our growth-oriented portfolio is up by 12.95% and both have outperformed the index by 1.98% and 2.56% respectively.
- The brokers upgraded [5] Adelaide Brighton and APA Group, while Alumina received a downgrade. But in our second broker report [6] for the week, Woolworths got four downgrades after its poor results.
- Ron Bewley told us how to get the right international exposure [7] – he’s stepping his up from 18%.
- Santos and Oil Search are Tony Featherstone’s energy picks [8].
- James Dunn did his earnings season wrap up [9] – Domino’s, Ramsay and QBE are among the standouts.
- Penny Pryor gave you the ETF’s we like to invest in here at SSR [10] – they include iShares Europe ETF (IEU) and Vanguard All-World ex US Shares Index (VEU).
- Barrie Dunstan told us why $1 million won’t be enough [11] super.
- And Tony Negline explained why proof of ownership [12] of all your assets is truly important – so give this a read!
What moved the market (click the blue text to read more):
- A surprise cut to interest rates [13] by the People’s Bank of China caused our share market to rally higher on Monday.
- But the RBA’s hold on interest rates [14] stopped our market hitting that golden 6,000 mark – it was nearly there just hours earlier, at 5,996.9 points! Also not helping the S&P/ASX 200 was a modest economic growth number [15] of 0.5% in the December quarter and 2.5% over the past year.
- In the US, a field of merger announcements [16]– like the $US16.7 billion acquisition of Freescale Semiconductor by NXP Semiconductor – helped the Nasdaq surge to levels over 5,000 for the first time in 15 years and just the third time in history.
The week ahead:
Australia:
Monday March 9 – ANZ job advertisements (February)
Tuesday March 10 – NAB business survey (February)
Wednesday March 11 – Monthly consumer confidence (March)
Wednesday March 11 – Housing finance (January)
Thursday March 12 – Credit and debit card lending (January)
Thursday March 12 – Employment/unemployment (February)
Friday March 13 – Lending finance (January)
Overseas:
Sunday March 8 – China trade (February)
Tuesday March 10 – China inflation (February)
Wednesday March 11 – China monthly data (February)
Wednesday March 11 – US Federal Budget (February)
Thursday March 12 – US Retail sales (February)
Friday March 13 – US Producer prices (February)
Friday March 13 -US Consumer sentiment (March)
There’s a raft of economic indicators out next week, but the standout would have to be employment figures for February. These will guide the RBA on interest rates settings at their meeting next month. I’ll also be watching the NAB business survey closely, to see how corporate Australia is fairing – let’s hope spending is on the up.
After the Chinese New Year holidays, economic data in China is ramping up again, with releases of trade, inflation, and retail data in the mix. In the US, the biggest market movers and shakers are data releases on retail sales, along with producer price figures for the month of February.
Calls of the week (click the blue text to read more):
- The secret to old age is ‘sushi and sleep’ according to the world’s oldest person [17], Misao Okawa, who turned 117 this week!
- Speaking of older people, Treasurer Joe Hockey issued a call for workers to delay retirement until after 65 to support our ageing population ahead of the release of the Intergenerational Report [18]; “We need a call to arms for a grey army. We want you. We want you at the front. Not grey nomads but a grey army of workers.”
- In this week’s SSR, Charlie Aitken recommended taking profits from Qantas [19] after a 200% share price appreciation, and tipped Crown or Sydney Airport to reinvest in.
- And this week I called for Tony Abbott and Joe Hockey to hold a national economic summit [20] to get this country’s mojo going. I’m happy to facilitate the summit – free of charge! And if the Government doesn’t want to hold the summit – I will!
Food for thought
There are those who look at things the way they are, and ask why… I dream of things that never were, and ask why not?
– US Politician John. F. Kennedy.
Last week’s TV roundup
- Michael Witts of ING Direct joined me to discuss the recent interest rates decision [21].
- A 27.4% increase in net profit is something to crow about for Gerry Harvey of Harvey Norman. He explained [22] what he has in common with investing genius, Warren Buffett. Here’s part 2 [23], part 3 [24] and part 4 [25] of this interview – I just couldn’t shut him up!
- And it’s been a good start to the year for the S&P/ASX200 – we give you the standout sectors and the best performing stocks during February in our latest Super Sessions update [26].
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 from the table below was Primary Health Care, with its short position increasing by 1.51% to 10.72%.
[27]Source: ASIC
My favourite charts:
Retirement? Dream on!
[28]The Intergenerational Report [29] released by Federal Treasury this week highlighted the importance of increasing workforce participation in older Aussies, because we’re only going to keep getting older! The report says that 40,000 people will be aged 100 or over by 2055 – and that means we’re going to need a hell of lot more for our retirement!
Building to a bubble?
[30]Dwelling approvals lifted by 7.9% in January to record high levels of 19,282, after falling by 2.8% in December last year. There’s still plenty of heat in the property market which the Reserve Bank needs to keep in check.
Top 5 most clicked on stories
- Peter Switzer: Don’t confuse trading with investing and lose money! [3]
- Charlie Aitken: The new monopoly toll bridge – Sydney Airport [19]
- Paul Rickard: Portfolios surge in February [4]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [5]
- Staff Reporter: Buy, Sell, Hold – what the brokers say [6]
Recent Switzer Super Reports
- Thursday, 5 March, 2015: Under the bridge [31]
- Monday, 2 March, 2015: Who are you? [32]
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.