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The best news of the week was from the legendary Dr. Marc Faber (or Dr. Doom), who has conceded to CNBC this week that US big cap stocks are the best bets, given where stocks are! Faber has been warning of an imminent market crash but it looks like he’s finally woken up that you can’t fight the Fed! Or the European Central Bank! Or the Bank of Japan!
Overnight, Wall Street was down on a rising US dollar – we’re back to 76.28 US cents. A lower oil price didn’t help, neither did a drop in consumer confidence, though it was from a high reading of 95.4 in February to a lower (but still elevated) 91.2 in March.
Be sure on this: stock markets will dive and crash, one day. The important news is that it’s not now. It’s not this year but there is one thing that’s certain: I’m on a 24/7 watch now and as we delve into 2016, I’ll be watching the telltale signs of a huge sell off, like a labrador eyes off a sausage at a BBQ!
Market stress can’t be ignored, with the VIX (or Fear Index in the US) now elevated enough to make you know that 2015 will be a year for volatility.
The following 5-year chart of the S&P 500 index shows why the Yanks are in market-wary waters.
[1]This chart shows a massive run up for the index and Scott Clemons, chief investment strategist at Brown Brothers Harriman, has summed it up neatly.
“I think the market is looking at the numbers and saying the economy is in good shape,” he told CNBC. “We’re in the sixth to seventh year in the bull market. Earnings growth has begun to wear thin, so we’ll need a boost besides (earnings). Consumer spending is the key.”
This week, the Yanks got an ordinary retail number, which fell by 0.6% in February and was weaker than forecasts of a 0.3% gain. However, last week we saw 295,000 jobs show up, which has to be good for consumption. This week, new claims for unemployment insurance fell by 36,000 to 289,000 – below forecasts for a result near 305,000!
The Yanks are getting some relatively weak data but the really important readings say the economic recovery is fair dinkum. The really big issue is: when will Janet Yellen press the button on the first rate rise in the US since the GFC?
The good news for Aussies waiting for our stock market to follow the historical script (which says our market will surpass the former all-time high on the S&P/ASX 200 index), is that we have some nice gains ahead before we eventually turn tail and run from shares.
In case you forgot, our former all-time high was 6828.7. If we take this level out in this cycle (as I expect), then given we are at 5814.5, we have at least 17% to go before I start getting nervous about stocks.
As we are in-between earnings seasons, economic data and geopolitical issues could take centre stage. However, with central banks determined to make economies grow via loose monetary policy, which means terrible term deposit rates and low yielding bonds, then blue chip, dividend-yielding stocks are going to remain in favour. You know that when even Dr. Doom jumps on board!
What I liked this week
- The view that the greenback has risen so steeply that the Fed doesn’t have to rush to raise rates, which should continue to help stocks. This US$ against the euro chart below shows how the
steeply rising US dollar has to hurt or slow the US economy, just like a rate rise does.
[2] - This greenback surge could delay US rate rises and help stocks in the States and worldwide. All we need is our RBA to take a leaf out of the Fed’s playbook and respect the importance of the stock market and, as a consequence, cut rates in April.
- This will give stocks a boost and help the improvement in the economy that I expect in the second half of this calendar year.
- US banking shares rose after Citigroup passed the Federal Reserve annual stress test. Overall, the bank stress tests were better than expected.
- ANZ job ads up for the 9th month in a row. This is a good forward indicator.
- Unemployment here falling from 6.4% to 6.3%. I’ll take any positive reading on the economy.
- Bell Potter’s Charlie Aitken who, after being negative on stocks last year, confirmed his positivity this year on my TV show (go to Switzer Daily [3] to see the interview).
- The falling euro pushed the FTSEurofirst 300 up by 1.5% mid-week, while the German Dax soared by 2.7% to record highs, which is a good omen for the Euro zone’s QE program.
- A US survey showed that 5.2 million renters (or 12% of all renters) say they plan to buy a property over the upcoming year. That’s a 25% jump from a year ago and shows that normalcy is coming back to the US economy. That’s a great sign.
What I didn’t like
- The average credit card balance fell by $86.20 (2.6%) to $3,170.50 in January. This is the biggest monthly fall in four years. Compared with a year ago, the average credit card balance was up just 0.2%, well below the 1.7% rate of inflation. I know it looks good that we use less ‘fantastic plastic’ but it’s not good for the economy that consumers aren’t spending!
- Chinese retail sales were up 10.7% on a year ago, with production up 6.8%. However, both results were well below forecasts.
- The Westpac/Melbourne Institute index of consumer confidence fell by 1.2% in March to 99.5. A reading of 100 separates the optimists from the pessimists and makes the RBA decision to hold back on a rate cut unwise (to put it nicely, which I don’t always do).
- The NAB Business Confidence index fell from +3.3 points to -0.2 points to a 19-month low and below the long-term average of +5.8 points.
- The Westpac Consumer Survey showed we think the wisest place for savings is in the bank, followed by real estate and then paying down debt. Of course, the wisest place for savings, in the long term, is in property, superannuation or shares. You can argue all day about which one is best. Shares are more scary, but generally more rewarding than average property. And you don’t have big mouths (like me) telling you every night that property prices are falling in your suburb! Savings in the bank is the safest option but not necessarily the wisest, though try telling that to a normal person with no money training.
Final point
After a great start to the stock market year, we’re bound to cop some negativity, especially as the greenback spikes and the fear of the first US rate rise draws closer. But don’t be stock stressed. Don’t worry, be happy because the big economic story linked to worldwide QE is still positive.
How do I know?
Well, my economic training and my history of market watching aside, when Dr. Doom goes back to stocks, it makes me even more confident in my position.
Go Doc Doom!
Top stocks – how they fared
[4]The week in review (click the blue text to read more):
- This week, I explained why a great jobs number from the US could mean good news [5] if you want to buy stocks.
- My colleague Paul Rickard said Rio’s off-market buyback is a “no-brainer” if you’re in pension phase [6].
- Charlie Aitken said the Aussie dollar will hit 68 US cents far quicker than anyone currently believes, and tips Servcorp, CSL, and Resmed to benefit [7].
- Roger Montgomery says global manufacturer of protective solutions, Ansell, is beginning to see the benefits of its acquisitive growth [8] and also shows strong leadership.
- This week’s Fundie, Sean Fenton, says the sky is the limit for Aristocrat Leisure [9].
- The brokers were more positive this week [10], with upgrades for iiNeT and Westpac. In our other broker report [11] for the week, Oil Search and NRW Holdings also got the green light.
- James Dunn gave us some reasons to explore private equity options and flagged two success stories [12].
- Penny Pryor detailed why Healthscope and Ramsay were some of the standouts [13] from reporting season.
- And Tony Negline explained the rules surrounding commercial property in your SMSF [14].
What moved the market (click the blue text to read more):
- Local shares bounced back this week on good jobs figures [15], with employment rising by 15,600 in February.
- Overseas, the Dow closed more than 330 points lower mid-week, due to worries about higher interest rates and a climbing dollar. But it rallied later in the week [16] on the back of US bank stress tests that came in better than expected.
- And in case you missed it, Apple shares fell [17] 1.8% this week after an outage stopped people from shopping on iTunes and the App store across the globe!
The week ahead:
Australia:
- Monday March 16 – New car sales (February)
- Monday March 16 – Speech by Reserve Bank official
- Tuesday March 17 – Reserve Bank Board minutes
- Tuesday March 17 – Weekly consumer confidence
- Thursday March 19 – Detailed employment data (February)
- Friday March 20 – Imports of goods (February)
- Friday March 20 – Speech by RBA Governor
Overseas:
- Monday March 16 – Empire State manufacturing (March)
- Monday March 16 – US industrial production (February)
- Tuesday March 17 – US housing starts (February)
- Tuesday March 17 – US building permits (February)
- Wednesday March 18 – US Federal Reserve rate decision
- Thursday March 19 – US leading index (February)
There’s not much in the way of top economic indicators next week, but we do have something to focus on – the RBA. The latest minutes from the Reserve Bank Board meeting will be released on Tuesday and there are two speeches by RBA officials in the pipeline for Monday and Friday.
Overseas, the US Fed is in the limelight in a big way. It meets mid week and will release its statement to the market on Thursday morning (Sydney time 5am, AEDT). Everyone will be hanging out to see what the Fed chair, Janet Yellen, has to say on interest rates.
Calls of the week (click the blue text to read more):
- Chief executive of US iron ore miner Cliffs Natural Resources, Lourenco Goncalves [18], says the strategy of major Australian iron ore producers to ratchet up supply could end up leading them to “self-destruction” and cause irreversible damage on the price of iron ore.
- The board of Ardent Leisure Group [19] made the call to appoint former editor of The Australian Women’s Weekly, Deborah Thomas, as the company’s new CEO.
- In some big business news, TPG announced that it’s acquiring iiNET for $8.60 a share, in a takeover bid [20] worth a whopping $1.4 billion. iiNet was also in Tony Featherstone’s takeover target portfolio [21].
- And the saga continues in Clive Palmer’s not so united party, with senator Glenn Lazarus resigning [22] shortly after his wife was sacked by the party. He will remain in the Senate as an independent.
Food for thought
The season of failure is the best time for sowing the seeds of success– Indian leader Paramahansa Yogananda
Last week’s TV roundup
- Star writer of the Switzer Super Report, Paul Rickard [23], joined me to discuss Woolies, Rio, super and property.
- If you missed out on our latest Switzer Super Report webinar – catch up here [24]! We wrapped up the best from the month of February.
- Switzer Super Report expert Charlie Aitken [25] is far more optimistic about stocks this year than last year, and he shared exactly what he’s backing.
- And econometrician Ron Bewley [26] helped decipher some undecipherable charts, and gave us some great investment ideas!
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 MMA Offshore, with its short position increasing by 1.11% to 7.94%.
[27]Source: ASIC
My favourite charts:
Aussies are getting better at getting out of debt!
[28]Aussies are getting better at beating their debt! The RBA has crunched the numbers and found that our average credit card balance fell by about $86 over the month of January, and now stands at $3,170.50.
Jobs ads on the rise
[29]Job advertisements rose by 0.9% in January, which is the 9th consecutive monthly gain (seasonally adjusted), and they have trended higher for 16 consecutive months. ANZ says the growth in Feb was driven largely by internet ads and newspaper job ads.
Top 5 most clicked on stories
- Peter Switzer: Why great news creates another buying opportunity for you stock players! [5]
- Charlie Aitken: The winners when the Aussie hits 68 US cents [7]
- Paul Rickard: Rio’s off-market buyback – accept in pension [6]
- Penny Pryor: Shortlisted – Healthscope, Ramsay and early super access [13]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [11]
Recent Switzer Super Reports
- Thursday, 12 March, 2015: A hiccup [30]
- Monday, 9 March, 2015: We want you! [31]
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.