China Composite, chiseled and cheesed off!

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Have a look at this! This is the Shanghai Composite chart that Lance Lai showed on my program on Thursday. It has spiked nearly to the vertical!

When Lance was last on my show on October 14, he surprised me by being so positive on China, after a recent visit. He predicted stocks would do well but this even overwhelmed him. Don’t think because he’s a mate and an ex-student that he’s always a bull (like someone else we know who unfairly gets accused of excessive optimism).

In fact, Lance contacted me twice in 2007 citing the Shanghai Composite and warning that something worryingly screwy was afoot for stocks. When the crash started to happen in November, I instantly thought of him.

He expects we’ll pierce the 6000-level but can see some resistance along the way (go to www.switzer.com.au to see the interview, which also involves the chairman elect of the Entrepreneurs Organisation, Ivan Ting, who has a positive view on China as well).

Lance’s spotlight on the Shanghai market coincided with Rudy Filapek Vandyke of FN Arena, who did some market myth busting with me on the Switzer Program. He made the point that mum and dad investors often can be blindsided by the economy now and stick to cash rather than looking at what the economy will do in the future.

A lot of the data that worries us, such as unemployment, are lag indicators, while other indicators are rear vision snapshots of the economy. For example, economic growth numbers that we get after the Budget will be for March. They arrive on June 3, which is two months too late and could actually be more influenced by what happened in January and February than March, so the story it tells could really be old news (that sounds like a contradiction)!

Over in the US, they didn’t like the weaker than expected jobs number – 126,000 jobs instead of an expected 245,000. To the doomsday merchants, it was a sign that the US economy is not responding in a sustained way to QE3. To others, it was just a one-off bad number, probably related to the cold weather.

Peter Boockvar, chief market analyst at The Lindsey Group in the US, says the four-week average on initial jobless claims is at its lowest level since 2000.

“Bottom line, near 15-year lows in both initial claims and continuing claims is a clear sign that employers are holding on to their employees to a great extent and another sign of a tightening labor market,” he said. (CNBC)

In fact, the bad number has many thinking the Fed will stay on the sideline longer before it raises interest rates and it is understandable because the rising greenback is doing the tightening anyway to make sure growth doesn’t lead to too high inflation.

It’s the opposite to us, where we need rates to fall to get the dollar to do more loosening and stimulating for the sake of growth, jobs, profits and higher stock prices.

What I liked

The positive finish on Wall Street overnight, with the Dow up over 18,000 and the rise for the overall week following the poor job numbers.
And the above, with earnings season getting started properly next week when there’s a pretty negative expectation from analysts about the results, with the guess that they’ll be 4.7% lower!
European stock markets rising overnight, with the German DAX up 1.71%, the Poms’ FTSE up 1.06% and the French CAC up 0.6%, driven by a low euro and the likelihood that the Fed won’t raise rates soon and unsettle global stock markets.
Yesterday’s 36.2-point rise leaving the S&P/ASX 200 index at 5968.4.
The US VIX or fear index trading below 13 – a nice sign that the market can go higher.
The Super Stock Selectors Survey we released this week in this Report – make sure you check it out.
How I controlled my temper when the RBA didn’t cut rates on Tuesday! I hope the Reserve Bank is right and we don’t need a cut, which I think they’re hoping but they have left the door open for another one. If they need to cut, I won’t be generous in my understanding. I promise you!
Our long Friday lunch at our offices with some of our columnists from Switzer Daily. It was an inspirational hoot, with the likes of 2GB’s Steve Price, my Sky colleague Janine Perrett, political doyen Malcolm Mackerras, David Bassanese, Paul Rickard and some of my great team in attendance. It took me back in time when everyone aspired to a Friday lunch, until Paul Keating killed that little nicety with those 1985 tax reforms!

What I didn’t like

How chiseled I felt when the RBA came up with its ‘no rate cut’ decision, which could delay our economic comeback and undermine the improvement in the country’s budget deficit. I was so cheesed off.
David Bassanese’s call that the cash rate could be under 2% and the dollar under 70 US cents. I like the dollar guess but if rates keep falling, it worries me about how slowly our economy will be growing (see my Calls of the Week and watch my interview with David on www.switzer.com.au).
The implications of the above on the unemployed and Tony Abbott’s popularity! The above wouldn’t be good for Joe’s reputation either.
The negative stuff in the headlines of newspapers implying that the upcoming Budget could hit retirees and even pensioners. I really hope this year’s fiscal figuring from Joe Hockey will be one of those where the pre-Budget tidings end up being scarier than the actual story on Budget night. This has to be a Budget that inspires confidence, spending, investing, growth and job creation or the Abbott team will be looking for new jobs, or a new leader!

Top stocks – how they fared

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

Paul Rickard gave his monthly portfolio review, with our income portfolio exceeding the benchmark by 3.4% year-to-date, and our growth portfolio adding over 1% in March and outperforming the index by almost 4.0%.
James Dunn told us what we can do about the currency impact on our overseas shares.
Check out our latest Super Stock Selectors survey, in which Santos, My Net Fone, and Orora all featured in the ‘likes’ list.
Tony Featherstone gave us six Aussie small caps – including 3P Learning and SomnoMed – that are reaping the benefits of being ‘born’ global.
I reminded my readers why I write all this stuff here in the Switzer Super Report and elsewhere. It’s because I’m in it for education, insights, and for helping you (and me) make money!
ERM Power and Qube Logistics were in the brokers’ good books this week, and in our second broker report for the week, ASX, Oil Search, and Resmed were upgraded.
Our Fundie, Anna Kassianos from Platypus Asset Management, told us why we need to fly away with Sydney Airport Holdings.
And Roger Montgomery showed us how we can spot a dud retailer, using the performance of Kathmandu as a case study.

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

The RBA disappointed the market this week after keeping the cash rate unchanged at 2.25%.
Shell’s £47 billion bid for gas giant BG Group set the gas and oil market alight, with speculation spreading to other stocks.

The week ahead:

Australia:
Monday April 13 – Credit and debit card lending (February)
Tuesday April 14 – Lending finance (February)
Tuesday April 14 – Business confidence (March)
Wednesday April 15 – Consumer confidence (April)
Thursday April 16 – Motor vehicle sales (March)
Thursday April 16 – Employment (March)

Overseas:
Monday April 13 – China Trade (March)
Tuesday April 14 – US Retail sales (March)
Tuesday April 14 – US Producer prices (March)
Wednesday April 15 – China Economic growth (March Quarter)
Wednesday April 15 – US Empire manufacturing survey (April)
Wednesday April 15 – US Federal Reserve Beige Book
Wednesday April 15 – NAHB Housing market index (April)
Thursday April 16 – US Housing starts (March)
Thursday April 16 – US Building permits (March)
Friday April 17 – US Consumer prices (March)
Friday April 17 – US Consumer sentiment (April)
Friday April 17 – US Leading index (March)

The economic calendar kicks off on Monday, with the RBA releasing data on February credit and debit card lending so we can all see how well behaved we’ve been with our money! Other key pieces of data include the NAB business survey released on Tuesday, and the Westpac/Melbourne Institute monthly measure of consumer confidence on Wednesday. The ABS will reveal the latest job figures for March on Thursday, which will be a key driver for the next interest rate decision.

Overseas, there’s a huge bevy of economic data in the pipeline. Data from China will be closely watched in particular, with trade figures out at the top of the week and economic growth for the March quarter released on Wednesday. Focus in the US will be on top-shelf economic indicators, including retail sales and inflation figures for March, both released on Tuesday, and corporate reporting season gets into full swing.

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

The Government is understood to be considering changes to super and SSR expert, Tony Negline, has made a call to arms for all SMSF trustees to lobby Canberra leaders so these changes don’t get up! Click here to check out his article from Thursday.
Atlas Iron made the call to enter a trading halt – or voluntary suspension – on Tuesday pending an extensive review of its business in light of the rapid fall in the iron ore price.
And Switzer expert, David Bassanese, reiterated his call that the official interest rate will end the year at 1.5%, with the Aussie dollar reaching its current fair-value of US 68c. You can read his argument here.

Food for thought

Action is the foundational key to all success.

– Pablo Picasso

Last week’s TV roundup

George Boubouras from Contango Asset Management tells us whether the RBA made the right call on interest rates and if playing small caps for the year ahead is a smart strategy.
Founder of Fat Prophets, Angus Geddes, tells us what he thinks will happen to stocks this year and what investment plans he’s pursuing to end up in the black!
My colleague Paul Rickard and I give the latest monthly market wrap in this Super Sessions update.
Lance Lai, Ivan Ting and Jamie Warner of the Entrepreneurs Organisation join Super TV to talk about their group and business in China, and of course, Lance has brought back his charts for all you fans!

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.

Notable movers include Flight Centre, Orica and Fortescue, where short positions continued to build.

Source: ASIC

My favourite charts:

Back on track to 6,000

On my show this week, chart extraordinaire Lance Lai told me that we’re back on track to hit that 6,000 level. As you can see by his chart, since October (point O) when we said ‘buy baby buy’, we’ve shot up 14%!

Car sales crack March records!

Encouraging signs for the economy this week included a lift in new car sales in March to record highs. According to the Federal Chamber of Automotive Industries (FCAI), a record 105,054 new vehicles were sold within the month, up 8% on February.