The other night on my TV show on Sky, I introduced Kumar Palghat, the MD of Kapstream Capital, with the words of a Bob Dylan song that I think sums up our really weird market situation. The words go like this: “People are crazy and times are strange, I’m locked in tight, I’m out of range, I used to care, but things have changed!”
Things are crazy and times are strange, with technical charts telling us stocks should rise. US earnings are looking pretty good (in fact, better than expected) but the US economy only grew by 0.2% in March.
After three down days on the stock market, we finished in positive territory on Friday – up 24.40 points to 5814.4 – while the Dow ended up over 183 points!
The three best bets of 2015 were tipped to be these. Firstly, the US dollar would go up as the euro fell but that reversed on Thursday. That was crazy. Next, the Oz dollar would drop and it spiked to over 80 US cents this week! That was strange. The German Dax was another great bet but dropped about 4% over the week. Of course, the rising euro partly explains that. Maybe that was overdue, given its huge rise this year, some European company data and Greece.
We went within a whisker of 6000 on the S&P/ASX 200 index again but then it slumped as low as 5749.90. On what? The dollar over 80 US cents – tick! US economic growth at 0.2% for the first quarter – tick! Slower than wanted Chinese economic growth indicators – tick!
All this negative stuff was blasted at your resident optimist in a week when I was taken to the moon, after interviewing 85-year-old Buzz Aldrin, whose life, times and current demeanour should not be missed by anyone over-worried about life not going exactly as they might want it (see www.switzer.com.au [1]).
I actually ended my enjoyable interview by saying to him: “Thanks for joining me, Neil!” After a virtual life living in Neil Armstrong’s shadow as the second man to walk on the moon, he could have reacted badly but he didn’t.
He simply said: “Don’t worry, Neil was a great person.” I think he once cared but things have changed.
It’s just like me with stocks. If they don’t go how I’d like them to go for more than a week (or even a few weeks), I take it as a buying opportunity. At the low of the past week, I bought an ETF for the S&P/ASX 200. I got lucky on the timing. If I got it wrong, I would’ve bought again at a lower level because I believe over this year stocks will go higher and that damn 6000 level will be taken out.
Anyone who watched my interview (on Sky or switzer.com.au [2]) with Morgan’s Michael Knox recently, will recall him telling us that fair value was around 5800 or so and this will go higher, if the cash rate is cut on Tuesday. But it will really spike if the following Tuesday brings a pro-growth Budget from Treasurer Joe Hockey.
He and his boss Tony Abbott are trying to change sentiment, with the PM even dropping into 2GB on Friday afternoon at about 5:50 to talk to Ben Fordham and the message was very positive. He didn’t talk debt, deficits and other dramas.
The greatest craziness of the week was seeing the Oz dollar over 80 US cents. The good implication of this madness was a greater belief that the Reserve Bank will cut the cash rate on Tuesday. Like most of our advice clients and SSR subscribers, I want a higher interest rate for term deposits but this won’t happen until our economy is growing more strongly, inflation is rising, unemployment is falling and confidence is heading northwards.
We’re not living in normal times – people are crazy and times are strange!
What I liked
- The rally on Wall Street this morning – if they sold off, it could’ve been ugly on Monday for the ASX.
- The latest US manufacturing numbers were down but still indicating that the sector is expanding, despite a rising greenback.
- The US Employment Cost Index that suggests US wages are at the best levels since 2008. This has brought some US experts back to the belief that maybe the Fed will move to raise rates in September. A part of this week’s craziness was the low 0.2% GDP number for the March quarter, making many think the Fed would not raise in 2015, which took the greenback down and the Oz dollar up.
- Advertising guru Harold Mitchell, who uses ad spend trends to predict our economy’s future, says “green shoots” are starting to pop up.
- Thursday’s economic data from the US, which read like this: “Weekly jobless claims fell by 34,000 to 262,000 last week – the lowest reading since April 2000. Consumer spending rose 0.4% in March, as households picked up purchases of big-ticket items like vehicles. The ISM Chicago business barometer rose from 46.3 to 52.3 in April.” (Craig James) Given that weak GDP number for March, this suggests that this number was badly affected by the big freeze in the US over the quarter.
- The Euro zone consumer price reading came in unchanged for April, ending four months of deflation – suggesting the ECB stimulus was having a positive impact.
What I didn’t like
- That 0.2% GDP reading in the US for the March quarter and what followed.
- Getting close to 6000 again and selling off.
- European company reporting data is not adding to an improving picture, economic data-wise.
- Some economists locally changing their call on a May rate cut, which helped the Oz dollar spike over 80 US cents. Since then, sentiment has moved back to the belief that a cut is more likely but this RBA Board is less adventurous than yours truly and the economy is paying the price!
Divergence with Dylan
It’s been another week of dollar data drama. I hope the RBA helps us next Tuesday and Joe improves the story the following Tuesday on Budget night. But let me repeat – people are crazy and times are strange. I’m locked into shares and we’re out of the range where they should be. But I really do care about our shares, so when it comes to me – things haven’t changed!
Top stocks – how they fared
[table “72” not found /]The week in review:
Click the blue text to read more:
- This week, I told you whether or not stocks can really go up from here [3]!
- My colleague Paul Rickard explained the best ways to access the broader market, with his favourite ETFs and LICs [4].
- Geoff Wilson explained the disaster that would happen if dividend imputation was to ever get the flick [5] – in that unlikely event, he’d be backing companies like Scentre Group, Stockland and Sydney Airport.
- James Dunn gave us five great kids companies [6] – like nappy company Asaleo Car and organic baby food provider Bellamy’s Australia – to invest in.
- In our latest Super Stock Selectors [7] survey, a couple of the experts gave the thumbs up to Telstra, while insurers like IAG were poo-pooed.
- For all you gold hunters, Tony Featherstone suggested exchange-traded products (ETPs) [8] – like ETFs Physical Gold ETP – to eliminate any company and market risk inherent in gold equity investing.
- The brokers upgraded Ansell and Base Resources [9]. In our second broker report for the week, the brokers upgraded iiNet [10].
- And Tony Negline reminded us why binding nominations [11] are not everything they’re cracked up to be.
What moved the market:
- Increased doubts that the Reserve Bank will cut interest rates next week.
- The expectation that APRA may crack down on the banks expansive property lending habits sooner rather than later.
- And US gross domestic product, which expanded by just 0.2% in the first three months of the year.
The week ahead:
Australia
- Monday May 4 – Monthly inflation gauge (April)
- Monday May 4 – Job advertisements (April)
- Monday May 4 – Building approvals (March)
- Tuesday May 5 – International trade (March)
- Tuesday May 5 – Reserve Bank Board meeting
- Wednesday May 6 – HIA New home sales (March)
- Wednesday May 6 – Retail trade (March)
- Thursday May 7 – Employment/Unemployment (April)
- Friday May 8 – Statement of Monetary Policy
Overseas
- Monday May 4 – US Factory orders (March)
- Monday May 4 – China HSBC PMI
- Tuesday May 5 – US Trade balance (March)
- Tuesday May 5 – US ISM non-manufacturing (April)
- Wednesday May 6 – ADP Employment Change (April)
- Friday May 8 – US Non-farm payrolls (April)
- Friday May 8 – China trade balance (April)
- Saturday May 9 China Inflation (April)
May kicks off with a number of key economic indicators, including retail trade on Wednesday and employment data on Thursday. But the biggest one to watch has to be Tuesday’s interest rate decision handed down by the RBA –let’s hope we see a cut!
Overseas, employment data dominates towards the tail of the week, with the ADP national employment index released on Wednesday, while US Non-farm payrolls are released on Friday.
Calls of the week
Click the blue text to read more:
- Financial System Inquiry chairman, David Murray, made the call that the big banks are at risk of losing their AAA credit rating.
- An American mum has been hailed ‘mother of the year’ after she spotted her son in the crowds of the US Baltimore riots, and was caught on camera [12] snatching him away to give him a slap into line!
- Radio broadcaster Alan Jones made the call to join the iron wars with Fortescue’s chairman, Andrew “Twiggy” Forrest, after dubbing BHP and RIO the “bully-boys of the industry” on his radio show in a segment with Forrest. The ACCC has said they won’t take any further action against Forrest following his controversial comments around capping production.
- And Charlie Aitken says he’ll be buying NAB, ANZ, Bank of Queensland and Bendigo & Adelaide Bank into any slight dips ahead of a solid reporting period [13] for the banks.
Food for thought
To succeed, you need to find something to hold on to, something to motivate you, something to inspire you.
– American Athlete, Tony Dorsett
Last week’s TV roundup
- Media buyer guru and chairman of Free TV Australia, Harold Mitchell, gives his outlook for free to air television stations [14] and tells us whether they are a buy right now.
- The second man on the moon, Buzz Aldrin, and his son Andy, join the show to talk about their space adventures [15].
- In the latest Super Sessions update, we talk about Europe’s biggest economy – Germany – and how you can gain exposure to it [16].
- And Switzer expert Malcolm Mackerras explains why the ABC’s Antony Green is wrong [17]!
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 was Flight Centre Travel, with its short position increasing by 1.31% to 13.18%. Worleyparsons followed closely, moving 1.20% to 11.40%.
[18]Source: ASIC
My favourite charts:
Consumer confidence on the comeback
[19]Weekly consumer confidence (blue line) rose from an eight month low, up by 2.8% in the week to April 26, to 111.8.
Private sector credit is looking good!
[20]
Private sector credit – or lending – rose by a solid 0.5% during March, while annual credit growth held at 6.2%, the strongest growth in six years. These results were driven mostly by housing credit. The chart above shows the movements of personal, business and housing credit, which grew 0.2%, 0.2%, and 0.6% respectively during March.
Top 5 most clicked on stories
- Paul Rickard: The best managed investment company [4]
- Peter Switzer: Am I crazy thinking stocks go up from here? [3]
- Charlie Aitken: Dividends are never out of fashion, so buy banks on dips [13]
- James Dunn: 5 great kids companies to invest in [6]
- Geoff Wilson: Who would benefit from franking’s fall? [21]
Recent Switzer Super Reports
- Thursday, 30 April, 2015: Always in style [22]
- Monday, 27 April, 2015: Crazy for stocks [23]