It’s been a week when the RBA boss, Glenn Stevens had a Homer Simpson “Doh!” moment, where our stock market showed how important the dollar is and, more significantly, how important our relative interest rates are.
However, in the States, they wiped away any current inclinations towards a stocks sell off, with the Dow up over 250 points! And this was on the back of a ‘Goldilocks’ jobs report, which was neither too hot nor too cold, with 223,000 jobs showing up in April. Unemployment fell from 5.4% to 5.3%.
This tough week at the office for the economy and the stock market has piled the pressure on Treasurer Joe Hockey. With newspaper stories saying his job is on the line, this Budget and its sell has to be miles better than last year’s effort.
In reality, if Joe fails, his boss Tony Abbott could be saluting Malcolm Turnbull by year’s end! And he wouldn’t like that. I hope this drama has a happy ending for the economy and Joe and Tony because another leadership drama would again undermine confidence.
Meanwhile, our unemployment number went up (as economists expected) but the more important story has to be that over the past six months, 161,000 job seekers have found positions! That’s the best result in four years.
In case you don’t believe it, green shoots are actually showing – recall Harold Mitchell last week saying that ad sales were pointing in that direction.
Here’s what I found growing in our economy’s garden:
- The ANZ job advertisements numbers increased 2.3% in April, after falling for the first time in 10 months in March. Better still, in trend terms, job ads have now increased for 18 consecutive months, although the pace of growth has been slowing since the end of last year.
- Retail sales rose for the tenth straight month, up by 0.3% in March, after rising by 0.7% in February. Annual spending growth rose from 4.3% to 4.5%, mildly above the decade-average growth rate of 4.3%.
- New home sales rose by 4.4% in March to a four-year high.
- Over the past 12 months, there has been a record high 210,484 dwellings approved for construction, which is 11.2% higher than the same time last year.
- Inflation was 0.2% in March and is now a tame 1.2% and explains why the RBA was able to cut rates this week.
I could throw in house prices as another positive. Even the stock market is up about 8% (if you throw in dividends and franking credits). What are some “so and so’s” complaining about?
What I liked
- The run of economic data this week, as the above shows.
- The 0.25% cash rate cut, until we read that the “easing bias” line had been dropped!
- The weekly initial jobless claims rose by 3,000 to 262,000, which must suggest that the majority of big market players think that first day up for rates is still way off.
- You could be wondering why a 3,000 rise in people claiming they are jobless is seen as good. Well, the previous week’s number, which was 3,000 lower, was the best and lowest reading since 2000. So it was a small rise off a great result.
- Seeing this chart again reminds me why dividends are miles better than term deposits:
What are the key points? Stick with me on this and here goes. The ascending green bars show that on the $100,000 investment, the dividend return was around 7% in 1979 but term deposit rates were higher, thanks to inflation in those days. However, as time went by, dividends grew. By 2014, they were returning $80,000 on that $100,000, while term deposits were giving you about 5%! Worse still, your capital value of the $100,000 in a term deposit was, you guessed it $100,000 – that’s why that straight red line is on the chart. Now look at the blue line. This shows that by 2014, for example, the capital value of the $100,000 invested was heading towards $1.8 million! The role of term deposits is to look after your cash buffer for some bad times and you get a bit of interest. Dividend-paying stocks will look after you in the long run. - The US jobs report that doesn’t force the Fed’s hand but confirms that their economy is still recovering nicely, with unemployment at the lowest level since May 2008!
What I didn’t like
- That RBA comment, the dollar going up and the stock market going down.
- The market taking Glenn’s words literally. He will cut more if the dollar stays up.
- The crazy rise in yields in the bond market that no one seems able to explain convincingly. If we thought the US economy was better than expected, bond yields should head up. Few bond experts want to run with that story. They seem nonplussed and that worries me when it comes to the bond market. Remember, it’s been said that when the Fed raises rates, the bond market could have a meltdown but the operative word is “could”. Nervous types might need to go to cash. I’m not a nervous type!
- The Federal Reserve Chair Janet Yellen warning that high equity valuations could pose “potential dangers” to the IMF’s Christine Lagarde but she then backed off to say the market was not overvalued then. Looks like a ‘loose lips’ week for central bankers.
The drama continues on Tuesday
With the Budget on Tuesday night, I’m hoping the media sees positivity not negativity after Joe presents. I’m expecting a great Budget for small business because the very man who knows tipped me off! Of course, I didn’t get details but I got assurances.
One guy who is super positive is Nine’s Scott Cam, who I caught up with at a footie function yesterday. I taught Cam when we were both very young and I commiserated with him about not winning the Gold Logie on Sunday night. His reaction was good: “Don’t worry Switz, I’ve already got one of those.”
Top stocks – how they fared
[table “74” not found /]The week in review
(click the blue text to read more):
- This week, I gave you an action plan for your portfolio [1] should any dark days appear and a HUGE market sell off happens.
- My colleague Paul Rickard delivered his monthly portfolio review [2], and while the financials had a less than stellar April, our income portfolio is up by 10.67% this calendar year and the growth oriented portfolio is up by 11.95%
- James Dunn told us to consider Stockland, National Storage REIT and 360 Capital Office Fund for potential value in A-REITs [3].
- MYOB made the ‘likes’ list [4] in our latest Super Stock Selectors survey, while Westpac was a big dislike after some lacklustre results.
- Barrie Dunstan told SMSF trustees how they could survive a low-rate environment [5].
- Charlie Aitken reminded us not to sell our bank stocks just yet and said to look to global stocks for earnings growth [6].
- This week, the brokers upgraded Bank of Queensland and iiNet [7]. In our second broker report for the week, the banks received a lot of attention, with upgrades to ANZ and downgrades for Westpac [8].
- In My SMSF, Bruce Tustin of Wealthtrac revealed his appetite for investing [9], and it turns out that managing an SMSF is much easier than he initially thought!
- Henderson Group – available in Australia via CHESS Depositary Interests – is one company Roger Montgomery says may benefit from European QE [10].
- And Tony Negline told us to beware of tax incentives and corporate trustee structures as we head nearer towards June 30 [11].
What moved the market:
- RBA Governor Glenn Stevens dropping the “easing bias” words from the RBA statement [12].
- The banks, with Westpac results missing profit and dividend expectations and CBA reporting weaker than expected third quarter cash earnings.
- The official jobless rate [13], which has risen to 6.2% in April, from 6.1% in March.
- And comments from Fed boss Janet Yellen on her chat with IMF boss Christine Lagarde – both agreed stock valuations were ‘’too high’’.
The week ahead:
Australia
- Monday May 11 – NAB business survey (April)
- Tuesday May 12 – Federal Budget
- Tuesday May 12 – Housing finance (March)
- Tuesday May 12 – Credit and debit card lending (March)
- Wednesday May 13 – Wage price index (March quarter)
- Wednesday May 13 – Tourist arrivals (November)
- Friday May 15 – Lending finance (March)
Overseas
- Tuesday May 12 – US Federal Budget (April)
- Wednesday May 13 – China monthly data (April)
- Wednesday May 13 – US Retail sales (April)
- May 10-15 – China lending (April)
- Thursday May 14 – US Producer prices (April)
- Friday May 15 – US Industrial production (April)
- Friday May 15 – US Consumer sentiment (May)
- Friday May 15 – US Capital flows (March)
Next week, the Federal Budget steals the limelight and Treasurer Joe Hockey will be heavily scrutinised by investors if he reveals any surprises on Tuesday, May 12 from 7:30pm (AEST). There are a few other important indicators in the pipeline, including the wage price index for the March quarter – out Thursday – and housing finance and lending data released on Tuesday.
Overseas, there’s also some top economic data released by the Yanks and China. US retail sales for April, along with monthly data on retail sales, production and investment in China, are some of the big releases out on Wednesday.
Calls of the week
(click the blue text to read more):
- This week, Greens leader Christine Milne made the call to resign from politics after 25 years. Richard Di Natale got the top job, with former deputy leader Adam Bandt totally dumped from the new leadership team.
- The Reserve Bank decided to cut the cash rate [12] by 25 basis points, to 2.0%.
- BHP Billiton shareholders made the call to approve the demerger of South32 [14], with the demerger resolution achieving 98.05% in favour at simultaneous shareholder general meetings in Perth and London.
- And an Aussie girl tried to sneak a kiss from Prince Harry [15] after meeting members of the public outside Sydney Opera House!
Food for thought
Success is doing ordinary things extraordinarily well.
– American businessman, Jim Rohn
Last week’s TV roundup
- In this Super Sessions update, we review the month of April [16] and tell you what sectors performed the best.
- Exchange traded funds are popular with investors who want to gain exposure to the broader market, or across particular sectors. Russel Chesler of Market Vectors explains an ETF strategy called ‘Smart Beta,’ [17] and how it can work for you.
- George Boubouras from Contango Asset Management joins us all the way from Shanghai to tell us whether we should still be invested in dividend paying stocks [18].
- And there’s no better person to talk to about the technical processes behind super than SSR expert, Tony Negline. He joins the show to talk about recent Budget rumours for super [19], and more.
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 MMA Offshore, with its short position increasing by 1.06% to 10.74%. UGL followed, moving 0.94% to 11.86%.
Source: ASIC
My favourite charts:
Beer gets the boot!
Aussies are now drinking far less beer, with the lowest level of consumption recorded in 68 years! Consumption of beer fell from 4.04 litres of pure alcohol per person for those over 15 years of age, to 4.01 litres in 2013/2014.
Glenn Stevens’ ‘Doh!’ moment!
Source: Yahoo!7 Finance, 8 May 2015
Unfortunately a much sought after rate cut didn’t tickle the stock market’s fancy too much after Glenn Stevens chucked a Homer Simpson moment and took out the “easing bias” wording from the latest RBA statement! Doh!
Top 5 most clicked on stories
- Peter Switzer: Could your portfolio stand a HUGE market sell off? Here’s how it should. [1]
- Charlie Aitken: ASX for income, ROW for growth [6]
- Penny Pryor: Shortlisted – Super Stock Selectors [4]
- Charlie Aitken: Dividends are never out of fashion, so buy banks on dips [20]
- Paul Rickard: Banks drag portfolios lower in April but still ahead of market [2]
Recent Switzer Super Reports
- Thursday, 7 May, 2015: A foreign affair [21]
- Monday, 4 May, 2015: Expect the unexpected [22]