[table “76” not found /]
Not only was it a dog day Thursday afternoon for Johnny Depp in Australia but also on that day our market fell again, despite a positive lead from Wall Street. Then, on Friday, the Dow was up 191 points but we only put on 38 points, despite a Budget that’s positive for growth. All up in Budget week, we rose 100 points, which is something Treasurer Joe Hockey would have to be happy about but it wasn’t all great news.
The dastardly devil in the detail was that dog of a dollar! We wake up this morning and it’s at 80.6 US cents, which is little help for stocks going forward.
But it’s not just our dollar. In fact, it’s more the US dollar that’s driving the US stock market up and our market down! This isn’t the script we expected and it’s because the Fed is not going to ruin the US economic recovery by moving too soon to raise interest rates. Now we simply have to wait until the Yanks have the guts to raise their rates.
Overnight on Wall Street, industrial production was down 0.3% in April and has now fallen for five months in a row, which makes it less likely that the Fed will move quickly to raise rates. That conclusion leads to the greenback down and US stocks up but it doesn’t help our stock market, which is dividend-played out and hoping to make money out of stocks that react well to a lower Aussie dollar.
Interestingly, bond yields in the US fell overnight. This is directly linked to the belief that now the first rate rise could be 2016. That could help dividend stocks here next week.
However, in this current dark cloud, there is a silver lining. We just might have moneymaking plays, which could take some time to pay off and there could be a twist or turn until the booty comes home. However, I do believe one day our dollar will fall and dollar-sensitive stocks will spike, like they did a few months ago.
Also, buying foreign stocks now using a dollar at 80 US cent plus, which one day will fall to 70 US cents, means there’s a 10-12% gain on a currency drop alone.
Then there’s the easier play of buying the index via an ETF but the question might be: “When do I buy?” Michael McCarthy thinks our S&P/ASX 200 index could fall into the 5400s (he could be a little too aggressive with this call) but he reckons then he’d be emptying his bank account to get on board!
I bought at 5700 or so but if the index falls much lower, I’ll go in again to dollar cost average down because I think we’ll see 6000 then 6800 before this bull market stops running. In fact, I think it will go higher but that’s a year or so off.
But wait, before following my script, be aware that my story could have a twist or two.
When the Yanks raise rates, Wall Street could fall and we could go with it but there will be a turnaround and stocks should surge again.
It could be testy for the nervous but have faith that when our damn dog of a dollar falls, as the damn double dog greenback rises, our stock market will spike and I will be the dog barking/warning about it! (I’m actually a great fan of dogs and don’t like calling anything bad “a dog” because they’re often great role models to human beings!)
What I liked
- The Budget’s small business package – the multiplier effect of the $20,000 immediate tax write-off per investment good purchased will be positive for growth and confidence.
- Labor trying to trump the Government with a company tax cut from 30% to 25%. Lower taxes should never be bagged, no matter who offers them, though they have to be fundable.
- Our stock market finished up this week, despite a rising Oz dollar.
- OK economic data in the US on Friday, with durable goods revised up to 4.7% and factory orders up 2.1%, which tells me that while the recovery is not as strong as it needs to be to make the Fed raise rates, the recovery itself is still believable. For stocks worldwide, it’s crucial that the US economy keeps growing.
- The record close of the S&P 500 is another plus for the US recovery, despite being off a lower greenback and the delay of the first rate rise there.
- The Johnny Depp dog tale and the delightful madness of Barnaby Joyce. Barnaby is a treasure and a relic of how the Aussie language can be mangled and manipulated to deliver the hard news with a comical touch. Stuff like this: “So Mr Depp – God bless him. ‘Sexiest Man Alive’ and all that and Jack Sparrow … he’s got to abide by the laws of the nation otherwise the dogs have got to go.”
- At the PwC post-Budget breakfast on Thursday (which draws 2,100 people) John Howard actually used the words “Peter Switzer was right…” For posterity, I’ll have to get this from the recording!
- Terry McCrann on my TV show saying “you were right 18 months ago when you warned the RBA” about cutting rates too slowly. I’ll be keeping that one too!
- Bumping into Scott Morrison (at the PM’s lunch time speech in Sydney on Friday) with the up and coming potential PM tweeting that I taught him at UNSW in 1986.
- Joe Hockey had a better week and a good media reaction to his Budget.
- The US Federal Budget was in surplus by $157 billion in April and shows what economic growth can do for Budget dramas!
What I didn’t like
- The economic forecasts from the Budget for the Oz economy, which I hope have been set low to make sure the deficit improvement for the Government at next year’s Budget will make them look good ahead of an election!
- Our dollar over 81 US cents – hate that for stocks but it’s OK for my upcoming overseas trip.
Quote of the week
I know a lot of people were quoting for tweeting purposes but I liked the one in the AFR from Warwick McKibbin of the ANU. He’s one of our best economists and wants a GST to sort out our deficit/debt problems but he said this about the small business package: “The federal budget does little economic damage and has some good aspects, especially for small business, which is a key driver of growth in the Australian economy.”
We need growth and using small business to get it is not a dumb idea because they buy a lot from big business. That’s why Gerry Harvey has such a big smile on his face that he’s eating lemons for breakfast to control his grin!
Top stocks – how they fared
[table “75” not found /]The week in review
(click the blue text to read more)
- I reminded you to keep the faith in stocks [1] and remember, a correction does not always equal a stock market crash!
- Our bank guru Paul Rickard explained the rough week the banks had and updated his ratings for the big four [2].
- James Dunn gave you four divine dividend dazzlers [3] to consider, including Genworth Mortgage Insurance and Skilled Group.
- In our Super Stock Selectors survey, it was a big week for the banks [4] with Macquarie Bank, NAB, and ANZ on the likes list, while Westpac got the thumbs down.
- Charlie Aitken said China is moving from a fixed asset boom to a financial services boom, and Australian SMSFs can grab exposure to broad Chinese equities [5] through the ASX-listed, AMP Capital China Growth Fund (AGF).
- Myer and OrotonGroup are two companies that joined Tony Featherstone’s M&A watchlist [6].
- This week’s Fundie, Alastair Macleod from Wingate Asset Management, said Citigroup is a contrarian US company that pays [7].
- The big market fall last week prompted upgrades from brokers with AMP, Ardent Leisure and NAB all being re-rated up [8]. In our second broker report [9], ANZ, CSR and Qantas grabbed upgrades, while Bluescope Steel and Resmed copped downgrades.
- And Tony Negline gave a summary of the Budget changes [10] that will directly, and indirectly, impact you, and your super fund.
What moved the market
- Joe Hockey’s go-for-growth, Viagra Budget!
- A flat retail sales number for April in the US.
- Further economic stimulus in China, with the third interest rate cut in six months!
- And solid gains in tech stocks, including Apple and Facebook, helped push the S&P 500 to a new record high close of 2,121.10.
The week ahead
Australia
- Monday May 18 – New motor vehicle sales (April)
- Monday May 18 – Reserve Bank Speech
- Tuesday May 19 – Weekly consumer confidence
- Tuesday May 19 – RBA Board minutes (May)
- Wednesday May 20 – Westpac consumer sentiment (May)
Overseas
- Monday May 18 – US NAHB housing market index (May)
- Tuesday May 19 – US Housing Starts (April)
- Tuesday May 19 – US Building Permits (April)
- Wednesday May 20 – US FOMC Minutes are released
- Thursday May 21 – US Philadelphia Fed outlook (May)
- Thursday May 21 – US Leading index (April)
- Thursday May 21 – US Existing home sales (April)
- Friday May 22 – US Consumer prices (April)
- Friday May 22 – “Flash” manufacturing gauges
After Budget week, there’s a quieter one on the horizon, with not too many releases or events on the local economic calendar. On Tuesday, the RBA will release the minutes of its last Board meeting, where the interest rate was lowered by 25 basis points to 2%. Another one to watch is the Westpac consumer sentiment survey for May – let’s hope the results start looking a bit more optimistic since Joe Hockey delivered the goods on Tuesday.
Overseas, attention will be on the FOMC minutes – released Wednesday – for any hints on rate hikes, along with the Philly Fed survey on Thursday. On Friday, PMI figures for China, France, Germany and the Eurozone will also be released.
Calls of the week
(click the blue text to read more)
- The Budget’s tax cuts and spending incentives for small businesses [11], which includes a tax depreciation for the total amount of assets worth up to $20,000.
- But Opposition Leader Bill Shorten tried to one up the Government’s tax cuts [12], proposing to reduce the tax rate for Australian small business by 5% instead of 1.5%.
- And after Johnny Depp failed to declare his two pooches – Pistol and Boo – to Australian customs, Agriculture Minister Barnaby Joyce said it was time for them to “bugger off” back to the US [13], or they would be euthanised.
Food for thought
I believe things cannot make themselves impossible
– Stephen Hawking – English Physicist
Last week’s TV roundup
- Tony Negline and Paul Rickard busted open the Budget [14] to explain how it will affect superannuants and investors.
- In this Super Sessions update, we talk about what’s been contributing to the recent performance of the banks. Is it a buying opportunity? Find out here [15].
- Paul Rickard also joined the show this week to talk about what’s been scaring the banks lately [16].
- iSentia is the former Media Monitors business and group communications manager, Patrick Baume, joins Super TV to talk about the company’s transition [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 MMA Offshore, with its short position increasing by 0.78% to 11.52%.
[18]Source: ASIC
My favourite charts:
What’s up with the Oz Dollar?
[19]Source: Yahoo!7 Finance, 15 May 2015
RBA Governor Glenn Stevens would be losing it over the Aussie dollar this week, which went up to 81 US cents! We need that damn dollar to go to levels of around 72 US cents if we want to really pump up the market and crash through that 6,000 mark.
Getting back to surplus
[20]Let’s hope these Budget projections are right – the chart above shows the expected gradual improvement in the budget position as a percentage of GDP, bringing us closer to surplus by 2016/17. The economy is expected grow by 2.50% this year, and 2.75% next year.
Top 5 most clicked on stories
- James Dunn: 4 divine dividend dazzlers [3]
- Paul Rickard: Which bank now? [2]
- Peter Switzer: Keep the faith in stocks! [1]
- Charlie Aitken: Don’t miss out on the Chinese bull market [5]
- Charlie Aitken: ASX for income, ROW for growth [21]
Recent Switzer Super Reports
Thursday 14 May, 2015: Crouching tiger, hidden dragon [22]
Monday 11 May 2015: Don’t let your love turn to hate [23]
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.