I’m writing this in Abu Dhabi on route to Athens, where I hope to interview the Greek Finance Minister, Janis Varoufakis. The press secretary said some other Ministers (who I didn’t want to interview) were unavailable but Janis’ team is yet to contact me. I live in hope as the Greeks keep playing their games, with the decision not to pay the 300 million euros due yesterday. Instead, they’re citing the case of Zambia, which was allowed to roll a pile of progressive payments in the 1980s into one big payment at the end of the month! So the Greek drama or tragedy, depending on how you see it, is set to carry on until June 30, when the final act might be played out.
I use “might” because no one, including the Greek leadership, wants to leave the Eurozone. They just want a better, softer deal. The deal they’re being left with is harsh (see my interview with Michael Knox on Monday [1], where he pointed out that the Greeks have close to a 1% of GDP surplus now but the EU/IMF/ECB masters want a bigger surplus! It’s a big ask and explains why the MPs in Athens are telling their PM Alex Tsipras that he’s giving in too much.
The “Greek Economy Minister, George Stathakis, told the BBC that the country’s cash-strapped government had the money to make Friday’s payment, but chose not to.” Furthermore, he insisted that “Greece could not accept new austerity measures proposed by international creditors to unlock the final €6.2bn tranche of the European bailout.”
In case you haven’t been following the story closely, the Greeks owe Germany 56 billion euros. Its debt to GDP ratio is 177% and the country’s GDP has fallen 26% since 2010 and unemployment is 26%. You can see why the socialist Syriza Party won the last election.
Not surprisingly, European stock markets had a bad day on Friday, with the German Dax down 1.26%, the French CAC 40 off 1.33% and the FTSE 0.8% lower. However, in explaining the shares sell off, expert market watchers think the good US jobs report was more important than the pesky Greeks.
You see, the Yanks got a great jobs report, with 280,000 jobs created in May against a consensus forecast of only 215,000. The news indicates that the wintery cold weather effect on economic growth (that I warned about) is being melted out of the US economy, which is now heating up. This would really annoy the doomsday merchants, who wanted the US economy to fail to prove they weren’t economic nincompoops.
What I liked
- Our GDP numbers that came in with economic growth of 0.9% for the March quarter versus a 0.5% consensus guess from economists. Annualized, we’re talking 3.6%, which is a good number for job creation. Throw in the May rate cut from the RBA, plus the pro-small business Budget, and we could be in economic turnaround territory.
- Treasurer Joe Hockey calling the recession callers “clowns” – way to go Joe but keep the positivity and the more credible Canberra coming.
- The US jobs report that sent the greenback up and our dollar down from the 77 plus US cents region to 76.49 US cents this morning.
- The idea that the better than expected economic growth numbers would have the RBA boss, Glenn Stevens and Treasurer Hockey probably doing air punches and shouting exhilarating expletives when the GDP numbers came out.
- One of the drags on the GDP number was business equipment spending and that’s what the Budget aimed to set right.
- US banks starting to lead Wall Street higher, which is a good sign and coincides with the view from PM Capital’s Paul Moore, who thinks the top foreign banks are set to become good dividend payers. If you throw in the expected currency gain as the dollar falls, then the likes of Wells Fargo and Lloyds could be good foreign plays.
- Next week we see business confidence, consumer sentiment, job ads and employment data all relating to post-Budget May. I hope we see some good omens, which should best show up in June. Fingers crossed for some beaut Budget bounces.
What I didn’t like
- The RBA’s silliness in not saying that they would cut rates if the economy required it, which sent the dollar up over 78 US cents.
- Media commentators and sore losing economists trying to belittle the GDP numbers because there was a lot of export demand in them to explain the growth. No one was doing that during the mining boom.
- Retail sales were flat in April after 10 prior months of gains. Annual spending growth eased from 4.4% to 4.1%, which was mildly below the decade-average growth rate of 4.4%. However, I want to see the May and June numbers that followed the Budget stimulus.
- The media not telling this from the GDP numbers: 16 of the 19 industry sectors watched by the ABS expanded in the March quarter. And spending-wise, only three of the 17 sectors monitored recorded weaker spending in the quarter. These are good signs.
- That damn stock market of ours, which was left at a four-month low after its worst week in three years! The index fell 4.8% this week. It looks like the smarties have had a ball with the local market but we are in great buying territory, given all my experts see 6000 (or something close to it) by year’s end.
- OPEC decided in its Vienna meeting that output would be unchanged for six months and oil prices fell. OPEC’s output target of 30 million barrels a day will do nothing to limit supply and will continue to put pressure on US oil producers to pull back on production. I would have loved tighter quotas to get prices up to help our energy companies’ stock prices but the economic effect of lower oil prices is a bonus for global economies. In fact, the great job numbers in the US come out of an effective tax cut, which is the drop in gasoline prices in the States.
Interesting fact on Janis
Michael Knox says that Janis, as an economist, wrote books on, wait for it, game play theory. Under this theory, you often have to bring on an event to force better negotiated settlements. We’re watching a Greek gambling game play and I hope there’s a dividend pay-off for world stock markets come the end of June, when Greece will have to find 6.2 billion euros. After 274 billion euros apparently left Greek banks over the past four months, the Greek people have money. It’s only the banks and the Government who don’t.
A Greek mate of mine said to me: “The Greek people have money. It’s the Government that doesn’t.” I explained to him that this was the problem but I still don’t think he gets it!
Top stocks – how they fared
[table “84” not found /]The week in review
(click the blue text to read more):
- I looked at whether or not a Greek tragedy could mean a big sell off [2].
- Paul Rickard gave us the latest portfolio update [3]. Year to date, the income portfolio has outperformed the index by 2.65%, while the growth portfolio is 3.65% higher than the benchmark return.
- James Dunn tipped the 7 next big blue chips [4], including the likes of Ramsay Health Care and Ansell.
- Tony Featherstone explained why patience is key [5] when it comes to investing in LNG.
- Roger Montgomery shared his investing insights [6] in a Q&A session.
- Paul Kasian, Head of asset management at Equity Trustees, explained why Lend Lease Group has got it going on [7].
- Alumina and Dexus Property were both upgraded by the brokers this week [8]. In our second broker report [9], Harvey Norman and REA Group received upgrades.
- Our Super Stock Selectors liked Sirtex, Carsales.com, and AGL Energy [10].
- Penny Pryor gave us an update [11] on Medibank Private.
- And Tony Negline explained why it pays to split super with your spouse [12].
What moved the market:
- The Australian economy grew by 0.9% in the March quarter after a 0.5% increase in the December quarter, ahead of forecasts.
- Our trade deficit widened to $3.9 billion in April, our biggest on record.
- Subdued retail sales, with the trend estimate rising by 0.3% in April.
- And anticipation of another Greek tragedy kept European and US markets on edge.
The week ahead:
Australia
Tuesday June 9 – Job advertisements (May)
Tuesday June 9 – Housing finance (April)
Tuesday June 9 – NAB Business survey (May)
Wednesday June 10 – Consumer Sentiment (June)
Wednesday June 10 – Speech by RBA official
Thursday June 11 – Employment/unemployment (May)
Friday June 12 – Credit/debit card lending (April)
Friday June 12 – Overseas arrivals (February)
Friday June 12 – Lending finance (April)
Overseas
Monday June 8 – China Trade (May)
Tuesday June 9 – China Inflation (May)
Tuesday June 9 – US Wholesale sales (April)
Wednesday June 10 – US Federal Budget (May)
Thursday June 11 – US Retail sales (May)
Thursday June 11 – US Import/export prices (May)
Thursday June 11 – China monthly data (May)
Friday June 12 – US Producer prices (May)
Friday June 12 – US Consumer sentiment (June)
Calls of the week
(click the blue text to read more):
- Charlie Aitken said the search for yield is not over and add to bank holdings on any weakness [13].
- Mark Latham called small business ‘’blank faced losers’’ and the ‘’garden gnomes of the modern economy’’. Latham, here’s a lot of reasons why you’re wrong [14].
- Head of FIFA no more – Sepp Blatter – announced he’d be stepping down as president of the organisation, just four days after being re-elected.
- And NSW parliament officially passed the motion [15] that TV personality and Collingwood President Eddie McGuire is a “boofhead,” in light of his comments about Swans player, Adam Goodes.
Food for thought
Success is how high you bounce when you hit bottom.
– George S. Patton, US soldier
Last week’s TV roundup
- In our latest Super Sessions, we spoke about making extra contributions to your super fund [16] and why you should do it.
- We also took a look back at the month of May and gave you an update on the best performing sectors, along with our outlook for June [17].
- And in an exclusive interview [18], Scott Morrison explained how the Government was going to get the Budget changes through the recalcitrant Senate.
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 Metcash, with its short position increasing by 1.06%, to 19.30%. Next was Dick Smith, with a short position increase of 0.39% to 8.97%.
[19]Source: ASIC
My favourite charts:
Hey, big spender!
[20]
Source: NAB
According to NAB’s online retail sales index [21], toys and homewares are where the money is at! The chart above shows the annual growth of online spending by category. Electronic games and toys, along with homewares and housewares, experienced the highest growth year-on-year at 31% and 14.5% respectively.
Exports – the main driver
[22]The biggest driver of GDP growth came from net exports. During the March quarter, its contribution to economic growth stood at 0.5 plus percentage points.
Top 5 most clicked on stories
- James Dunn: The 7 next big blue chips [23]
- Charlie Aitken: Still banking on it [13]
- Peter Switzer: Could we face a big sell off? It’s not all Greek to me! [24]
- Penny Pryor: Super Stock Selectors – Carsales.com, Macquarie and AGL Energy [10]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [8]
Recent Switzer Super Reports
Thursday, 4 June, 2015: Money in the bank [25]
Monday, 1 June, 2015: Greece is the word [26]
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.