This week gave us a preview of what will be the long-playing movie in the year or so ahead. Undoubtedly, the big news was the revelation that the Greek Government does not have the 1.5 billion euros needed as their one big repayment so they can get the next tranche of bailout dough valued at 7.3 billion euro!
Of course, even a second-rate businessman or woman would say that if I can scramble up 1.3 billion, I can get 7.3 billion, so why wouldn’t I sell the silver to pull that off?
However, it’s not just a money thing. The Greeks won’t succumb to their creditors demands to eliminate the 13-month pension for some retirees. They won’t take away the VAT exemptions for the islands and many other entrenched example of Greek madness. Therefore we could see a default by the end of the month.
If the IMF boss, Christine Lagarde, is read correctly, this means Greece says goodbye to the Eurozone and hello to the drachma and all of the unknown drama that could entail for the Greek economy as well as the international financial system, if they don’t make the reforms and get the credit.
As you know, I have suggested some market reaction will be negative but don’t forget this: the Greek economy is 0.3% of the world’s GDP! It is ranked as 44th economy in the world, with around $US238 billion worth of GDP. Chile, Egypt and the Philippines are bigger economies and the Kiwis make about $200 billion of GDP in 54th place. Do you think any of these countries would rattle the world if they defaulted? I don’t think so. (In case you’re wondering, we’re ranked number 12 at $US1.4 trillion.)
Back to Greece and its threat to stocks and to what its actions might do to the Eurozone. There are concerns that the behavior of other debtor countries might be influenced by Greece’s potential exit. Also don’t forget that speculators might try to benefit from the uncertainty a Grexit could create.
So what’s the latest on Greece? Well, Eurogroup finance ministers failed to reach a deal on Thursday, so negotiations with its creditors will continue at another crisis summit on Monday.
Against this, this week we saw that the Yanks rode to the rescue of markets, explaining why our market recouped all Thursday’s 1.3% sell off. Happily, the “we’re not ready to rush to a rate rise” message from the Federal Reserve and a weaker US dollar helped resource and energy stocks.
Meanwhile, bargain hunters chased bank stocks that we (at the Switzer Super Report) have been telling you looked like great value. I noted Charlie Aitken this week backed my NAB call.
This week’s story tells me that Greece will cause some short-term problems but that creates a buying opportunity that will be driven by an improving US economy and even our own economy.
What I liked
- European equities going higher on Friday, despite the failed meeting of the Euro zone finance ministers with Greece. They now go to Luxembourg on Monday.
- Warren Buffett’s punt on IAG but, more importantly, his thumbs up for the Oz economy and its companies, with the Oracle of Omaha saying he’s in the market for local operations!
- The 70 cents gain for Woolworths shares since Grant O’Brien said he’s quitting his CEO job. Bring on Roger or a Roger act-alike!
- The Philadelphia Federal Reserve index of business growth rose from +6.7 to +15.2 in June. This is a good indicator for the US economy.
What I didn’t like
- The ECB wondering whether Greek banks will open on Monday! I’m in Greece as I write, attending a conference on Lemnos next week.
- The Greek Prime Minister Alexis Tsipras sharing a stage with Russian President Vladimir Putin this week, which can’t be a great thing, especially as it has been said Alex did not go cap in hand!
- The German-based think tank ZEW said its monthly economic sentiment survey fell to a 7-month low and yep, the Greeks have been the scare factor.
- This one-year chart of WOW:
[1]- Traders were encouraged that the Federal Reserve suggested a slower trajectory of rate hikes over the next year, which shows Janet Yellen is not a dope.
What’s wrong with Greece
On Wednesday, I went out on a boat off Lemnos and saw some wonderful coastal properties with a small house on them. I believe lots of people in the West and East would love to buy land on a Greek island and put up a house. It could be a real GDP grower but Greeks I know say that they don’t want to change the island feel and so building density is kept at low levels.
But Greece is in trouble and one of their best assets is their beautiful land. It’s their competitive advantage but they’re looking a gift horse in the mouth at a time when the world would love to smack them in the mouth for jeopardizing global stock markets and our potential wealth.
By the way, we have similar problems with a 15% GST, penalty rates and selling apartments to our Asian buddies. Sometimes as JFK said: “Change is the law of life. And those who look only to the past or present are certain to miss the future.”
The same message applies to investing.
Top Stocks – how they fared
[table “88” not found /]The week in review
(click the blue text to read more):
- I told you what curve balls could stop this stock market from rising [2].
- Paul Rickard gave you six SMSF investing actions [3] to take before June 30.
- James Dunn gave us five stocks from NZ to take advantage of [4], including Air New Zealand and A2 Milk Company.
- Three of our Super Stock Selectors liked CBA, while others had Woolies and Arrium on their dislikes list [5].
- This week’s Fundie, Ben Griffiths from Eley Griffiths Group, explained why being a long-term investor in Auckland International Airport [6] will pay off.
- Alastair Shields of the SMSF Association is an SMSF newbie and said he’s enjoying the freedom and great returns [7].
- Roger Montgomery looked back at his decision on the Virtus IPO. With the share price having materially corrected, it could be one to revisit [8].
- This week, the brokers upgraded Santos and Westpac [9]. In our second broker report [10], ANZ and Caltex received upgrades.
- And Tony Negline went back in time to remind us why it can be risky business [11] to listen to property market hype.
What moved the market
- Dividend hungry investors buying into the big four banks.
- Worries over the continuing Greek debt saga.
- The dovish US Federal Reserve Policy announcement. Despite remaining at a near-zero benchmark interest rate, they signalled it would rise more gradually than expected.
- The Nasdaq Composite Index, which closed on Thursday at an all-time high of 5,132.95.
The week ahead:
Australia
Tuesday June 23 – Tourist arrivals (March)
Tuesday June 23 – Residential property prices (March
Thursday June 25 – Demographic data (December)
Thursday June 25 – Finance and wealth (March)
Thursday June 25 – Job vacancies (May)
Overseas
Monday June 22 – US Existing home sales (May)
Tuesday June 23 – US Durable goods (May)
Tuesday June 23 – US New home sales (May)
Tuesday June 23 – US FHFA home prices (April)
Tuesday June 23 – US, China and European “Flash” manufacturing (June)
Tuesday June 23 – US Richmond Fed (June)
Wednesday June 24 – US Economic growth (Mar Qtr)
Thursday June 25 – US Personal income (May)
Friday June 26 – US Consumer sentiment (June)
Calls of the week
(click the blue text to read more):
- Billionaire Warren Buffett’s Berkshire Hathaway announced that it is buying a $500 million dollar stake in Insurance Group Australia as part of a 10-year partnership [12].
- American business magnate Donald Trump allegedly paid actors $50 each to guarantee a big cheer when he announced he’d be running for US president!
- Woolies CEO and managing director Grant O’Brien announced his resignation. Read Paul Rickard’s article [13] to learn more about what’s in store for the company.
- Charlie made the call NAB is a high conviction buy [14]. And in case you missed it, he also announced he’d be starting his own fund, Aitken Investment Management!
Food for thought
Keep your eyes on the stars, and your feet on the ground
– Theodore Roosevelt, US President
Last week’s TV roundup
- Is your SMSF in shape for June 30? Switzer Super Report expert Paul Rickard gives you his tips to help make it happen [15].
- The whispers are true and Switzer Super Report expert Charlie Aitken is moving from broking to fund management. His new global conviction fund is called Aitken Investment Management and he tells us all about this “natural progression” [16].
- Anton Tagliaferro from Investors Mutual tells us what he thinks about the global economy [17] and our local market.
- And in this Super Sessions update we shift the focus from Wall Street [18] to talk about the London Stock Exchange.
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.
Slater and Gordon had the biggest increase over the week, with the percentage of its shares shorted rising from 6.38% to 7.56%.
[19]Source: ASIC
My favourite charts:
Jobs, jobs, jobs
[20]Here’s some positive economic news for you – employment rose by 85,900 during the three months to May. That follows an 85,800 lift in the three months to February. Add those together and you get the biggest back to back gains in over four years!
Lamborghini lovers everywhere
[21]And in more good news luxury cars are more popular than ever! The CommSec luxury vehicle index is at record highs – in the year to May, 86,568 luxury vehicles were sold, and that’s an increase of 16.7%.
Top 5 most clicked on stories
- Peter Switzer: What curve balls ahead will stop stocks rising? [2]
- Paul Rickard: 6 investing actions to take before the end of the year [3]
- Charlie Aitken: NAB – a high-conviction buy [14]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [9]
- Staff Reporter: Super Stock Selectors – CBA, NAB, Cochlear and JB Hi-Fi [5]
Recent Switzer Super Reports
Thursday, 18 June, 2015: Go your own way [22]
Monday, 15 June, 2015: Follow the leader [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.