My stay in Greece ends on Monday, which is bound to be an eventful day for stocks, given Greece’s last chance to pull off an 11th hour deal ends on Saturday. And don’t just believe me, here’s what Germany’s Chancellor, Angela Merkel told Reuters: “We are saying, not without careful thought, that this Eurogroup [meeting] is of decisive importance, taking into account that time is very short and that a result must be worked on.”
What she is saying is that even if the EU can say yes to something that the Greek leadership wrangles out of them over the weekend, then it has to be passed by the Greek Parliament! And with the June 30 deadline looming on Tuesday, where the Greeks have to pay the IMF 1.6 billion euros or default, it certainly is crunch time for the country that once was the cradle of civilisation.
My Greek friends, whom I am travelling with, constantly remind me how just about everything emanated from Greece – they actually say “everything” – but I don’t know if they pioneered the idea of debt repayment, though they’re world champions at tax evasion!
I hope for the Greeks themselves and our stock market that something positive shows up over the weekend but the ever-optimistic Peter Switzer is having a hard time dismissing reality.
As you know, I have argued that a Greek default will lead to a short-term market slide. The big surge of global equity markets on Monday and Tuesday, when a deal looked probable, shows how this economy, that is only 0.3% of world GDP and is smaller than the Queensland economy, really is economically ignorable.
However, the uncertainty that a default brings, the question marks over the Euro zone, the bad example it might set to other debtor countries in Europe and how financial markets might react to all this means we can’t dismiss the implications of what happens over the weekend and then after Tuesday’s deadline.
If I’m right about the short-term impact of a Greek default, it means any sell-off presents another buying opportunity. The low of June 5 of 5470 was one such buying opportunity and while we could see a lower low next week, if this Greek thing goes pear shape, be aware that some smarties support my argument that there will be forces to take stocks up further this year.
One of the best is the Wharton School finance professor, Jeremy Siegel, who I have quoted many times to you to prove that my optimism has had credible support. His latest call this week was that the Dow is set to see 20,000 by this December or January!
So he’s talking an 11% plus gain without dividends. If he’s right, it will be good for our stock market and anyone wanting to play a US-based ETF, which will be topped up by any dive in the dollar. Our dollar is around 76.67 US cents and if it moves to where many predict – 70 US cents – then that’s another 8% currency gain. The combined payoff could be close to 20% by just believing in Uncle Sam and Prof. Siegel.
“When I look at all the factors and even interest rates going up, I still think this market is worth 5 to 10 percent more than what we’re seeing it sell at today,” he told CNBC.
What I liked
- On Greece, Siegel says there shouldn’t be any concerns about contagion.
- US personal spending rose by 0.9% in May, above forecasts for a gain of 0.5% and the biggest rise in almost six years. That’s a good recovery sign.
- The Reserve Bank has released its quarterly ratios on household finances. Interest payments on debt now just represent 8.7% of disposable income, the lowest level in 11½ years. Bubble boy alarmists would not like these bananas.
- The Reserve Bank reported that household superannuation hit almost $2 trillion in the latest quarter – actually up 5.5% to $1,987 billion. Superannuation is up 13.3% over the year and has lifted just under 13% per year on average over the past three years.
- Businesses are taking on more debt. The value of loans rose by 4.8% in the March quarter to $789 billion, while financial assets lifted 2.2% to $1,080 billion. This is a good recovery sign for our economy.
- Total household wealth (net worth) stood at a record $8,090.9 billion at the end of March 2015, up $231.5 billion or 2.9% over the quarter. In per capita terms, wealth rose to a record $340,877 in the December quarter, up $8,212 over the quarter.
- Foreign holdings of Australian shares rose by $42.7 billion in the March quarter to a record $773.7 billion. Foreigners held 44.9% of Australian listed shares at the end of March.
- Job vacancies rose by 2% to 155,800 in the three months to May – the highest in more than two years. Job vacancies are up 6.3% on a year ago and you don’t need to be Terry McCrann to see this as an economic plus for our economy!
- This T-shirt I bought in the port of Lemnos:
What I didn’t like
- Final estimates show that the US economy contracted by 0.2% in the March quarter, in line with estimates and while it is due primarily to cold weather, I want to see better growth for the rest of the year to justify my optimism on the US economy and stocks.
- Waiting for another infernal Greek debt meeting!
- The thought of the financial bedlam next week if the Greeks default, leave the euro and Greek banks impose capital controls to stop depositors emptying their accounts!
- My thoughts that you’re better dead than red, when the Greek Prime Minister, Alexis Tsipras said: “We are ready to go to new seas to reach new safe ports” after visiting none other than Vladimir Putin! Putin? Safe harbor? Really?
- This out of China: “The Shanghai Composite Index crashed more than 7% on Friday amid increasing worries that the country’s bull run is running out of steam.” (CNBC). On Monday, I’ll look at the China Syndrome and see if we’ve been worrying about the wrong country in being so Greek-distracted.
Next week
I’m off to Paris where I’ll catch up with Labor’s old Assistant Treasurer David Bradbury, who’s working with the OECD on trying to get the big IT companies to pay more tax. I thought the Greeks were the world champions in tax evasion but some of those big US companies domiciled in other countries might have taken tax tricks to an entirely different level!
Top stocks – how they fared
[table “89” not found /]The week in review
(click the blue text to read more):
- This week, I told subscribers whether or not they should be scared of a house price crash.
- Paul Rickard explained why Westpac shareholders should receive benefits from its sell down of part of BT Investment Management.
- Tony Featherstone gave three stocks to cash in on capital-city densification – the National Storage REIT, Urbanise.com and iProperty Group.
- James Dunn gave us nine companies to benefit from the China Free Trade Agreement, including Bega Cheese, Freedom Foods and Australian Agricultural Company.
- In our Super Stock Selectors, NAB received more than one ‘like’ while Fortescue Metals featured in the ‘dislikes’ list.
- Ron Bewley looked back on his call to pounce on bank stocks last month and gave us the best rebalancing strategies for your portfolio.
- In Buy, Sell, Hold – what the brokers say, ANZ and Caltex received upgrades and Ten Network copped a downgrade. Our second broker report gave a new rating of ‘buy’ to Healthscope and a ‘neutral’ to Flight Centre.
- And Tony Negline gave us a run down on the preservation age changes, which could affect your ability to access your super.
What moved the market
- The Greek soap opera, which had stock markets everywhere up one day and down the next!
- The NASDAQ hit an all-time high two days in a row, landing at 5,160.09 at the US close on Tuesday.
- Positive economic data in the US and the Eurozone. New home sales in the US hit their best result in seven years, rising 2.2% in May to a seasonally adjusted annual rate of 546,000, while existing home sales rose by 5.1% in May to a five and a half year high of a 5.35 million. In June, the European PMI had its best result in four years at 54.1.
The week ahead
Australia
Monday June 29 – ABS ‘Australian Industry (2013/14)’ publication
Tuesday June 30 – Speech by RBA Governor
Tuesday June 30 – Private sector credit (April)
Wednesday July 1 – CoreLogic home prices (June)
Wednesday July 1 – Building approvals (May)
Thursday July 2 – Tourist arrivals (April)
Thursday July 2 – International trade (May)
Friday July 3 – Retail trade (May)
Overseas
Monday June 29 – US Pending home sales (May)
Tuesday June 30 – US Home prices (May)
Tuesday June 30 – US Consumer confidence (June)
Wednesday July 1 – US ADP Employment (June)
Wednesday July 1 – US ISM manufacturing (June)
Wednesday July 1 – US Construction spending (May)
Wednesday July 1 – US Auto sales (June)
Wednesday July 1 – China manufacturing (June)
Thursday July 2 – US Non-farm payrolls (June)
Friday July 3 – China services gauge (June)
Calls of the week
(click the blue text to read more):
- Wesfarmers chief executive Richard Goyder has called into question the amount that German discounter Aldi is paying in tax. “I think someone should go and have a look (at) how much taxes Aldi pays in this country,” Mr Goyder said when asked if there was a “Google tax” issue. “I suspect they (Aldi) are very profitable.”
- Flight Centre further downgraded its financial year outlook. Expectations of underlying profits before tax for the 12 months to June 30, 2015 are now between $355 million and $365 million. Check out Paul Rickard’s analysis of why high flying companies like this one are struggling.
- National senator, John Williams, used parliamentary privilege to call out wrongdoers in the IOOF scandal and crossed the floor to support a royal commission into financial services.
- And in a retrospective call of the week, Charlie Aitken looked back at his calls on 14 global picks from one year ago, to find that 12 were correct!
Food for thought
– If you have one good idea, people will lend you twenty.
Marie von Ebner-Eschenbach – Austrian novelist
Last week’s TV roundup
- Gary Stone from Share Wealth Systems brought out the charts to explain how he’s reading the markets right now.
- Ron Bewley from Woodhall Investment Research gave us a lesson on how we could consider managing our portfolios.
- Marty Switzer interviewed Paul Rickard on Woolies and yours truly (all the way from Lemnos, Greece!) for an update on global markets.
- And in this week’s Mad About Money episode, our editor Penny Pryor joined the panel!
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.
Karoon Gas Australia had the biggest increase over the week, with the percentage of its shares shorted rising from 6.28% to 7.42%.
Source: ASIC
My favourite charts:
Stop complaining, you’re rich!
Australians are getting richer, with total household wealth (net worth) hitting a record high at the end of March at $8,090.9 billion. That’s an increase of $231.5 billion over the quarter. As the chart illustrates, our wealth rose to a record $340,877 per capita in the December quarter.
Cashless society? Not Greece!
A cashless society might be here, but it seems the Greeks are an exception to the rule, pulling their hard-earned out of banks and hiding it under their pillows! The chart above shows the decline in total bank deposits since 2009, and the rapid rise of bank notes in circulation this year.
Top 5 most clicked on stories
- Paul Rickard: A treat from Westpac
- Peter Switzer: How scared of a house price crash should you be?
- Charlie Aitken: The power of observation
- James Dunn: 9 companies to benefit from the China FTA
- Charlie Aitken: NAB – a high conviction buy
Recent Switzer Super Reports
- Thursday, 25 June, 2015: Back to the future
- Monday, 22 June, 2015: Our 400th issue!
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.
