I have to say I love Christmas, and I especially love it when Santa arrives in the nick of time with an end-of-year rally. Our market is up over 200 points since Thursday last week.
And I loved waking up this morning to a positive Wall Street – those Yanks really know how to do Christmas.
I also love seeing our S&P/ASX 200 index at 5265, and, while it’s still 235 points off my index call for the year of 5500, we still have a few trading days left!
Of course, we’ve seen the index at 5441.4 – the best close for the year on October 28 – and so I can live with missing out by 58.6 points because, as I’ve said previously, I only tip what the index might do so I can give subscribers, viewers, listeners and readers the general idea of where I think stocks are heading over the year.
If you’d simply played the SPDR S&P/ASX 200 Fund (STW.AX), you would have made 17.7% on the unit price change since January 2 this year.
I’ll reserve my 2014 call until early January but I’m sure it will be a 6000 plus number. And let me list why I’m rooting for another good year for stocks. Here goes:
- We still haven’t passed our previous all-time closing high of 6828.7 and history shows stock markets pass previous highs.
- Even if we adjust this level back to 6300 for all of the capital raisings that followed the GFC, that’s still more than 1000-points away.
- The USA’s economic recovery with 3.6% growth and other economic indicators all scream that earnings should sustain higher share prices.
- Ben Bernanke’s promise to keep interest rates around zero for a long time – at least until unemployment slips below 6.5% – augurs well for stocks.
- The current economic numbers and outlook for Japan, the UK, China and Europe are looking positive for the overall global economy.
- Private equity groups are buying stuff – undervalued companies, to be more precise, in Italy and Spain!
- Greece is now bond-borrowing at 8%, instead of 30% plus!
- There are more positives but that will do on a Saturday.
Tapering my breakfast
Another nice omen was my breakfast this week with one of Australia’s quiet but massive over-achievers, Josephine Linden. Just Google her to see her achievements, which include running private wealth for Goldman Sachs in the Big Apple. Only big kahunas manage that and she has decided the investment decisions for the HRH Prince of Wales Foundation – an Aussie adviser to royalty!
On Thursday, we were meeting at 7am and the tapering decision was at 5.50am, so I had to write my blog on Switzer Daily (www.switzer.com.au [1]) before dashing into The Four Seasons Hotel. When Josephine arrived she admitted to being on a conference call since 1am! She has lived in the USA a long time, so she does have their work ethic. My response was: “Talking tapering?” She said: “Right.”
Her view is that it looks good for stocks in 2014 and I was really glad she saw it my way, as I didn’t want to be at odds with someone like her.
What about Oz?
I deliberately left my Oz view out of my list of reasons for supporting stocks in 2014 because it is, like a lot of my views in recent times, at odds with the consensus. I think Australia will do a lot better than the 2.5% economic growth forecasts of Treasury, which Joe Hockey relied on when he told us a tragic tale of budgetary black holes early in the week.
Sure, he has to use Treasury’s growth guesses but their forecasting has been hopeless. I think the new Government (which has pushed up both business and consumer confidence) plus low interest rates (which still haven’t had time to fully work as it can take 12 months or more for rate cuts to change things for the better), plus the lower dollar plus the stronger global economic recovery plus rising world stock markets, will produce better economic growth numbers here, which, in turn, will push up our stocks as earnings rise.
It’s the so-called virtuous circle, which I referred to many months ago as the snowball of confidence. And so I laugh at those who tell me that there’s a snowball in hell’s chance of this all happening next year.
I’ve been at odds with the experts on:
- The rebound of stocks in 2009 and beyond.
- The wisdom of Rudd’s spending to save us from recession.
- The RBA’s too slow and unwise interest rate policy, until recently.
- The value of QE3 and the likelihood of a US recovery.
- The comeback of Europe. In June, I even predicted Greece could surprise on growth and this is happening right now. Yasou!
The only thing worrying me is that I’m due for a wrong, big call – economists seldom get this lucky – but I think it could be some years off, as the weight of evidence says buy stocks in 2014. Undoubtedly, I will turn off stocks one day but to amend a line from Maggie Thatcher: “This man is not for turning in 2014.” Of course, circumstances change and when my view changes you’ll be the first to know.
My parting gift
Finally, apart from wishing you and your family a great Christmas, I want to remind you that the reliable, Sensis Business Index for December was headlined: “Biggest survey quarterly confidence jump in 20 years.”
The report’s author, Christena Singh, said the confidence boost was evenly spread across the country and perception of the economy now was at its best level for three years.
Better still, perception of where the economy will be in a year’s time was the best since 1996! This tells me the Oz economy will do better than we think. As Rod Stewart’s ex-wife, Rachel Hunter, once said: “It won’t happen overnight, but it will happen.”
Top stocks – how they fared
Numbers that moved the market
The moment we were all waiting for finally arrived this week, when the US Federal Reserve announced on Wednesday [2] that they will start tapering back quantitative easing. For most of the year the market has been reacting negatively to good news in fear of the inevitable QE taper, but the announcement actually saw most markets jump, suggesting the economy is well and truly ready to stand on its own two feet.
The minutes from the RBA’s monthly meeting [3], released this week, show our economy is also looking good. The consistently low cash rate (which was left unchanged at 2.5% at the December 3 meeting) has been helping the economy, and while the Aussie dollar is still slightly higher than the Board would like, it’s heading in the right direction.
The weeks ahead
Australia
December 31 Private sector credit (November)
January 2 Performance of Manufacturing (December)
January 2 Home Value index (December)
Overseas
December 23 US Personal income (November)
December 23 US Consumer sentiment (December)
December 24 US Durable goods orders (October)
December 24 US FHFA home prices (October)
December 24 US New home sales (November)
December 30 US Pending home sales (November)
December 31 US Consumer confidence (December)
January 2 US Construction spending (November)
January 2 US ISM manufacturing (December)
January 3 US Auto sales (December)
Over the next fortnight the two main events on my radar are Christmas Day and the Boxing Day Test.
There isn’t a whole lot to report in terms of economic indicators over the next two weeks, and the few reports that are released will probably go under the radar as (most) economists are distracted by the holidays.
For you diehard fans, US consumer sentiment is out on the 23rd and is expected to show a modest lift in confidence. The following week, the first week of 2014, will see manufacturing data for both the US and Australia.
Calls of the week
Charlie Aitken’s large-cap calls for 2014 are: Crown, Fortescue and Platinum Asset Management. Read why here [4].
I read a great quote this week by Morgan Housel [5]: “If someone said, “I think most people will be in a 10% better mood in the year 2023,” we’d call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.”
The series of great calls and plays which led to Australia reclaiming the Ashes this week!
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.
It’s a very similar table to last week today, as investors start winding back activity for the end of the year. One noteworthy mover is David Jones, with the short position closing for the 9th consecutive week.
My favourite charts
Household wealth has well and truly recovered since 2008, and is now at a record high.
Top five clicked on stories of the week
James Dunn: Eight stocks to drop [6]
Charlie Aitken: Picks for 2014 part 2 – three large-cap calls [4]
Peter Switzer: The rules for making money in 2014 [7]
Geoff Wilson: Where to hunt for value in 2014 [8]
Charlie Aitken: Picks for 2014 part 1 – rotate into cyclicals [9]
Last week’s Switzer Super Reports
Thursday, 20 December 2013: Merry merry merry Christmas [10]
Monday, 16 December 2013: Better watch out [10]