It could have been the worst of weeks but it was one of the best of weeks in ages with five good things adding to my optimism for stocks for the rest of the year. In case you missed it and I don’t think it was possible – Greek politicians supported the debt bailout austerity proposals.
China delivered better than expected economic readings with GDP growth up 7%.
Then we learnt that Iran had signed up for a nuclear neutralised position which will increase oil supplies and over time this has to be a plus for keeping a crucial cost of global production – energy – down.
Then the Fed chairman, Janet Yellen, virtually said, get ready for an interest rate rise this year, which not only will help our dollar slip further, but it reinforces the belief that the US economy is on a trajectory for better growth over the next year or so. By the way, the market thinks the US could wait until next year for the first post-GFC rate rise but Morgans’ chief economist, Michael Knox, who actually did a Fed-understanding economics course last January, says the slide in unemployment towards the “natural rate of unemployment” of 5% or so means a rate rise in the USA is very likely. He thinks the market view that the first rise could be pushed out to 2016 is wrong – plain and simple.
Finally, if we leave out the consumer sentiment number, which had problems because the survey was conducted over the week when Greece was going bonkers post-referendum and China’s stocks were sliding 30%. This wasn’t helped by the media which was going bananas over the issue but it failed to let normal people know that the stock market in China had gone up 150% in one year, and this meant that too many people got the wrong, scary idea about that overdue sell-off.
Believe it or not, but even someone as reasonable and rational as AMP Capital’s Shane Oliver implied on my TV show that the Chinese stock market has more upside. He is supported by the likes of market master, Kerr Neilson of Platinum Asset Management!
So, if we ignore the Westpac consumer sentiment number, which even Westpac’s chief economist Bill Evans said he’s treating with caution, then we should focus on the NAB’s reading on business confidence, at a 21-month high, and business conditions at an eight-month high! On top of that, the Deloitte CFO Survey showed the nation’s top bean counters – and they hate that name, so I apologise – are becoming increasingly more confident.
That’s five out of five – Greece, China, Iran, the Fed and the Oz economy or GOFIC! This has much better vibes than Grexit and all that went with that.
So, what do we focus on going forward? It’s the local reporting season, which starts in earnest in early August. What I will be watching will be the forecast or outlook statements and there’s a good chance that they will be a lot more positive than six months ago.
What I liked
- Our market up four days in a row and putting on over 180 points.
- The Greek vote.
- The response of European markets.
- European car sales were the fastest in five and a half years and registrations were up 15% and this was the biggest since December 2009.
- The Chinese numbers – growth up 7%; retail up 10.6%; industrial production up 6.8% and all of these were better than expected.
- The NAB business confidence and conditions numbers.
- Dwelling starts rose by 8.6% in the March quarter to 53,901. Work started on a record 203,760 new dwellings over the year to March, up 15.6% on the previous year!
What I didn’t like
- The Westpac/Melbourne Institute index of consumer confidence fell by 3.3% in July to 92.2. The confidence index is down 2.8% on a year ago. A reading of 100 is the dividing line separating optimism from pessimism but remember this number was affected by the Greek and China dramas. I really want to see the next number for August.
- Some US economic data was a bit soft, such as the Philadelphia Federal Reserve business index which eased from 15.2 to 5.7 in July, which is a pretty big drop.
Going Down the Mine
With the country shivering I spent Friday at Noosa! I was hoping to get out a surfboard at the lunch break of the Noosa Mining Conference but as there was snow in the Granite Belt of Queensland, I didn’t go down the mine on a long board at Noosa Heads.
Call me chicken but don’t call me old!
Anyway, the big take out came from Morgan’s Michael Knox who told the conference that the oil price was heading to $US100 within two years. And mining stalwart, Owen Hegarty, was very bullish on iron ore, copper and metals of that ilk.
Despite the conference being a showcase of smaller miners, you get the feeling that a position taken in good mining stocks, especially in oil and LNG, could reap nice rewards for those who can wait about two years!
I was happy that a star panel of industry experts didn’t argue with my logic that a company such as BHP over say five years could easily go up to $37. That would be a capital gain of $10 on $27, which would be 37% in total and 7.4% per year plus a dividend of at least 4% and I think 11.4% will beat term deposits forever!
Mark Twain once said, “A gold mine is a hole in the ground with a liar in top!” That’s a tad harsh, however, generally, I think miners are optimists usually dealing with a pretty good yet cyclical product, which eventually, like a dog, has his day.
Conclusion?
Uncertainty is starting to be beaten up by certainty and it explains why US market expert Dennis Gartman told CNBC this week that “anyone shorting the global stock market stands to make a fool of themselves as equities continue to rally.”
That’s spot on until the first rate rise in the USA, which will see the market slide, but it will be another buying opportunity! And you can be certain about that.
P.S. The Nasdaq hit another all-time high overnight driven by Google, which went up 16% with Class A shares at $699.62 following a good company report! That’s another blow against uncertain times.
Top stocks – how they fared
[table “96” not found /]The week in review
(click the blue text to read more)
- This week, I gave you some essential tools [1] to make money with stocks.
- Tony Featherstone said the best time to invest in mining could be approaching [2], with conditions gearing up for M&A activity.
- Paul Rickard performed a product road test [3] on K2 Asset Management’s new ASX-quoted international fund (ASX code: KII).
- This week, the brokers upgraded Caltex and CSR [4] and in our second broker report, the analysts liked Cochlear [5].
- Tassal and Collins Foods feature in our Super Stock Selectors [6] list of likes list this week, while resources get a thumbs down.
- Roger Montgomery [7] said it’s probably not wise to pay CEOs top dollar if all it ends up doing is inflating salaries in aggregate.
- Charlie Aitken said you should take advantage of market dips [8] to build US dollar exposure and profit in the long run.
- And James Dunn [9] gave us the flyers, divers, and potential takeover targets in the retail sector.
What moved the market
- The Greek parliament’s acceptance of the nation’s bail-out conditions.
- US Fed Chair, Janet Yellen, sticking to her guns on raising interest rates later this year.
- A strong earnings report from Netflix, which helped the NASDAQ hit another all-time high on Thursday night of 5,163.18.
- And believe it or not, a better than expected Chinese GDP figure, which rose 7% in the second quarter compared to the same period one year ago.
The week ahead
Australia
- Monday July 20 – State of the States report from CommSec
- Tuesday July 21 – Reserve Bank Board minutes
- Tuesday July 21 – Weekly consumer confidence index
- Wednesday July 22 – Consumer price index (June quarter)
- Wednesday July 22 – Speech by RBA Governor
Overseas
- Wednesday July 22 – US Home prices (May)
- Wednesday July 22 – US Existing home sales (June)
- Thursday July 23 – US Leading index (June)
- Friday July 24 – US New home sales (June)
- Friday July 24 – Markit “flash” manufacturing (July)
Calls of the week
(click the blue text to read more)
- APRA’s position on bank capital ratios, which reconfirmed that the majors are ‘’well capitalised,’’ and dismissed David Murray’s recommendation to tightly tie bank capital ratios to a benchmark of foreign banks i.e. “the top-quartile approach.’’ Read Paul Rickard’s full analysis here [10].
- US President Barack Obama led Iran and a group of six nations to a landmark deal [11] that would lift economic sanctions on Iran in exchange for reining in its nuclear activities. I think this deal – if given the thumbs up – could mean another leg up for stocks!
- Maybe Federal Speaker Bronwyn Bishop had been channelling her inner Arnold Schwarzenegger when she said “get to the chopper!” and took a $5,000 plus taxpayer funded helicopter ride to a Liberal Party fundraiser. This week, she made the call to pay this amount back with an additional 25% penalty. Here’s David Speers’ analysis [12] of the joy ride that, according to Treasurer Joe Hockey, didn’t pass the “sniff test”.
- And after a nine-year mission by NASA to get its closest inspection of Pluto’s surface, social media users thought the biggest discovery was finding that Pluto actually does, in fact, live there! Here’s one image of the pooch on Twitter.
[13]Source: Twitter, ABC
Food for thought
It’s not what you look at that matters, it’s what you see
– Henry David Thoreau
Last week’s TV roundup
- What are the charts telling Gary Stone of Share Wealth Systems about stocks going forward? Find out here [14].
- In Mad about Money [15], Marty and I talk about banks and their capital adequacy, China, Greece and why, when it comes to saving money, it’s important to pay yourself first.
- Nicolette Rubinsztein of the Commonwealth Bank tells us why you should consider annuities [16] in your retirement plans.
- And it could have been a bad week, but good prevailed with the stars aligning for Greece, the US and now China. To give his outlook on the future of equities, Shane Oliver of AMP Capital [17] visited Super TV.
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 there were some really big movers – NRW Holdings had a 6.53 percentage point increase in the proportion of its shares sold short. The next biggest mover was Mount Gibson Iron, with a change of 3.62 percentage points to 8.90%.
[18]Source: ASIC
My favourite charts
Business confidence bounces!
[19]The NAB business conditions index lifted from 6.4 points to hit an 8-month high of 10.9 points in June (blue line). But the big ripper was the NAB business confidence index, which hit a 21-month high in June, lifting from 7.7 points to 9.8 points (red line).
Dwelling starts build
[20]Dwelling starts lifted by 8.6% in the March quarter to 53,901 and work started on a record 203,760 new dwellings over the year to March, which means good things for the building trades!
Top 5 most clicked on stories
- Peter Switzer: Remember these things to make money with stocks [21]
- Paul Rickard: Want a 25% annual return? Take a deep breath… [3]
- Charlie Aitken: Take advantage of dips to build US dollar exposure [22]
- Tony Featherstone: Resource sector ripe for consolidation [23]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [24]
Recent Switzer Super Reports
- Monday 13 July 2015: Lessons for the long term [25]
- Thursday 16 July 2015: Walk this way [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.