Switzer on Saturday

Turning point time, Leo DiCaprio and cheaper shoes

Founder and Publisher of the Switzer Report
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I wrote the headline to this story before the Yanks reacted to the Bank of Japan cutting interest rates and Wall Street took off. So it’s a good news morning that greets us in the Switzer Super Report (Saturday edition). Yahoo!

This week gave the feeling that we could be at a turning point. Clearly, the real game changer has been the apparent bottoming of the oil price. After plumbing the depths of $US26 a barrel, it has headed up to around $US32 a barrel for most of this week and, amazingly, it has held!

But let’s be honest, it has been helped by some improving, even exciting headlines for a tired bull, who, frankly, is sick of bears and everything they bring. In fact, during the week, I saw Leo DiCaprio fight it out with a huge grizzly bear in the film The Revenant – they can do a hell of a lot of damage!

That aside, I have been psychologically boosted by a number of headlines and related stories that make me think we’re close to a turning point, if we haven’t already encountered it.

Let’s deal with the positive news overnight that had the Dow up 295 points, when I bounded out of bed this morning. The big driver was the Bank of Japan cutting interest rates, copying the Swiss and Europeans, who have pioneered negative rates. This is what I call the Rooster Cogburn approach to monetary policy, which is virtually saying: “Get out there, stop saving and spend, you sons of bitches!” (The great John Wayne actually said: “Fill your hands, you son of a bitch!” in the movie True Grit.)

Of course, you could be worried that Japan needs negative interest rates but I think a lot of people would be saying that, at long last, the Japanese are starting to not act like the Japanese! This new attitude might be necessary to get them out of the economic quagmire they’ve been in since the economic miracle of the 1970s and early 1980s turned into an economic quagmire.

Adding to the positivity on Wall Street, the Chicago PMI, which is a factory indicator, came in at 55.6, against a consensus guess of 45 and miles better than the 42.9 result in December. This is a kick in the guts reading for those dopes tipping a US recession.

If a recession is coming, US consumers aren’t seeing it, with the latest confidence reading at 92, which is a little down on December but still a good one.

Also, the early reading on GDP for the fourth-quarter came in at 0.7%, which matched expectations, though it was down on the huge 2% number from the previous quarter.

On top of this good news, we saw earnings from the likes of Visa and Microsoft, with the latter beating expectations on revenue and profit.

Also, energy companies are all having a good week, with the oil price up. And this morning, the trend continued, with crude creeping up to $US33.48 a barrel.

What I liked

  • This headline: “Goldman Sachs: Recession fear overblown, market to gain 11%” (CNBC). Goldman says investors have become too fearful on the US economy. That’s what I’ve been arguing for a damn long time!
  • This headline from Reuters: “Russians want to talk to OPEC about output”. Sure, this has been denied but all parties concerned would say that, wouldn’t they? However, I’ve liked the oil price remaining up, despite denials.
  • This on CNBC this morning: “I think it’s an important inflection point here,” said Art Hogan, chief market strategist at Wunderlich Securities. If “we break the correlation with energy and start focusing on earnings, it’s a much healthier environment for investors.” So Art is talking turning points too. Good on you Art, I hope you’re right.
  • AMP’s Shane Oliver explaining the chart you’ll see at the end of this report, which shows that when investor sentiment cuts below a critical level, we historically see a rebound in the S&P 500. That happened last week and we’ve seen a rebound this week. Nice spotting Shane, though I did share this with you last Saturday.
  • Business credit to local businesses has hit record highs, which has to be a good sign for economic growth ahead.
  • Inflation here at 1.7% means we don’t have to worry about rate rises and a rate cut is still possible. I’d prefer the RBA to do nothing, as it will indicate that they agree with me that the economy is doing OK.

What I didn’t like

  • The deniers out there saying an oil deal was never on.
  • The fact that stocks go up and down with the price of oil, when low oil prices should have created an economic boom, which then should feed a stock market boom. (I don’t think oil prices will spike too high but I’m happy that the dropping has stopped. Let’s hope it can be sustained.)
  • Annual growth of investor housing in Australia lending fell to a 20-month low but that’s what the Reserve Bank wanted. I hope it doesn’t hurt the great housing recovery, which has partly replaced the mining boom investment, which is shrinking.
  • This headline on the local economy: “Terms of Trade Collapse”, with a 5.2% fall in the December quarter to a 10-year low. We knew it was coming, with commodity prices slumping but it still hurts when you actually read that it’s happening.
  • The so-called experts who keep telling the Government to worry about debt. The first job is to get the economy growing and then the debt will fall. That’s the time for the Treasurer to play “no more Mr Nice Guy”.

Not sure if I like or dislike this

This is good news for consumers but bad news for retail and shows what’s happening and will keep happening. In a big surprise, the price index of women’s shoes was 5.7% lower than a year ago – the weakest reading in 34 years – and that’s despite a falling dollar. So how come? I bet it’s the fact that more women are buying shoes on the Internet and retailers in the real world have to compete.

This is a tricky world we’re living and investing in!

Top stocks – how they fared

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The week in review

(click the blue text to read more)

What moved the market

  • Wall Street went lower after the US Fed kept interest rates unchanged and gave no sign of scaling back future interest rate rises.
  • But it bounced back on a surge in crude oil prices after Russian officials said they would talk to Saudi Arabia and other OPEC countries about cutting output.
  • And higher than expected inflation figures reduced expectations of an interest rate cut by the RBA.

The week ahead

Australia

  • Monday February 1 – CoreLogic/RP Data home prices (January)
  • Monday February 1 – Monthly inflation gauge (January)
  • Monday February 1 – Performance of Manufacturing (January)
  • Tuesday February 2 – Reserve Bank Board meeting
  • Wednesday February 3 – International trade (December)
  • Wednesday February 3 – Building approvals (December)
  • Friday February 5 – Statement on Monetary Policy
  • Friday February 5 – Retail trade (December)

Overseas

  • Monday February 1 – China Purchasing Managers (January)
  • Monday February 1 – US ISM manufacturing (January)
  • Monday February 2 – US Construction spending (December)
  • Tuesday February 2 – US ISM New York (January)
  • Tuesday February 2 – US Vehicle Sales (January)
  • Thursday February 4 – US Factory orders (December)
  • Friday February 5 – US Trade balance (December)
  • Friday February 5 – US Nonfarm payrolls (January)
  • Friday February 5 – US Consumer credit (December)

Calls of the week

  • Tony Featherstone tipped IPH and Xenith IP Group as two intellectual property stocks to put on the watch list.
  • The Fed boss Janet Yellen made the call to do nothing on interest rates!
  • Google released its own version of Geoff Mack’s I’ve Been Everywhere to show their mobile search app can speak and understand Aussie colloquial language. This came after an Aussie accent was introduced to the app’s voice during the past week. Fair dinkum!
  • And on Monday I posed the question – Is it time to play energy stocks? I’m cautiously crowing, because crude oil prices rose to a three-week high of $US34 a barrel!

Food for thought

Some people want it to happen, some wish it would happen, others make it happen.

Michael Jordan – American basketball player

Last week’s TV roundup

  • Olivia Engel from State Street Global Advisors explains how investors can manage their portfolios during volatile times.
  • Eliza Owen from Onthehouse.com.au joins the show to talk about the most expensive property markets in Australia, and other property market moves.
  • CommSec’s chief economist, Craig James, tells us if he’s feeling optimistic about the Aussie economy for 2016.
  • And does AMP’s Shane Oliver think the worst of this stock market craziness is behind us? Find out on 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 the biggest mover was Fortescue Metals Group with a 0.59% increase in the amount of its ordinary shares sold short from 8.53% last week to 9.12%. JB Hi-Fi went the other way with, with a 2.80% decrease week-on-week to 14.24%.

20160129-shortstockspositions

Source: ASIC

My favourite charts

NSW on top again

20160129-stateofthestates

CommSec’s State of the States report shows NSW is the best performing economy – taking out the top spot across 6 of the 8 key indicators. Its top ranking for one of those indicators – dwelling starts – is shown above.

Composite investor sentiment – US shares

20160129-CompositeInvestorSentiment-USshares

Source: AMP Capital

I like the way Shane Oliver is thinking, with his chart showing a possible retracement of US shares. In his commentary he says “signs of extreme pessimism and investor capitulation are continuing to build, with our investor sentiment index on US shares nearing levels associated with bounces.” And since the smarty pants published this last week, that’s what’s happened! Click here to see my interview with Shane on this very topic.

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