The working week began with a car trip up the Hume Highway, leaving the Melbourne marriage of my son, which went off like a dream, behind. However there was a fatherly price to pay — Dad volunteered to drive the newlywed’s car back to Sydney, so it’ll be there when the European honeymoon ends! We parents are forever slow learners, but it did give me a chance to contemplate some valuable investment issues over the 873 kilometre trail.
And more than that, I got a chance to live in awe of the courageous heroes who were driving along the Hume in their CFA fire trucks in a convoy of courage, as they headed towards the Blue Mountains to fight these Red October fires. As someone with a property in the Mountains, I will forever be in debt to those men and women who hailed from as far south as Westbury in Tasmania! When you see that kind of thing you know, despite our statewide differences, we are a people bonded by our history, our loves, such as cricket, and our threats!
No clear and present danger
On the subject of threats, few things seem to be rocking the confidence of share players, making me feel a lot more confident about my call of 5500 for the S&P/ASX 200 at the start of the year. We finished at 5386.3 yesterday, so all we need is about 114 points and we’re there, and it doesn’t look that hard.
That said, Investor Mutual’s Anton Tagliaferro was quoted tipping a correction is on the cards. I think most rational people would agree but I suspect these are not rational times.
One US market commentator made the observation that probably one-third of the market’s huge run up since the GFC-crash of stocks was down to the Fed. The rest was based on the stumbling recovery. It’s why the Fed’s tapering of QE3, which I think will be next year (well after the next round of debt ceiling dramas scheduled for early February), will eventually push stocks down for a time. However, eventually the realisation will come that the US economy can grow without the Fed, and that will push stocks up again.
The latest on US Earnings
The current US reporting season helps the S&P 500 continue its drive into all-time high territory. At the half-time mark, earnings are up 4.5% against an expectation of 3% and while revenue readings are not as good company to company as was hoped, they’re still up 4% and that’s a rising trend. If economic data can surprise on the better than expected side, then this bull market keeps on rallying.
My likes for the week
- Despite recent rises, the US stock market is still seen as fair value.
- Bonds are as popular as Anthony Mundine at a Jeff Fenech BBQ! This is good news for stocks, as money has to go somewhere.
- The Aussie has dropped from its US97c level to be at US95.18c this morning — I know it’s bad for overseas holidays but it’s great for stocks.
- Reading this from Charlie Aitken: “In Australia, shorters have got pretty much nothing right. In fact, they have mostly been spectacularly wrong. Australia is the “Killing Fields” for shorters, and as GDP growth recovers, I expect that to continue. The short pain trade in Australia has been so big in selected Australian stocks this year that I suspect many shorters may simply rule Australia off from this point as a place to short.”
My rational fears
The US index, the S&P 500, has been up four of the past five years and it has put on double-digit gains in those years. But the historical average is more like 6% and so when do we revert to the mean? Of course, the index dived 50% in 2008, and the Fed has been playing the kind of game you need when a Great Depression threatens. But it does make you think about when all this delightful money-making madness stops? Well, that’s part of our job here at the Switzer Super Report, so keep watching this space, though I’m not readying myself for an imminent bailout.
Charlie’s angels in cattle class!
Charlie built a great wall of support for Crown in a week when bonny Prince George was christened and our own Princess Mary was at home. He turned the heat up with Suncorp. He put a $6 tag on Telstra and booked another flight on Qantas, despite downgrades to cattle class!
Go Charlie and go the fire fighters!
Top stocks – how they fared
[1]
Numbers that moved the market
There was mixed data out of China this week. The first was short term money-market interest rates climbing to their highest level since July, which weighed negatively on the market.
Then on the other side of the coin, HSBC’s flash PMI [3] figure for China, released on Thursday, showed a seven month high in Manufacturing. The estimated figure was 50.9, up from a final reading of 50.2 in September, bringing markets back up.
In another case of bad news and good news at the same time, disappointing US jobs figures [4] (148,000, down from an expected 180,000), saw markets react positively. The thinking is: bad data means the Fed will further delay tapering of Quantitative Easing, which means that the economy will get to keep its training wheels on for longer than expected. Any easing of QE, which is inevitable, will see a temporary dip in the market, but I’m confident the good sense of investors (perhaps an an oxymoron?) will eventually prevail.
The week ahead
Australia
October 29 Speech by Reserve Bank Governor, Glenn Stevens
October 30 New home sales (September)
October 31 Export & import prices (September quarter)
October 31 Building approvals (September)
October 31 Private sector credit (September)
November 1 RP Data-Rismark Home Value (October)
November 1 Producer prices (September quarter)
Overseas
October 28 US Industrial production (September)
October 29 US Producer prices (September)
October 29 US Retail sales (September)
October 29 US Case Shiller home prices (August)
October 29-30 US Federal Reserve meeting
October 30 US Consumer prices (September)
October 30 US ADP employment (October)
October 30 US Economic growth (September quarter)
October 31 US Personal income (October)
November 1 US ISM manufacturing (October)
Plenty on this week, particularly in the US with data being released that was delayed due to the shutdown. To kick things off in Australia, RBA Governor, Glen Stevens, will give the opening remarks on Tuesday morning at Citi’s 5th annual Australian & New Zealand Investment Conference. Analysts will be listening out for insights into the current high dollar.
With auction clearance rates through the roof and housing prices up 20% annually in August, new home sales data on Wednesday will be another one to look out for. CommSec is expecting construction and sales to continue to strengthen.
But it’s the US that has the most action this week, with data delayed by the shutdown set to be released. On Tuesday and Wednesday, the US Federal Reserve Open Market Committee will hold their next meeting. With the economy where it is at the moment, an easing of QE is unlikely until early next year (at the earliest).
Calls of the week
Telstra was a hot topic in the Super Report this week, with both Barrie Dunstan [5] and Charlie Aitken [6] rating the stock highly.
If you followed Paul Rickard’s advice last December [7] to sell CBA and buy NAB, you’d be 22.8% better off. Find out the next step here [8].
I’m almost finished Breaking Bad, and completely agree with Sir Anthony Hopkins’ (of Hannible Lector fame) fan mail to Bryan Cranston (AKA Walter White, main character in Breaking Bad). “I’ve just finished a marathon watching of Breaking Bad. There is so much smoke blowing and sickening bullshit in this business … But this work of your is spectacular – absolutely stunning”
Last week’s TV roundup
There is a 95% likelihood that markets will head north in the medium to long term. That’s the key take out from the charts, according to Gary Stone [9] from Share Wealth Systems.
For those who are always worried about crashing stock markets, the logical alternatives are property and term deposits. I spoke with Jason Huljich [10], CEO of Centuria Property Funds, to find out how to get exposure to big property that is otherwise out of reach.
There’s been plenty of scepticism and negativity in the mainstream financial press around our big banks recently. To hear a bankers view on the situation, I caught up with Noel Yeates [11] from Macquarie Bank.
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.
There wasn’t a huge amount of movement on the short scene this week, with most companies remaining around the same spot on the list. Monadelphous was the most interesting one, with investors short selling a further 2.12% of the company. There weren’t many good news stories, with 12 companies becoming shorter compared to just 7 moving in the opposite direction.
[12]
My favourite charts
The State of the States
CommSec’s Craig James ‘State of the States’ report always produces great charts and this edition was no exception. When looking at a retail spending it’s easy to see why WA is again the top state.
[13]Here’s how the states stacked up in terms of overall economic performance:
- WA
- ACT
- NT
- QLD & NSW
- Vic
- SA
- Tas
You can read the full report here [14].
Bang for our buck
At the beginning of last month, the AUD was worth less than 90 US cents. Since then it’s rallied all the way to 96. Not great for the economy but a great time to take an overseas holiday!
[15]Top five clicked on stories of the week
Paul Rickard: Time to unwind 22.8% profit on bank shares [8]
Charlie Aitken: Time to get Telstra before everybody else does [16]
Barrie Dunstan: Telstra – not Nine – best media buy [17]
Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [18]
James Dunn: Freelancer.com – the next Apple? [19]
Last week’s Switzer Super Reports
Thursday, 24 October 2013: The pick of the bunch [20]
Monday, 21 October 2013: Don’t follow the lemmings! [21]