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Hey, what a nice turnaround on the local stock market on Friday, with the S&P/ASX 200 index only down 4.2 points to 4976.2! And I like that BHP (et al) had another good day at the office. It’s a pity that Wall Street was negative after the job numbers overnight but I guess OK job numbers actually put a March interest rate rise back on the table.

Just take that last sentence in again and work out why this is a mad market we’re in. The comeback of iron ore stocks has to be linked to something – is it the better outlook for the demand for iron ore, (which is hard to see) or is it because the US economy might be growing slower than expected? And that’s why the greenback fell and the Oz dollar went over 72 US cents this week.

So a slower US economy – the biggest economy in the world – is good for BHP and our stock market? You can see why I say it’s a mad market.

More evidence needed? Try this: Mary Ann Bartels of Merrill Lynch Wealth Management in the US told CNBC this morning that we’re in the early stages of a secular bull market, which historically lasts over a decade! But then Citi’s smart guys and gals warn that, wait for it, “the global economy seems trapped in a death spiral that could lead to further weakness in oil prices, recession and a bear market!” (That’s my exclamation mark at the end of that sentence – it should be there with a call like that!)

Against that scary headline, I’m now looking at headlines that tell me that the jobs report KO’s pessimism on the economy, that the job numbers put a rate hike back in play and one expert predicts a bottom next week ahead of a stock market rally!

Give me a break. No one really knows what’s happening right now but calls from the likes of Citi and RBS, with their “sell everything call’, aren’t helping.

In the Switzer webinar yesterday, an attendee asked me when would I concede that this sell off is worse than I think? I replied that I’d concede if the S&P/ASX 200 index hit 4500. In case numbers aren’t your strong suit, well, we’re now at 4976.2.

Gary Stone of Sharewealth Systems thinks we’re in a primary or cyclical bear market that lasts a short time. Like Bartels, Gary says that overall we’re in the early stages of a secular bull market. I agree. I’ve been calling this a long, drawn out economic cycle that will create a slow, rising stock market. That suits me because I prefer to get rich slowly and I’m a long-term investor.

Sure, getting rich quickly in a ‘slam, bam thank you mam’ bull market is exhilarating but it leads to a much quicker crash. Therefore, I’ll go with the ‘slow and steady wins the race’ market every time. Have a look at our stock market and see how we’ve gone sideways around these levels for a few years but we’re still on a rising trend.

OK, so let’s look at the US job numbers. In January, 151,000 jobs were created. Economists had tipped 190,000. However, on the better side, the jobless rate fell from 5% to 4.9%, wages rose 0.5% and even the participation rate rose.

Even though there was a miss on the number of jobs created, the overall report has increased the likelihood of a March interest rate rise, though it’s still a 50:50 bet.

If you look at the six-month and 12-month average job creation in the US, it comes out at around 214,000, which doesn’t look like an economy heading for recession or a “death spiral”.

Another sign that the job figures are a ‘thumbs up’ for the US economy was the rise in the greenback. Smarties think a rate rise is now more likely, so this could hit commodity prices and our stocks on Monday.

Remember that last week the US dollar fell. A fall always spikes commodity prices. Some of BHP’s rise had to be because of a weaker US dollar.

By the way, oil prices continued to rise overnight and remain over $US30 a barrel. In a year when the rig count in the US has dropped 60%, that has to hit supply eventually and then the price.

I’ve said this before and I’ll have to say it again and again – economics and earnings have to improve before stock prices go back to where they were in April last year. I think the Yanks are doing their bit but there’s still a lot of slackers around the world keeping growth, profits and share prices lower than we want.

What I liked

• BHP’s share price spike – up 4.85% on Friday and up 14.3% since the low of $14.17 on Wednesday.
• This headline from CommSec: “Reserve Bank Upbeat on Australia.”
• The Australian Chamber of Commerce & Industry (ACCI) survey, which showed a surge in business confidence.
• The CoreLogic RP Data Home Value Index of capital city home prices rose by 0.9% in January, after a flat result in December. Home prices were up by 7.4% over the year to January.
• The Performance of Manufacturing Index fell by 0.4 points to 51.5 in January. A reading above 50 indicates that the sector is expanding
• The oil price this week but I don’t have confidence it can hold, given recent history. If it can hold, and even track up a bit, it would help stocks form a base.

What I didn’t like

• The ISM manufacturing Index in the US rose from 48.0 to 48.2 in January. While the forecast was 48.1, any number under 50 means the sector is contracting but monthly figures can be weather affected.
• The ISM Services Index in the US eased from 55.8 to 53.5 in January (forecast: 55.1)
• Ratings agency Standard & Poor’s has cut the credit ratings of BHP Billiton from A+ to A, which is another negative for that dividend!

One final observation on this mad, bad and dangerous stock market. I thought it was the quote of the week, from Michael McCarthy of CMC Markets, who described what we’re living through by relying on that great line from US President Franklin D. Roosevelt, who warned: “The only thing we have to fear is fear itself.” And he said it during the Great Depression.

It is fear that has hurt the stock market. Fear that Europe and Japan won’t beat their growth challenges. Fear that China is growing more slowly than the stats tell us. Fear that the US could go into recession and that we’ll be left with a mountain of debt and no growth to show for that, which could mean broken banks and, effectively, a worldwide recession!

Fear is a bloody dangerous thing! The views of central banks and most economists say we’ll muddle through this rough patch. That’s why I’m sticking with stocks.

Top stocks – how they fared

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The week in review

(click the blue text to read more)

• This week I told you about four foreign companies worth sinking your teeth into under the acronym of FANG! F stands for Facebook, A is for Amazon, N stands for Netflix, and G stands for Google.
• My colleague Paul Rickard recapped how our portfolios performed in January. Compared to the benchmark S&P/ASX 200 Accumulation Index, the income portfolio has outperformed the index by 2.3% and the growth-oriented portfolio has outperformed by 0.7%.
• Roger Montgomery explained why Fisher & Paykel Healthcare (FPH) has healthy prospects.
• The brokers upgraded Fortescue (FMG) and downgraded Worleyparsons (WOR). In our second broker report, ANZ and Ramsay Healthcare (RHC) were in the good books.
• Our Super Stock Selectors liked Commonwealth Bank (CBA) and disliked Slater & Gordon (SGH).
• Charlie Aitken explained why we need to keep our seatbelts fastened for the market’s bumpy ride, and to remember that there are plenty of opportunities for the patient!
• SMSF technical services manager and consulting actuary at Accurium, Melanie Dunn, explored the age old question – how much do I need to retire?

What moved the market

• The RBA’s decision to keep the cash rate on hold weighed on the Aussie market.
• Wall Street followed the price of oil – down, then up again!
• Global markets pared back expectations of an increase in US interest rates on the back of weaker than expected economic data, pushing the US dollar to a three-month low.

The week ahead

Australia

• Monday February 8 – ANZ Job ads (January)
• Tuesday February 9 – NAB Business survey (January)
• Tuesday February 9 – New home sales (December)
• Wednesday February 10 – Consumer sentiment (February)
• Friday February 12 – Housing finance (December)
• Friday February 12 – Tourist arrivals (December)
• Friday February 12 – Testimony by RBA Governor

Overseas

• Tuesday February 9 – US Wholesale inventories (December)
• Wednesday February 10 – US Federal Budget (January)
• Wednesday February 10 – Fed Reserve Chair Testimony
• Friday February 12 – US Import prices (January)
• Friday February 12 – US Retail Sales (January)
• Friday February 12 – US Business inventories (December)
• Friday February 12 – US Consumer confidence (February)

Calls of the week

• Ratings agency Standard and Poor’s downgraded BHP Billiton’s long-term credit rating from A+ to A, and said it could be lowered even further if the company holds its progressive dividend policy.
• Coles made the call to dump the Bega brand as their supplier for private label cheeses. Coles awarded a five-year contract to Murray Goulburn, commencing next year.
• My colleague Paul Rickard called on James Packer to come clean about his intentions for Crown Resorts. Read his article here.
• And Tony Featherstone tipped three demerged companies to consider, including Sydney Airport, DuluxGroup, and Asia Pacific Data Centre Group.

Food for thought

Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.

Thomas A. Edison – American inventor

Last week’s TV roundup

• Charlie Aitken from Aitken Investment Management joined the show to discuss whether the worst of this stock market volatility is behind us.
• My mate Paul Rickard looked at the key sector changes and trends in the stock market over the past month.
• Christopher Joye of the Australian Financial Review told us which banks he thinks are overvalued.
• And Gary Stone from Share Wealth Systems told us what the charts are saying about our markets.

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 Greencross, with a 1.50% decline in the proportion of its shares sold short from 14.33% to 12.82%.

Source: ASIC

My favourite charts

Building boom

Dwelling approvals lifted 9.2% during December. According to CommSec’s Craig James, that will help support economic activity in the building sector during 2016. The chart above shows how in 2015 a record 232,078 new homes were approved!

Cashed up Aussies!

In the past six months, the value of $100 notes circulating in Australia has grown at an average annual pace of 12.1%. Are Aussies stashing cash under their mattresses?

Top 5 most clicked on stories

• Charlie Aitken – Start of a bear, or a growth scare?
• Peter Switzer – Four foreign stocks worth sinking your teeth into!
• Melanie Dunn – How much do I need to retire?
• Rudi Filapek-Vandyck – Buy, Sell, Hold – what the brokers say
• Paul Rickard – Portfolios outperform in January

Recent Switzer Super Reports

• Thursday, 4 February, 2016: Bear Scare
• Monday, 1 February, 2016: Watch the FANGs

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.