Switzer on Saturday

Budget buffoonery, Bubble boy and bell ringing with Charlie Aitken

Founder and Publisher of the Switzer Report
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This week saw Tony Abbott maintain his ‘Get Smart-style’ cone of silence, though he did come out of his bunker to kick Christopher Pyne up the bum for alluding to a potential break of a promise on uni-student funding. Tony learnt from Julia what broken promises can do for popularity.

Sports-wise, and the huge story was the Kiwi-choke in San Francisco in the America’s Cup and the revelation that my beloved Roosters could have had some magic pills. This, of course, was speculation in the week of the team’s big game and Fairfax decided it was a good idea to rubbish a local team where the Sydney Morning Herald sells well. This might speak to the newspaper’s new war cry “Independent. Always”, but it could also explain why Fairfax’s share price is in the toilet.

Bubble boy gives no joy

And what gives with the AFR’s crusade against SMSF trustees and anyone enjoying a better value for their house? My old mate Christopher Joye, who I now call “bubble boy” (a Seinfeld character!), is blowing up this ballooning bubble. No one, from the Assistant Governor of the RBA, to just about every economist and banking analyst and bank CEO, can see anything in his reasoning.

Everyone concedes that a bubble is always possible, but, in Sydney alone, house prices have increased 8.3% for the year to September, they were up 1.2% for 2012 and slid 2.4% in 2011. Bubble — give me a break!

In fact, in Brisbane-Gold Coast, the rise this year has been 1.8%! Look for Paul Rickard’s analysis of this fake bubble story coming up in Monday’s newsletter.

Fairfax hits out at SMSFs

And what about the AFR’s anti-SMSF run of stories? There is a push from industry funds and retail funds against SMSFs, and the exaggeration against our funds is being aided and abetted by Treasury. I’ll get stuck into this on Monday.

The AFR is trying to win over SMSFs but all the paper seems to do is tell us how bad they are. This is another great example why its share price keeps heading down the dunny.

Our Yankee mates

We’ve just lived through an up week on the stock market, after a 24-point fall on Monday, which then gave way to a 55-point gain to end at 5,307.10. In the USA, the nincompoops in Congress, who always make our politicians look credible and even electable, continue to play chicken with the funding for their deficit.

As I write, they have until Tuesday to sort out their differences on how to fund the deficit and deal with their debt ceiling. So it means a Monday battle of the budget lies ahead in Washington and Wall Street can’t like this madness.

A Kramer classic

This budget buffoonery reminds me of another episode of Seinfeld, where Kramer took a Saab for a test-drive and decided to see how far he could drive on one tank. He drove a long way to the surprise of his co-driver, who was the salesman, but he did run out of juice in the middle of nowhere!

Everyone expects an 11th hour solution and that’s why stocks have been only tentatively negative on the New York Stock Exchange.

A spoonful of sugar

Away from bad news, I like these facts:

  • The Baltic Dry Index is at the highest level since October 2011. It’s up 114% since August 12, and it’s good news for miners and cyclical companies that use ships!
  • The US reporting season starts soon and S&P Capital IQ says company revenue could be up 4.8%. In the previous quarter, it was up only 0.1% and this would be the best result since the second quarter of 2012!
  • The US deficit was around a trillion dollars but it’s now $600 billion.

This all tells me that buying the dips and then getting onto confirmed trends still makes sense. Remember, the trend is your friend until it bends!

Charlie’s Angels

Here are Charlie Aitken’s (from Bell Potter) calls this week:

  • He’s buying BT Investment “with his ears pinned back”.
  • He’s building the foundations of a solid portfolio with Brickworks (BKW).
  • He’s getting a healthy tan with Bank of Queensland (BOQ).
  • And he’s ringing up future profits with Telstra.

Bubbles galore

One last word on the housing bubble and it came from the irrepressible Charlie, and I loved it: “With the Australian press seemingly willing to publish on the front page any commentator who uses the words “Australia” “housing” and “bubble” in a sentence, I thought I’d Google those three words and see what came up. Yes, just 2.5 million articles on the subject, starting back in 1989! Enough said.”

Have a great weekend and Go the Roosters!

Top stocks – how they fared

Numbers that moved the market

Flash Manufacturing PMI figures for a number of regions were released this week, with overall positive results. The readings were:

China: 51.2 – up from 50.1 in August
US: 52.8 – down from 53.1 in August
Eurozone: 51.1 – down from 51.4 in August

Despite US and Eurozone readings coming in below last month, all PMI numbers were above 50 which indicates growth in the region. So good news all round.

Despite the good news, consumers in the States don’t seem to realise how well they’ve got it. Consumer Confidence dipped in September to 79.7, down from the August reading of 81.8.

Still in the US, home prices were up by 1% in July. It’s the 18th consecutive month house prices in the US have increased, and equates to a 12.4% increase compared to last year.

Finally, the Aussie market went its own way this week, refusing to follow Wall street’s losses. See chart below.

The week ahead

September 30 Private sector credit (August)
October 1 RP Data/Rismark home prices (September)
October 1 Reserve Bank Board meeting
October 1 Retail trade (August)
October 2 International trade (August)
October 2 Building approvals (August)

October 1 US ISM manufacturing (September)
October 2 US ADP employment gauge (September)
October 3 US ISM services (September)
October 4 US Non-farm payrolls (September)

This week in Australia it’s all about property.

The bubble debate will kick up again on Tuesday as RP Data and Rismark release their September home prices figures – this year Sydney and Perth have been leading the price gains. Adding fuel to the debate will be the RBA’s interest rate decision. While no change is expected, the correlation between the current all-time low rates and the situation on the property market is sure to be made by some. (By the way, watch my debate on this with Christopher Joye below).

Also on the property theme, building approvals numbers for the month of August are out this week. Analysts are expecting a 3% lift for the month.

In the US, the main event will be on Friday night, when non-farm payroll figures are released. Experts are predicting 177,000 new jobs, an improvement on last month’s 169,000 but by no means breathtaking.

Calls of the week

An oldie but a goodie, and the joke wasn’t bad either. Watch Bob Hawke tell a cracker to Alan Bond and John Bertrand. Brilliant delivery and I love the irreverence!

Anthony Albanese is an intellectual lightweight, says Mark Latham in his column in this week’s AFR. According to Latham, Labor should vote ABA: Anyone but Albo.

Charlie Aitken sides with us at the Switzer Super Report when we say this housing bubble is much ado about nothing. His research, which outlines how much the media love to blow up the issue, consisted of a simple Google search:

“Just 2.5 million articles – enough said”.

Last week’s TV roundup

It’s no secret that I think recent talk of a housing bubble is over the top. One person with a different view is Christopher Joye, Director at Yellow Brick Road. He joined me to debate the issue.

How long will this bull market last, and what’s all this talk about a housing bubble? Paul Rickard joined me this week to discuss these topics in our latest edition of Super Sessions, exclusive to the Switzer Super Report.

Regulators have had a lot to do with self managed superannuation recently, with ASIC suggesting the minimum balance for an SMSF should be $500,000. So what is an acceptable balance for an SMSF? To find out I caught up with Olivia Long from Xpress Super and John Felsch from Australian Group Insurances.

With consumer confidence a challenge for retailers, Gerry Harvey joins Super TV for a look at whether Harvey Norman is heading in the right direction, the impact of the GFC and the internet, the outlook for the business and much more.

According to Gerry, luck is something every successful businessman should acknowledge. Watch the two part interview here and here.

Favourite charts

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.

After five weeks leading the table, Fairfax is no longer the shortest stock, with Myer becoming 0.84% shorter (14.15% of total shares) to take the top spot. Kingsgate’s short position has moved from number 12 last week to number 18 this week, with a promising 1.37% decrease in their percentage of stocks sold short.

Bubble Business
With all this talk about a housing bubble, it’s a good idea to take a look at the yanks, six years after their bubble popped. They’ve clawed their way back and according to the Federal Housing Finance Agency are at the same level as in March 2005.

Cashed up
CBA’s Craig James released a paper on Thursday about Australia’s love affair with cash. The below chart shows how our affinity with cash holdings is beginning to wane (cash accounted for 22% of financial assets in June – a two year low).

Despite the trend away, there is still a record amount of cash floating around at the moment.

As mentioned above, here is how we fared this week compared to the yanks. This chart was taken on Friday afternoon so doesn’t account for Friday’s movement in the US. The orange line is the ASX200 and the green line is the S&P500.

Last week’s Switzer Super Reports

Thursday, 26 September 2013: Beautiful one day, perfect the next
Monday, 23 September 2013: It’s all about the bull

Top five clicked on stories of the week

When will this bull market run out of steam? – Peter Switzer
Buy, Sell, Hold – what the brokers say – Rudi Filapek-Vandyck
Buy BOQ for northern exposure – Charlie Aitken
Buy, Sell, Hold – what the brokers say – Penny Pryor
Floating the OzForex boat – Roger Montgomery