Switzer on Saturday

Ringing the ‘wedding’ bell, 26 years since Black Monday. And China rocks

Founder and Publisher of the Switzer Report
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It’s Caulfield Cup day in Melbourne but the Switzer clan won’t be focusing on Gerry Harvey’s Royal Descent in the Cup or his mate John Singleton’s Dear Demi in the big race. We’ll be fully engaged with the wedding of my son Alex to the wonderful Renee Carl.

Last week I told you that my older son Marty married Jess Blanch in Scone, some of NSW’s best horse country, three days after Lehman Brothers failed! Because of that financial catastrophe, Sky wanted me to host a TV program but I’d promised my wife it would be a “no media!” weekend. The same blackout applied this weekend, so that debt default deal really took the pressure off me, big time.

Earlier in the week before the Congress came to its senses, I spoke to 300 of Macquarie Bank’s clients and assured them if another Switzer wedding was linked to a market crash, it might be the last for some time, as I have no sons left to continue the jinx!

This weekend has special significance as it continues the theme that crashes tend to blow in on an ill wind that personally brings me a lot of good.

Black Monday anniversary

It was on 19 October 1987 in the US (October 20 here) that the stock market crashed. I remember it well because at the time I was making a documentary with radio station Triple M’s national news director, David White, called Are We Living on Borrowed Time? I hadn’t done live radio then, just taped stuff and I’d left my newspaper at my UNSW office (I was teaching in the Commerce Faculty there) and when the station called at 6am to ask me to explain why Wall Street had crashed, I had no newspaper, there was no such thing as the Internet, no Reuters machine in my Paddo terrace and Michael Pascoe didn’t do his first finance report on Nine’s Today program until 7am! This was high finance in 1987!

That was then, this is now

So where are we with the unholy mix of the US Congress, the debt ceiling and the loonies, not from the left as in most countries but from the extreme right?

This is what President Obama wants: “The key now is a budget that cuts out the things that we don’t need, closes corporate tax loopholes that don’t help create jobs, and frees up resources for the things that do help us grow — like education and infrastructure and research.”

That’s huge, and great in a perfect world, but it looks a little too ideal.

The first new deficit/debt deadline is December 13 for the budget committee to come up with a deal to put to Congress on January 5, and if this fails we could see another shutdown! Markets will be nervous as this date looms and the usual media posturing results.

There is some hope with Sen. Mitch McConnell, the Republican leader in the Senate, telling the National Review that “…a government shutdown is off the table.”

It sounds good but Republicans won’t cop higher taxes and Democrats won’t endure cuts to Obamacare, without closing tax loopholes for wealthy individuals and corporations.

Clearly, a Congressional cloud will hang over the stock market, meaning gains, which I expect, will be more subdued than they would’ve been if a real debt deal had been struck, though the extension of QE3 means the monopoly money will keep fueling share prices.

“We still don’t have a long-term outlook,” said Lindsey Piegza, chief economist at Sterne Agee and this will hold back business and consumer confidence (CNBC).

Thank God for China!

Defying the doomsday merchants, the Chinese economy grew at 7.8% annualised in the September quarter, in line with forecasts and up from 7.5% in the year to June. This is great news for the global economy, as China is the number one contributor to world demand — the US is second but Yanks like to buy American.

Secondly, China is our number one trading partner, and as the Yuan has spiked against the Greenback, it will help our exports and bring even more Chinese tourists here, which average over 55,000 a month! And we’re not even in the top 20 tourist destinations for the travelling Chinese!

For the optimists

I liked AMP’s Shane Oliver’s take on the debt deal and here it is: “The removal of a threat to global growth with the ending of the shutdown and increase in the debt ceiling, adds to confidence that the global economic recovery will continue and is a positive for growth assets including shares.”

And this was made before the good Chinese data!

Charlie’s Angels

Before I sign off, here’s Charlie’s good oil for the week. On his market march to 6000, he’s got a cheap BHP in his knapsack and targets of ANZ at $33.60, CBA at $76.80, NAB at $39.50 and WBC at $36.50 for FY14. He still carries the torch for BOQ and QBE and he’s having a blast with Mesoblast!

If Singo didn’t have a horse in the race, I’d finish off with Go Harvey Go. So instead let me say — may the best horse win!

Top stocks – how they fared

Numbers that moved the market

 Once again the RBA has kept its options open to do what they see fit with interest rates. The key takeout from the minutes of their October meeting, released on Tuesday, was, “members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.”

On the deal to end the government shutdown and raise the debt ceiling, the US Senate voted 81-18 and the House 285-144, enabling Obama to sign the deal into law to prevent the US from its first ever default. ‘Non-essential’ government workers are now back on the payroll after two weeks out of work.

In another vote, this one far less interesting and far less important, Bill Shorten won 52% of the total vote to become leader of the Labor Party.

Deloitte released their quarterly CFO survey this week, and found that CEO optimism “surged” in the past quarter. 41% say they are optimistic about the financial prospects of their company, up from -11% in Q2.

The week ahead


October 21 HIA-RP Data Land Report (June quarter)
October 23 Consumer Price Index (September quarter)
October 24 Speech by RBA Deputy Governor


October 21 US Existing home sales (September)
October 22 China house prices (September)
October 23 US FHFA home prices (August)
October 24 US New home sales (September)
October 24 “Flash” manufacturing activity for US, Europe and China
October 25 US Durable goods orders (September)
October 25 US Consumer sentiment (October)

After a busy fortnight in Australia things will calm down next week, with just two noteworthy reports and a speech by the RBA Deputy Governor, Philip Lowe.

There will be plenty going on abroad though, with ‘Flash’ manufacturing activity for the US, China and Europe coming out. We will also see what effect the US government shutdown had on consumers, with consumer sentiment for the month of October released. Most economists expect to see lower sentiment as a result of the government dramas.

Calls of the week

Charlie Aitken is the King of the call and he’s lived up to his reputation this week, claiming QBE to be undervalued and a no brainer to catch up to the market.

They’re still at it. The latest headline from the NeverEnding story that is the Labor catfight was made by Nicola Roxon this week, when she said, “Kevin had been such a bastard to so many people”.

Leighton has copped a beat-up in the media recently, but that’s only reinforced Paul Rickard’s positive view on the company.  This dip is a buying opportunity.

Last week’s TV roundup

With plenty of new floats on the way and a number on the market already, I got the fund manager’s view from Roger Montgomery, Chief Investment Officer at Montgomery Investment Management.

The laws around SMSFs acquiring, holding and disposing of collectables were  tightened in 2011, but there’s still a lot of confusion around the subject. To find out more, I spoke with Peter Burgess from AMP SMSF.

Brian Freeman is a Kokoda track record holder and has been running treks along the trail since 2000. He joins Peter on Super TV to talk about his book, Walking Wounded.

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 whole lot of movement on the large short front this week. Metcash made the biggest move becoming 1.34% shorter. Last week it moved in the opposite direction by 1.26%, so the share is almost back where it started, currently 9.84% short.

My favourite charts

Driving growth

Despite car sales being down 3.5% seasonally adjusted year on year in September, 4WD sales continue to motor along and are currently in record territory.

Top five clicked on stories of the week

Last week’s Switzer Super Reports