European Euphoria, Earnings and E’s back

Founder and Publisher of the Switzer Report
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Alleluia! Europe has come good! I’ve been whinging about these heartbreakers, near-do-wells and let down merchants since 2009. Then the European Central Bank had a slow learner called Jean-Claude Trichet, who was raising interest rates because he was worried about inflation!

I wrote stories for my SSR subscribers with headlines such as “Europests”, “EuroTrash”, “Euro Anxiety” and “Europe Derails Rally Again”!

I know there’s a long road to hoe for the QE to actually work but Mario Draghi, the ECB boss, promised a “bazooka” and this is what a central banker thinks is a big gun. And it’s when he left the end date of this 60 billion euros a month bond-buying plan open ended. He plans to do a Ben Bernanke and make it happen until banks lend, consumers borrow and business starts to invest as well as hire.

This is why stocks have headed up and while critics can point to just about every European rescue play bringing a great market response, they were all pop guns compared to this. As I say, no sing – Hallelujah, k.d.lang-style!

What have I liked this week?

  • The number 5501.80, which the S&P/ASX 200 finished the week on!
  • The 3.7% gain this week for our market.
  • This chart:

    Clearly, the trend from Wednesday is what I like and I have to thank the Europeans.
  • This chart of the Aussie dollar too:
  • This from Bell’s bloke wonder, Charlie Aitken in last Thursday’s Switzer Super Report: “In terms of the Big Four Australian banks, I need to reassess my view to take into account these dramatic moves in bond yields and the likely direction of Australian cash rates.” That’s Charlie talk for ‘banks are a buy again’.
  • Paul Rickard’s performance with his high-income portfolio, which had above market performances in 2013 and 2014  – 24.36% in calendar year 2013 for outperformance of 4.16%, and 8.13% in 2014 for outperformance of 2.52%. (Paul and I often have healthy debates on stocks issues but I’m really glad he’s our business partner and we’re on the same team! And I bet you are too, if you followed him. We have been big advocates of dividend payers and they have delivered.)
  • China’s economic data this week, which gave China-doubters a reason to doubt their too negative views on the world’s second biggest economy. I liked this from CommSec’s Craig James: “Encouragingly, key economic variables bet forecasts in December alleviating fears about the health of the economy.”

What didn’t I like?

  • Westpac’s Bill Evans still arguing the case that we need to see the RBA cut interest rates at the February meeting. If the Bank follows Bill’s script and says it’s because the economy is weaker than expected, that wouldn’t be a great start to 2015.
  • My own conclusion that I could support a rate cut if the ECB action eventually pushed the Oz dollar higher. This is the only reason why I could be happy with a rate cut because it would be designed to ensure that the currency assisted the improved economic performance I’m sweating on for this year.
  • US earnings season is more subdued than I would’ve liked, with some big name companies disappointing. UPS was a case in point. That said, 18% of S&P 500 companies have reported, with 72.2% beating earnings expectations, compared to a long-term average of 63%, which is good news. However, on the all-important revenue side, 54.4% of companies so far have beaten forecasts and this compares to a long-term average of 61%.
  • On the above info and taking in the less than flash retail numbers recently reported, Americans are yet to unleash the spending power that lower gasoline prices are expected to release. I suspect we’ll see that when the first quarter results are revealed in three months time.
  • The PM’s new policy on wages that has brought out the Labor response that this is Work Choices all over again and the goal is to reduce the minimum wage. Right now, if you look at the PR disaster the Budget was, the GP co-payment, then the $20 GP short visit slug, then the back down and now this new initiative that puts the Government again on the back foot, you have to ask: who’s driving these ill-timed political ideas? It’s like a plant from the ALP is in charge of the Government’s big ideas department and he’s laughing his head off as they try every one of them!
  • The fact, when people ask me what the Government is doing to kick start the economy, that I don’t have a convincing answer, apart from working on reducing our future debt, which, while a noble idea, isn’t and won’t help the economy now! C’mon Joe, we need a big, positive economic statement and people like me will run with it.

The best ever QE joke

Only in the crazy and wacky world of economists would there actually be some measurement around the best ever joke created on quantitative easing!

This is it and it comes from Ben Bernanke, the former Fed boss and creator of the QE program that the US used effectively: “QE worked in practice but not in theory!”

(By the way, I couldn’t find any more jokes on QE – what do we pay comedians for? – but I did find an article entitled: “QE is a joke!”)

One more for the Intellectuals out there

A Roman walks into a bar holding up two fingers and asks for five beers. (Think about it. As I warned, we economists are crazy, wacky kinds of guys.)

For those who miss me – jokes aside

I’m back on TV on the Sky News Business Channel as of Tuesday (27th Jan) and I look forward to getting back into it. I hope you can join me.

Top stocks – how they fared

The week in review (click the blue text to read more):

  • I gave you a handful of simple rules to use as your investment mantra. Remember – time in the market is better than timing the market!
  • Our growth-oriented stock portfolio has been updated – Amcor, Origin and Orica have been removed and Boral, Challenger, Macquarie and Seek added.
  •, IMF Bentham, Nearmap, IDT Australia and Select Harvests are five industrial stocks that James Dunn says are worth watching and perhaps adding to your portfolio in 2015.
  • Oz Minerals and REA Group were upgraded by the brokers, and AGL Energy was downgraded. This week also saw the brokers upgrade BlueScope Steel and Macquarie Group.
  • IPH Limited, Mantra Group and Future Generation Investment Company are three great stocks that Geoff Wilson says you need to know about.
  • And Ron Bewley reminds us of the importance in having a Plan B when it comes to investing to keep your SMSF portfolio in tip top shape.

What moved the market (click the blue text to read more)

  • Expectations were that the European Central Bank (ECB) would launch a quantitative easing program of 50 billion euro a month through to December 2016. But they delivered an even bigger ripper with a pledge of 60 billion euro a month starting in March until September 2016, and even longer if required!
  • The Chinese economy expanded at a 7.3% annual pace in the December quarter, beating expectations. Over 2014, the economy grew by 7.4% – missing its annual growth target of 7.5%. Retail sales were on the up however, rising by an 11.9% annual rate in December.
  • A record breaking production report from BHP Billiton – group production increased by 9% during the December 2014 half year.
  • The monthly consumer sentiment rating by the Westpac Melbourne Institute increased by 2.4% this month, from 91.1 in December to 93.2 in January.

The week ahead:


  • Tuesday January 27 – NAB business survey (December)
  • Wednesday January 28 – Consumer prices (December quarter)
  • Wednesday January 28 – Skilled vacancies (December)
  • Thursday January 29 – Import and export prices (December quarter)
  • Friday January 30 – Producer prices (December)
  • Friday January 30 – Private sector credit (December)


  • January 27-28 – US Federal Reserve meeting
  • Tuesday January 27 – US “flash” services index (January)
  • Tuesday January 27 – US Durable goods orders (December)
  • Tuesday January 27 – US Consumer confidence (January)
  • Tuesday January 27 – US Home prices (November)
  • Tuesday January 27 – US New home sales (December)
  • Tuesday January 27 – US Richmond Fed index (January)
  • Friday January 30 – US GDP (advance December quarter)
  • Friday January 23 – US Employment cost (December quarter)

After the Australia Day long weekend, the week kicks off on Tuesday with the release of the NAB business sentiment survey for December. But investors will be hanging out for the official inflation measure from the ABS – the Consumer Price Index – released on Wednesday. CBA Group tips an inflation hike of 0.2% in the December quarter.

Overseas, the spotlight is on the two-day long US Federal Reserve meeting as they decide interest rate settings and on Tuesday there’s a heap of data coming out of the US of A – I’ll be looking closely at the flash services sector reading and consumer confidence.

Calls of the week (click the blue text to read more):

  • Hold on to your investor hats – Charlie has just upgraded the big banks! He upgraded ANZ and Westpac to buy alongside NAB and is “moving to mildly overweight the sector.”
  • How’s this for sportsmanship? The score was 6-5, love-30 in the fifth set, but American qualifier Tim Smyczek gave Rafael Nadal a “do-over’’ shot at the Australian Open because a fan yelled out when Nadal took his serve! Nadal went on to win the point (and the match).
  • Canada’s central bank surprised many by cutting its key interest rate by a quarter of a percentage point.
  • And the first medical marijuana company to list in Australia – PhytoTech Medical Cannabis – made its landmark debut on the ASX yesterday at 20 cents and skyrocketed to 42 cents by the close!

Food for thought

Faith is taking the first step even when you don’t see the whole staircase.

– Martin Luther King, American civil-rights activist

Last week’s TV roundup

  • My colleague Paul Rickard and I shine the spotlight on 2015 and discuss five themes that will be driving markets this year and what you should be doing about it!
  • Thinking about hybrids? Take a look back at this super session from last year. Paul Rickard shares his expert knowledge on these investing instruments, and how can they fit into your portfolio.
  • And don’t miss one of my favourite interviews from last year with the great Australian business legend, Lindsay Fox.

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, one of the biggest movers was UGL, with it’s short position increasing by 0.89% to 13.27%. Cardno followed – it’s short position increased by 0.85% to 10.30%.

Source: ASIC

My favourite charts:

DAX jumps on Draghi’s pledge!

Source: Yahoo!7 Finance, 23 January 2015

It’s been a good spell for the German DAX this week – driven higher by the ECB’s announcement that it will inject over 1.0 trillion euros of stimulus into the euro zone economy! Here’s a look at its movement since the 16th of January.

Time in the market has its rewards

Source: Vanguard, 19 January 2015

The chart above shows how $10,000 invested in the S&P/ASX 200 in 1970 would have grown to $716,050 by July last year. And that’s including the years of the GFC!

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