Switzer on Saturday

Oil, ore and over old thinking

Founder and Publisher of the Switzer Report
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Friday Close
Change
Change %
Week Change %
Dow Jones
18,080.14
21.45
0.12%
1.42%
S&P 500
2,117.69
4.76
0.23%
1.75%
NASDAQ
5,092.09
36.03
0.71%
3.25%
ASX 200
5933.30
88.50
1.51%
0.94%
Data for week commencing 20 April 2015

Stop the presses! I got this from Platts Iron Ore Fact Sheet at 4.18 this morning and this information is ground breaking:

“There was a major surge in the seaborne iron ore spot market on Friday, as demand and confidence returned to energize a nearly two-week rally. Platts assessed its 62% Fe Iron Ore Index, up $3.75 from Thursday to $58.50/dry mt CFR North China.

Since plunging to $47.50/dmt on April 5-6, the IODEX benchmark has moved $11/dmt higher, gaining+23%. This week alone, the price gained more than 14%, up $7.25/dmt since Tuesday.

Platts learned that demand for seaborne iron ore was firming all day Friday, as more buyers emerged to seek spot material – believing the market is now in strong recovery mode. Meanwhile, a number of sellers said they expected the rising market to continue – and many were holding back their offers.

BHP was up 2.49% in London overnight. Rio was up 1.54%. This good news for materials could see us crash through 6000 on Monday on the S&P/ASX 200, unless Greece throws a spanner in the works! At this point, the Greeks have made no progress at the EU finance ministers’ meeting but the Athens stock market was up 3%! Only in Greece!

Of course, the Yanks took the Nasdaq to a new all-time high, up 36 points and the S&P 500 hit an intraday high!

What follows is what I wrote before the iron ore email and the close on Wall Street.

In case you missed it, it was a pretty good week for investors. I guess this chart sums up my positive demeanour. It’s that headache company Santos but for the past month, it has headed in the right direction, as oil prices rose.

swos-2015042501

This chart leaves out Friday, where the share price finished at $8. While I tipped it and I’m happy it saluted the judge, the majority of growth stock tipsters prefer Oil Search. See my interview with Gary Stone in the TV Roundup section below. It not only talks up Oil Search, it shows why being long and bullish on stocks makes a lot of technical sense.

There’s also an oil expert view that black gold (or Texas Tea) puts on V-shaped recoveries that have some predicting that oil prices will rise for the rest of the year! That’s going to be an interesting test of old theories.

This chart shows why contrarians, who backed oil, are on good terms with their courage.

swos-2015042502

But it’s also been a great week for iron ore believers. The iron ore price had risen 16% in three weeks (before the Platts info arrived).

However, the big action was this week, following BHP telling us it was slowing down its supply expansion. If Rio and Vale follow suit, we could see further gains in the iron ore and share prices of the miners.

The iron ore price went to $US54.82 a tonne on Friday, which has made life easier for Fortescue that has recently renegotiated $US2.3 billion worth of debt at a 10% plus price tag. Ouch! I hold FMG in small measure but its story looks more appealing for speculators.

A few weeks back, when Twiggy Forrest canvassed the idea of a cartel, he suggested that if supply was squeezed, there could be a quick market reaction to $US70 to $US90 a tonne! Wishful thinking but he would’ve been popping a bottle of champers on Friday night after a better than expected week and there could be a magnum popped on Saturday, given the Platts’ story. In fact, the share price is up 25% in two weeks and CMC’s Michael McCarthy would be feeling cock-a-hoop, after tipping FMG two weeks ago, which happily I shared with you, our subscribers.

Given the good oil and iron ore news, it wasn’t a surprise that the benchmark S&P/ASX200 index was 88.5 points (or 1.5%) higher at 5933.3 by week’s end.

Personally, I have stuck solid with BHP and loved Friday’s close of $32.05. Similarly, the 4.9% jump in Rio’s share price to $57.79 will make me reach for a bottle of champers tonight myself.

What I liked

  • Inflation at 1.23%, up only 0.2% for the March quarter. The underlying rate was 2.3%. Anyone who thinks these numbers should stop the RBA from cutting rates is an out-of-touch theoretician that you’d probably call an economist!
  • NAB’s Alan Oster who has ruled out a May rate cut on the basis that the economy is improving, with retail, dwelling investment, business confidence and the better labour market making him more optimistic (I hope I wasn’t out of line with that crack about out-of-touch theoreticians, Al). I don’t mind not getting a rate cut if we all start agreeing that the economy is better than some jerks are calling it!
  • News that our dole queue has dropped by 25,100 (or 5.8%) in the past four months. I know we’re hiring in our business.
  • OK, I know it looks like a big figure but we are seeing some Budget Deficit improvement this year, with March 2015 revealing that the deficit was $48.9 billion (or around 3% of GDP), which is the lowest rolling annual deficit in six months.
  • A psychological plus, with the hi-tech Nasdaq index finally erasing the bad news of the dot.com bubble burst, after rising 21 points (or 0.4%) to beat a 15-year record of 5048.62. Have a look at the long 15-year climb and also look at the big rise from 1975 to 2000!swos-2015042503

What I didn’t like

  • The “flash” manufacturing gauge eased from 49.6 to 49.2 in April, a one-year low that caused a bit of consternation about Chinese growth. However, I have to ask if services are becoming more important and how long are we going to use manufacturing as a reliable guide for the economy?
  • Financial markets only figuring that there’s a 54% chance of a rate cut in May. I want those good job numbers for February and March (where 79,600 positions were created in two months) to be given a positive turbo charge via a May rate cut, which then would be triple turbo charged by a positive Joe Hockey budget. We need a treble of positivity, which would be helped by a fourth leg – that of a weaker dollar, thanks to a rate cut and easier fiscal policy.
  • Talk of ‘no rate cut’ in May by some economists and the dollar heading towards 78 US cents. This is why Glenn must beat his cautious public servant mentality.
  • The Greeks don’t have any Eurozone Finance Ministers making excuses for them, which increases the likelihood of a Greek default. A Greece exit (or ‘Grexit’) is looking more possible. The initial impact of this would spook stocks, even if only for a short time. The Greeks have to find 1 billion euros for the IMF in early May but the country has potentially 7.2 billion euros in rescue funds that could be accessed. It will have to do a better job impressing its Eurozone masters.

Stock regularly mentioned favourably this week

Slater and Gordon has had trouble with its UK expansion but the experts think it still looks like a good company, with upside potential.

Brush with CEOs and Celebs

On Tuesday, I interviewed Paul Zahra, former CEO of DJs for the Delux15 Forum in Sydney. He couldn’t give me a leg up for Myer and I guess that’s a tip! If you want to catch this interview, we’ll have it up on www.switzer.com.au on Monday.

Caught up with ex-Queensland Premier Peter Beattie at the Sky studios on Wednesday night. He survived his fill-in possie for Richo on Richo+Jones. Never underestimate what a successful pollie can endure!

Top stocks – how they fared

Company
Friday Close
Change on Week
Change on Week %
S&P/ASX 200
5933.30
55.40
0.94%
Consumer Staples
Coca-Cola Amatil
$10.51
-$0.14
-1.31%
Wesfarmers
$42.63
-$0.37
-0.86%
Woolworths
$28.91
$0.38
1.33%
Energy
Santos
$8.00
$0.04
0.50%
Woodside
$35.40
-$0.02
-0.06%
Financials
AMP
$6.70
$0.04
0.60%
ANZ
$35.72
$0.12
0.34%
CBA
$92.10
$0.02
0.02%
NAB
$38.07
-$0.65
-1.68%
Westpac
$38.42
-$0.48
-1.23%
Health
CSL
$95.21
$1.15
1.22%
Industrials
Brambles
$11.04
-$0.53
-4.58%
Transurban
$10.00
$0.23
2.35%
Materials
BHP
$32.05
$2.08
6.94%
Rio
$57.79
$2.70
4.90%
Property
Westfield
$9.95
$0.26
2.68%
Telco
Telstra
$6.32
$0.18
2.93%
Utilities
AGL
$15.44
$0.46
3.07%

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

  • This week I told you how I would invest with the cash I have right now and why I’m listening to the long term investor in me.
  • James Dunn gave us 7 fantastic food stocks to follow, including Capilano Honey and the Australian Agricultural Company.
  • Our latest super stock selectors’ survey came back with some love for A2 Milk and QBE Insurance, while Fortescue continues to get the boot.
  • This week the brokers upgraded Carsales.com, Lend Lease and Oil Search. In our second broker report for the week, Woodside and Worley Parsons were among the downgrades.
  • Paul Rickard did a product road test of Perennial’s new ASX listed investment company, Wealth Defender Equities Limited.
  • Charlie Aitken made the call to upgrade his Sydney Airport 12-month price target from $5.55 to $6.00.
  • And on the theme of airlines, Roger Montgomery explained why they can be tricky businesses to run with hidden costs.
  • This week’s My SMSF featured PM Capital’s Ashley Pittard, who explained why he is betting big on global equities.
  • And sure it’s grim, but it’s important to know what happens to your super if you were to get sick and die, so Tony Negline explored the topic.

What moved the market:

  • Stimulatory measures by the Chinese Central Bank to cut the amount of cash that banks must hold in reserve by 1%.
  • The primary measure of inflation in Australia, the Consumer Price index, which rose by 0.2% during the March quarter and had many wondering what the Reserve Bank would do next.
  • And anticipation of tech sector earnings reports from the likes of Google, Amazon and Microsoft, helped the NASDAQ hit an all-time high of 5,056 for the first time in 15 years.

The week ahead:

Australia:

  • Tuesday April 28 – Speech by the RBA Governor
  • Tuesday April 28 – Weekly consumer confidence
  • Thursday April 30 – Export and import prices (March quarter)
  • Thursday April 30 – Private sector credit (March)
  • Friday May 1 – Home value index (April)
  • Friday May 1 – Producer prices (March quarter)

Overseas:

  • Monday April 27 – Markit “Flash” services (April)
  • Tuesday April 28 – US Consumer confidence (April)
  • Tuesday April 28 – US Case Shiller home prices (February)
  • Tuesday April 28 – US Richmond Fed (April)
  • Wednesday April 29 – US Federal Reserve decision
  • Wednesday April 29 – US Economic growth (March quarter)
  • Thursday April 30 – US Personal income (March)
  • Thursday April 30 – US Employment costs (March quarter)
  • Friday May 1 – US New vehicle sales (April)
  • Friday May 1 -US ISM manufacturing index (April)
  • Friday May 1 – China purchasing managers (April)

Australia’s economic highlight next week is a speech by Reserve Bank governor Glenn Stevens to a Banking and Wealth Summit, where it’s expected he’ll be dropping hints about interest rates. Other important releases on the cards includes home prices for April and inflation indicators for the March quarter, both out on Friday.

Overseas, there’s an explosion of US data, but the focus will be on the Fed Reserve Open Market Committee meeting over Tuesday and Wednesday. The Wednesday release of US economic growth for the March quarter is another big one.

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

  • This week at the American Australian Association luncheon, Reserve Bank governor Glenn Stevens said “interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table.”
  • Netflix confirmed a revival for the 80s hit show Full House, with an updated program called Fuller House!
  • And the Labor party proposed a 15% super tax on super earnings over $75 000 per year, but my colleague Paul Rickard says it simply wouldn’t work – you can check out his argument here.

Food for thought

“At the going down of the sun and in the morning,
We will remember them.

Lest we forget”

– Laurence Binyon, English poet.

Last week’s TV roundup

  • Are we heading for a recession or are the signs out there more positive? My colleague Paul Rickard and I tell you whether the negative nellies out there are just plain wrong!
  • Francesco De Stradis of Ord Minnett joins the show to give us insights into his investing style and what he’s looking at right now.
  • Former CEO of CommSec and cofounder of the Switzer Super Report, Paul Rickard, tells us whether or not he’s still an advocate of bank stocks.
  • SSR contributor and technical analyst, Gary Stone from Share Wealth Systems, joins the show to talk about what’s in the charts.
  • FN Arena’s Rudi Filapek-Vandyck has done his homework to give us the low down on companies with hidden challenges and why the share market hasn’t embraced them.

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 Worleyparsons, with its short position increasing by 2.91% to 10.20%.

20150424 - short stocks

Source: ASIC

My favourite charts:

NSW out on top

nsw solid home buildingCommSec’s State of the States results are in, and NSW is on top again. The chart above shows the solid performance of home building in NSW, with new home construction starts nearly 49% above decade averages.

Shorter queues at the dole house!

dole

The overall jobs market is looking good, with the Department of Social Services releasing figures that show how the total dole queue has fallen by 8,874 people to 431,137 in March.

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