Switzer on Saturday

What just happened in the US? It’s complicated! Charlie’s Angels

Founder and Publisher of the Switzer Report
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Looking at this week on the stock market, all I can say is “what just happened?” I know it was a 2008 movie starring Robert De Niro but what we saw unfold in Washington, and then later on Wall Street, was the stuff of a Hollywood blockbuster!

Until Thursday night, when I put my last TV show of the week to bed, we had a market that looked set to tumble, as the VIX or fear index was 20 plus and rising fast. The worries were so real that Fidelity, one of the biggest mutual fund businesses in the world, dumped all its short-term Treasury bonds because it didn’t want to run the risk of holding securities that could be devalued by a default.

On the other side of that panicky trade was the world’s biggest bond fund manager, Bill Gross of PIMCO, who was the buyer.

In fact, on Thursday morning in my www.switzer.com.au blog, Bill made what I tagged ‘the biggest call of the year’ when he said “a default was a billion to one chance of happening!”

It heartened me, as I was arguing in the very same blog that the heavyweights of US big business had to be working the phones talking to top dog Republican politicians, whose tails are currently being wagged by their mad hatter tea party colleagues.

By the way, I reckon there was a call or two coming from America’s two biggest US government bond-buying bankrollers — China and Japan — to some well-placed politicians, as they have a lot at stake if a default actually happened.


Just when we thought the Congressional standoff could go beyond the debt-ceiling deadline of October 17, we woke up to a Dow Jones index up, over a whopping 323 points, and back into the 15,000s at 15,127. As a current card-carrying optimist (one day I will change), my reaction on Thursday morning, straight after my Centennial Park jog, was “what the #!@* happened?” The obvious answer was that they’d struck a deal, but that was way too optimistic, though deserved, considering the Dow’s serious spike.

So, what really happened?

The answer is not much, but this is how the New York Times saw it: “WASHINGTON: President Obama and House Republicans failed to reach agreement on a six-week extension of the nation’s borrowing authority during a meeting Thursday at the White House, but the two sides kept talking, and the offer from politically besieged Republicans was seen as an initial step towards ending the budget standoff.”

Talks were going to continue through the night, and nothing came out that spooked Asian markets the next day, so we held our breath until Saturday morning our time.

While you were sleeping

So this is what happened. The Dow ended up again on no resolution, but the talking continued and words such as “deadlocked” weren’t coming out of DC, which kept stocks heading higher.

I hope you recall that a few weeks ago I pointed out there was a 600-point spike on the Dow over three months after the last shutdown in 1995-96. History could easily repeat but those tea party nutters have to be beaten up first.

Charlie’s Angels

For those who can’t get enough of Bell Potter’s Charlie Aitken, Google Switzer Daily and take a look at his interview with me on Thursday night. For a recap on the stocks he liked over the week, standby for a quick summary:

  • Charlie’s flying high on Qantas and even sees a dividend in the not-too-distant blue sky future.
  • He went all nationalistic on us, rooting for Australia and our stock market, re-declaring his 6000 on the S&P/ASX 200 in the next 12-18 months as a “not-too-big ask”, which looks so conservative it nearly looks anti-Aitken!
  • He rounded off the week applauding BOQ, which reported brilliantly this week and which had been one of his ‘beautiful one day perfect the next’ calls. He’s still happy to keep tanning himself with his sunny outlook for both Queensland and BOQ.

Feel good facts of the week

  • The Sensis Business Index found SMEs expect a better 2014 for the Aussie economy, though business life ahead of the election basically stunk! Lower interest rates plus a lower dollar plus the prospects of a new government helped raise future confidence  (this index has been a good predictor on the economy for me, though my big end of town economist mates never quote it).
  • The Italian Transport Minister’s name is Lupi, which is funny on so many Italian levels!
  • Gary Stone of Share Wealth Systems thinks the bull market has legs because historically low interest rates plus bull markets start in low economic growth territory and end in high growth, and finally, because there’s so much money around, thanks to central banks. He reminded me on my Switzer program: “Don’t fight the Fed!”
  • If you hate Newcrest and you’re thinking about dumping it, you might want to note this. Sean Hyman, editor of the Ultimate Wealth Report, thinks the expected new Fed boss, Janet Yellen, will be so slack with monetary policy that she’ll create inflation and gold will spike 20% in one to three months! Note Sean’s name as he could be the genius or goose of the year. I think the latter, given his three-month time limit, because Yellen can’t take over until January! She’s going to need time to stuff up that badly. Gold will move up one day, but three months? Overnight it was down around $30 to $US1,267.9 an ounce as the safe haven trade, linked to the Congress crisis, looks unnecessary.
  • The USA might have it problems but making millionaires isn’t one of them! Credit Suisse says 1.7 million of the 1.8 million millionaires created last year worldwide came from the USA, which now has 13.2 million millionaires. France is second with 2.2 million, next is Germany followed by, guess who? Italy, with 1.4 million! China has 1.1 million but they’re growing fast (the full report can be found here).
  • The not-so-feel good factor has to be the Aussie dollar, which this morning is 94.64 US cents! I know it’s great for our Christmas holidays overseas but it will hurt some local stocks, though I think this could change after tapering of QE3 starts next year!

Let’s pray the US Congress stumbles upon sanity. See you Monday!

Top stocks – how they fared

Numbers that moved the market

This should put things into perspective: Australians are the richest people on the planet in terms of median wealth per capita, according the Credit Suisse 2013 Global Wealth Report. You can read the report here – it’s a very interesting read.

Confidence is in the air, with solid numbers for both business confidence and consumer sentiment for September. The NAB business confidence survey measured in at 12, its highest level since March 2010 and a solid 8 points up on last month. Read the full report here.

There was also positive news through the unemployment figures released from the ABS on Thursday. While the actual rate stayed the same at 5.7%, the seasonally adjusted figure dropped 0.2% to 5.6%. The ABS report can be found here.

The week ahead

October 14 Credit & debit card lending (August)
October 14 Housing finance (August)
October 15 Reserve Bank Board minutes
October 15 Lending finance (August)
October 15 New car sales (September)
October 17 Detailed labour data (September)
October 18 Speech by RBA Governor Glenn Stevens

October 12 China Trade (September)
October 14 China Inflation (September)
October 16 US Consumer prices (September)
October 16 US Beige Book: A summary of conditions across Federal Reserve districts
October 17 US Housing starts (September)
October 17 US Industrial production (September)
October 18 China economic growth & monthly data
October 18 US Leading indicators (September)

It’s another busy week around the corner with plenty of data both locally and internationally. On Monday, the ABS will release housing finance figures for August. Commonwealth bank is tipping a 5.7% decrease in home loans for the month – a big call considering the attractive interest rates on offer at the moment.

On Tuesday we’ll see the minutes from the RBA’s September meeting, which should give us some more insight into what was behind the decision to leave the cash rate unchanged. And on Friday, Glenn Stevens will give his first public speech in two and a half months, which is sure to be closely watched.

Abroad, China will be the centre of attention next week with trade, inflation and GDP figures all released throughout the week.

Calls of the week

Give a man a fish and he’ll eat for a day; teach a man to fish and he’ll eat for a lifetime. NYC programmer, Patrick McConlogue made the call to offer a homeless man, who he walks past each day, two options: a) $100 cash or b) a second hand laptop, some coding books, and an hour-long coding lesson each day for two months. He took option b, and as Patrick puts it, “It turns out Leo is a genius”.

Charlie Aitken says Qantas shares will double in value over the next few years.

Another call from the US, this one from Washington. Patriot, Chris Cox, has taken a stance against the stance, bringing his own mower to the Lincoln memorial to mow the lawn on Wednesday.

Last week’s TV roundup

How worried should investors really be about what’s going on in the US? Marcel Von Pfyffer from Arminius Capital joined me on my show to discuss the government shut-down and the debt ceiling issue – it’s the latter that’s got him spooked.

I caught up with Lance Lai (our King of charts) from Accountancy Invest to find out what the data is telling him about the outlook for global markets.

And if you missed it, you can catch a recording of our monthly webinar with Paul Rickard and me here. We covered everything from the current situation in the US and how it could affect your investments, to property strategies and local stock insights.

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 Metcash had the biggest retreat, leaving the top ten shortest stocks. It’s now 16th on the list with 8.5% of its stocks sold short. And while not short enough to make the chart, Leighton’s was also a big mover this week – going from 4.70% short last week to 5.86% yesterday. This would be a result of the highly publicised dramas going on in the company.

My favourite charts

This one came from the Credit Suisse Global Wealth Report this week and shows just how well we really have it. Almost 70% of the global population have less than $10,000 to their name – in Australia this number is 10 times smaller.

And this chart shows that we’re still comfortably below the long term average unemployment rate.

Top five clicked on stories of the week

Peter Switzer: Could Stocks blow up 13% plus – Hindenburg style?
Rudi Filapek-Vandyck: Buy, hold and sell – what the brokers say
Charlie Aitken: Buy Westpac before the result
Paul Rickard: Switzer portfolios outperform again
Charlie Aitken: Come fly with me – a buy on Qantas

Last week’s Switzer Super Reports

Thursday, 10 October 2013: Come fly with me
Tuesday, 8 October 2013: Oh, the humanity