I guess the Yanks are getting what many of us have often asked for — a shutdown of government — but, when you see it in reality, you just can’t believe it. The big news out of the States was that 800,000 public servants were ‘furloughed’ — that’s a very American use of a word we all got to know from war TV shows, such as McHale’s Navy. But the shutdown news of today was that there was no Jobs Report, because government workers are temporarily out of a job! God bless America. I would have suggested “only in America” but I suspect that countries such as Italy and Greece could come up with these surprising twists on what we expect from governments and their departments.
Two negatives make a positive
Despite this unimaginable dysfunction of a key government service, that is, the delivery of an employment report that contains a vital market-moving statistic, and despite the hovering black cloud of the debt-ceiling deadline of October 17, Wall Street went up!
In the first instance, it was a case of “no news is good news” but I can’t confidently explain how the debt ceiling could be ignored. It can only mean that key market players believe Congress will arrive at a solution. If they don’t and markets dive, which will happen without a solution, then the global economy, including us here, will be saying God curse America!
West wing won’t fly
Overnight the IMF boss, Christine Lagarde, the very stately woman who always seems to wear a scarf the size of a small picnic blanket on her shoulder, weighed into the matter. She said a failure to raise the debt-ceiling limit would not only push US growth under 2%, it would hit the global economy. The drama has seen President Barack Obama cancel his trip to Indonesia for the APEC conference.
But why has the market reacted positively overnight? It has to be that the shutdown is a lesser issue compared to the debt ceiling, and the market is simply punting on good Congress sense prevailing in a country where the motto since 1956 is “In God We Trust”. As I noted earlier this week, this puts a lot of pressure on the big fella up there!
Big moves of the week
My old mate Bill Evans, the chief economist at Westpac, has dropped his tip for a Cup Day rate cut and pushed it out until next year. Bill was the first of the big four banking economists to support my harassing of the RBA for more rate cuts, though he did it more respectfully I must add. He predicted substantial cuts while I whinged and criticised them into it!
Why did he recant? Well, I think he saw the RBA drop the reference to the “elevated dollar”, which was the prime reason we thought the Bank would cut rates. But it looks like they don’t want to fuel the house price pick up. Like me, the RBA would want the AFR’s bubble boy Christopher Joye, to be proved wrong.
Looking at Charlie Aitken’s (from Bell Potter) calls of the week, I was happy to see BHP was back in favour — go Charlie. And Professor Ron Bewley thinks materials still have legs but he really likes energy more, based on his very reliable sector analysis. Meanwhile Charlie’s still pumping Caltex as the supplier of one-third of all transport fuels in Australia and it’s in the supermarket game as well! He has built a case for mineral sands business Iluka, despite being in the short-sellers’ sights. He wants to ride a ‘Gail’ force wind called Westpac, which I put you onto weeks ago, so go Charlie again.
What did I like this week?
- My interviews with ST Wong of Prime Value, Ron Bewley and David Buckland (Roger Montgomery’s lieutenant), are on the www.switzer.com.au website if you missed them.
- The US Institute of Supply Management readings for manufacturing and services were bullish for US economic growth.
- Silvio Berlusconi being garroted by his own team, when he tried to bring the Italian Government of Enrico Letta down.
- The Hawks win was professional.
- The Swans getting Buddy. I know there’s a “no dickheads” policy at the Swans but we did sort out Plugger, didn’t we?
- The story of Sonny Bill Williams at the Roosters and how he has become a role model for his team mates by looking after his body, not drinking and exuding professionalism. It doesn’t sound like a footballer, let alone a rugby league player.
Warning: Marriage ahead!
There’s one spooky omen I must alert you to. Our older son Marty married his beloved Jess Blanch a couple of days after Lehman Brothers failed and Sky News wanted me to do a special TV show on the day of their marriage. I had to say no and that’s why I recall the event vividly. Well, on October 19, two days after the debt-ceiling deadline, our younger son, Alex marries the wonderful Renee Carl! I hope and pray history does not repeat.
Top stocks – how they fared
Numbers that moved the market
On Tuesday the RBA did what they were expected to do and left rates on hold at 2.5%. In their statement, Reserve Bank Governor Glen Stephens said Australia’s economy continues to grow at below trend growth, and is expected “to continue [doing so] in the near term as the economy adjusts to lower levels of mining investment.” You can read the press release here.
Final PMI data was released for a number of regions last week. The Australian reading for September was 51.7 (click here for official press release). This is the first month of expansion in the manufacturing sector in Australia since June 2011 – a great sign for the economy. According to the Australian Industry Group, the expansion was strongest amongst the food, beverage and tobacco sectors. Dragging the chain were the metal products, machinery and equipment sectors.
Other results included:
After meeting with BHP CEO Andrew Mackenzie, Charlie Aitken is putting the mining giant back into his high conviction portfolio. Find out why here.
This one is my call: US democrat Nancy Pelosi is a dead ringer of Gai Waterhouse. If you think about it, the resemblance goes even further: both are keen punters – one on the track and one on the Congress.
And this one was your call, Australia. As of July, PUP (Clive Palmer’s ‘Palmer United Party’, not Michael Clarke) will have three seats in the Senate and a potential hold on the balance of power. Read more here.
Last week’s TV roundup
My Favourite charts
Still happy with BHP
Back in May (represented by the orange vertical line on the graph), Roger Montgomery and I had a disagreement on where the BHP share price was headed. I sided with one of my faithful subscribers, who said “The short-term trashing of BHP’s and Rio’s share prices is nothing more than traders/hedge funds’ joy of gambling with the highest liquidity stocks.” (read the full story here) http://www.switzersuperreport.com.au/2013/is-bhp-a-buy/
And low and behold after some short term jitters, BHP is up and according to Charlie Aitken this week, still looking good. http://www.switzersuperreport.com.au/2013/bhp-billiton-the-free-cash-machine-of-the-future/
The following chart shows building approvals since January 2007, running very marginally above the decade average. They are hardly rocketing – it doesn’t look that indicative of a housing bubble to me!
Top five clicked on stories of the week
Charlie Aitken: BHP Billiton – the free cash machine of the future
Charlie Aitken: Buy Westpac before the result
Peter Switzer: Conspiracy against SMSFs has to stop!
Paul Rickard: Switzer portfolios outperform again
Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say