Switzer on Saturday

National lampoon in US: shutdown hurts Jobs Report! All my sons are getting married

Founder and Publisher of the Switzer Report
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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.

Oh God!

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.

Charlie’s Angels

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:

China: 50.2. This is down from last week’s estimate of 51.2, and only slightly above the August reading of 50.1.
US: 52.8 – in line with expectations but down from 53.1 in August.
Eurozone: 51.1. Like the US, this was in line with expectations and down from the August result (51.4).

Don’t forget – a number above 50 indicates growth so despite being down from last month in the US, China and Europe, manufacturing is still growing in all regions.

Finally, 13,893 houses were approved for building in August, 4.7% (seasonally adjusted) below July’s figure. Despite the fall, building approvals are still 7.7% higher than the same time last year. You can read the full ABS report here.

The week ahead

October 8 Job advertisements (September)
October 8 Tourist arrivals (August)
October 8 NAB Business survey (September)
October 9 Consumer sentiment (October)
October 10 Employment/unemployment (September)

October 7 US Consumer credit (August)
October 8 US International trade (August)
October 9 US FOMC minutes (September 17,18)
October 11 US Producer prices (September)
October 11 US Retail sales (September)
October 11 US Consumer sentiment (October)

It was a busy week, and this one coming up will be much the same. On Tuesday and Wednesday we’ll see the NAB business survey and consumer sentiment, both early indicators of any ‘post-election’ uptick in the economy. Last month, Consumer sentiment was at its highest level since December 2010.

Employment has been edging up recently, so the official numbers from the ABS on Thursday will be interesting too. Craig James is tipping the rate to remain unchanged at 5.8%, with job growth of 20,000.

The US will also see consumer confidence numbers this week, but stealing the spotlight will be the FOMC minutes from the September meeting. This was the meeting where the board made the surprise decision not to start tapering Quantitative Easing.

Calls of the week

Paul’s Portfolios have done it again. His latest review (which you can read here) reveals both our income and growth portfolios have continued to outperform the market – with the growth portfolio up a whopping 20% this year.

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

Shane Oliver from AMP Capital joined me on the show to give the banks side of the housing bubble story.

House prices in capital cities soared to record highs last month, stoking concern that record low interest rates are fuelling overheating in the property market. I caught up with Cameron Kusher from RP Data to discuss.

In the latest edition of Super Sessions, Paul and I talk about why we aren’t losing any sleep over talk of a bubble in the property market.

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, Cochlear has taken the top spot, becoming 1.75% shorter at 14.45%. Moving in the opposite direction is Fairfax. After spending over a month with the highest portion of shares sold short, the stock has been retreating over the past two weeks. It became 2% ‘less short’ this week, suggesting investors’ negative outlook may be changing. But at 11.32% short, there’s still a way to go.

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/

What housing bubble?

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!

Last week’s Switzer Super Reports

Thursday, 3 October 2013: Playing Chicken
Monday, 30 September 2013: Pick on someone your own size!

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