by Peter Switzer

The Dow finished up 50.63 points or 0.49 per cent to 10,320.10 but it was the S&P 500’s gain of 0.9 per cent to 1090.10 that’s more notable. It has beaten the 1087-level, which has been a stubborn resistance point for the market. That’s why tonight’s employment numbers will be a big test for both the market and the economy.

Consumers return

There was a nice run of economic news that helped the markets go higher. Retailers’ sales figures were better than expected in August and the consumer discretionary sector rose around 1.8 per cent on the New York Stock Exchange.

This is a sign that consumers are making a comeback for the back-to-school shopping phase and augurs well for the all-important holidays shopping that runs from Thanksgiving to New Year.

More good data

Another nice sign for the optimists was the fall in weekly jobless claims by 6000 to 472,000 for the week ended 28 August. This beat expectations and while small it could be the start of more improvement.

Next, the National Association of Realtors reported that pending home sales rose 5.2 per cent to 79.4 and this forward indicator contrasts positively with the negative backward readings that have helped to build the case for double dip concerns.

Finally, factory orders rose 0.1 per cent, which was the first rise in three months.

Jobs report tonight

And now for the jobs report and what are the key numbers to look for?

The expectation is that 110,000 jobs were lost in August and this would be 21,000 less than July’s disappointing result. The experts always put the spotlight on the private jobs result and the tip from economists is a 42,000 rise.

I reckon if the Yanks beat this number then we could wake up to another powerfully positive performance on Wall Street.

A very bad figure would spook the market and this week’s gains would be wiped out but we have seen economic improvement this week and that helps shore up the base, which has prevented massive sell-offs in recent times.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, September 03, 2010

by Peter Switzer

The broad market index put on over 30 points to get to an important level of 1080 which could be the start of something positive if the Yanks can pull a better than expected jobs number on Friday. However, this could be a bigger call than the better than expected ISM manufacturing data which reinforced the great start on the New York Stock Exchange.

Australian influence

And get this, our strong economic data yesterday was seen as a help to traders on Wall Street.

For the first time ever, at least in my experience, a US business reporter has said that “strong economic reports from Australia and China” moved commodity stocks and that helped the market up.

Good week

Tomorrow, there will be retail sales which could help or hinder this nice up move but it will be the jobs report that could turn a great start to the worst month of all for shares — September — into another month of frustration for wealth builders.

This week the Yanks have, on the positive side, had good house prices news plus a good consumer confidence report and now a better than expected manufacturing report.

If you look at where the valuation of the S&P 500 on a trailing basis is right now, the index is under its historical trading range and even on a free cash basis for major companies, which Warren Buffett uses as a measure for assessing companies, this indicator is saying that shares are not over-valued.

My feeling is that the US avoids another recession and will experience slow economic growth and then slow stock prices’ growth until the balance sheet health of major companies results in jobs being created. This will power the US economy and then Wall Street taking all of us to the races.

On my program on Sky News Business Channel program, former ANZ chief economist Saul Eslake said investment-led recoveries are slow to spill over to jobs but eventually it happens.

We have an investment-led recovery in the US and that’s why they should avoid a double dip recession but it’s also why the stock market will have ups and downs until the doubting Thomases become ‘boom boom Bobbies’.

Economists like me often rely on models to work out what might happen in the real world. One of my favourite models was Rachel Hunter, who once said of a certain shampoo: “It won’t happen overnight, but it will happen”.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, September 02, 2010

Another day on Wall Street and while there was little advancement, there was no substantial sell off which shows maybe the double dip concerns are already, partly, sold into the market.

It’s like we’re in a Wall Street shuffle, back and forth until some really good or really bad news happens.

It’s bad news for the instant gratification nation we have become but it should be a reality for the long-term investor.

Big call

But for anyone in a doubting and spooked frame of mind, optimistic economist Clifford Bennett from Herston Economics, who did pick the turnaround of the market in early March 2009, told me last night that he is expecting to see Dow 18,000 in the next three years! That is a very big call.

Bennett is a big believer in the China and India story and our close links as the best exposed Western country to these growing juggernauts.

This big call marries up with IBISWorld’s Phil Ruthven who told me on my Sky News Business Channel program that he expects to see a 45 per cent jump in stock prices in one of the next three years. He sees the current market hesitancy to buy as a wound up spring that will eventually open up when economies start to promise real growth.

You could say — when other Western economies start growing like Australia.

The news overnight

Of course, this is the future, I hope, but as for the here and now the Dow Jones index was up nearly five points to close at 10,014.72. The S&P 500 was only just up to 1049.33 but the Nasdaq fell around six points to close at 2114.

The Federal Open Market Committee minutes promised action if needed but no suggestion there would be a move soon. Meanwhile a number of retailers have been upgraded by analysts, so clearly these guys are not in the double dip camp.

Another good sign was the Conference Board’s reading on the August Consumer Confidence Index for August which came in at 53.5. This was up about two points on the previous month and the forecasts of economists.

Another plus was the S&P/Case Shiller index of house prices which rose 0.3 per cent in June from May. This also beat expectations.

Against this the Chicago Purchasing Managers index printed at 56.7, which was less than the expected by about a point. This August number was about six points less than July.

There is still a lot of data ahead but the big story comes on Friday when the US jobs report will give us the latest on the real health of the American economy.

For advice you can trust, contact Oxygen Financial Services.

 Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, September 01, 2010

by Peter Switzer

If this sideways movement, with some days of significant rises and then equally significant falls then prevails, are we patsies waiting for the so-called next shoe to drop?

And even more relevantly, how long can we go before something is done to insure against a repeat of 2008 when many share portfolios lost over 50 per cent?

Anton Tagliaferro, the founder of Investors Mutual is not super positive about the near future. He thinks there’s a lot wrong with Europe and the US and so he’s setting a goal to make 10 to 12 per cent from his stock picking. In a sense, a tough market is good for a ‘master of the market’, which he was once called in a book of the same name.

Tricky tides

Once the debt and economic question marks are behind us, anyone who wants to make money the easy way could just buy an ETF for the S&P/ASX 200 index. As the old saying goes: “A rising tide lifts all boats”.

However, right now the tides are tricky, dominated by rips and undertows and so you either have to play the waiting game or sit in cash until the worst of this market is over and there’s no more economic anxiety.

Floor under the market

For those worrying about another GFC-style collapse of share prices Anton can’t say it won’t happen but he made a great point after he got off screen from my Sky News Business Channel program. He made the point: “A collapse usually comes when you don’t expect it but right now there are a lot of people expecting it”.

So in a sense, the cautious going to cash are putting a floor under the market by not contributing to irrational expectations that sets markets up for crashes.

Market bounce

So how do you make money in the shorter-term? Well, regular readers know I have been advocating blue chip companies that pay great dividends. If you average a four per cent return on your shares, and you can do better, you’re not far from the six per cent you can get from a one-year term deposit. Then you have to hope that you can make three per cent from the rise in share prices to beat the safe option.

Of course, if you went for the seven per cent term deposit for a five-year tie up then you would definitely miss the market big bounce, which is likely over the next two to three years.

Help in the short-term

That’s what Nobel Prize winning and Princeton economics professor, Paul Krugman, recommends.

The investment component of this was around US$250 billion but less than half of this has been spent! And that’s after 18 months since the spending bill was passed.

He thinks the package was also too small to be a big help. In Australia, in the March quarter, we grew by 0.5 per cent but 70 per cent of this came from government spending!

In the US, government spending has become a negative on the overall growth rate.

Krugman says the US bond markets, which are oversubscribed and is pushing interest rates or yields down to very low levels, are warning that the US economy is in line for very slow growth and even deflation.

“The economic data makes the case for more stimulus,” he told CNBC.

He wants another US$800 billion and fast. He wants money spent on infrastructure but also would like to see it get through to US consumers, who will spend it.

I suspect we will see more US Government spending and the mid-term elections could also kick in to help the makings of an end-of-year rally.

One thing is for certain, something does0 need to be done and the quicker the better.

Published on: Tuesday, August 31, 2010

by Peter Switzer

Let me be brutal here — the ABC is the greatest harbinger of doom in this country. During the worst times of the GFC, I couldn’t watch the business reports nor the 7:30 Report, all generally quality acts, because there was an underlying bias to the negative.

As Stephen Mayne once said in an ABC interview, which I participated in around late December of 2008, “we are going to hell in a hand basket”. For my part I argued there were some promising signs but the situation was serious, however I argued we could avoid a recession.

(This was, at least, old-fashioned balanced journalism but that show was run by Geoff Pow, an ABC newsman from the old school. We need more people like him at the ABC — smart, balanced and professional.)

The ‘no recession’ call

I wasn’t alone in being cautiously positive but there were a small number of economists waving the “we could dodge a recession” flag. The group included Craig James, and so the CBA economics team probably agreed, IBISWorld’s Phil Ruthven and Melbourne University’s Neville Norman. Undoubtedly, Herston Economics’ chief economist Clifford Bennett was probably in the positive camp but I didn’t know him then.

Early in March, Bennett called the stock market slump over and press released a big call to buy stocks.

By the way, on another ABC television program at 9am, I was interviewed in late 2008 and asked for my view on how we would fare and once again I said: “The situation is serious but there are some signs of improvement and we could avoid a recession”. The newsreader thanked me with a slightly disappointed and even cynically surprised concluding reference: “Peter Switzer there with a somewhat optimistic outlook”.

I don’t blame the newsreader because she gets most of her economics news from the usually very credible ABC and the Sydney Morning Herald, which also was running a very negative view on where our economy and stock market would go.

The bears

One of the country’s biggest bears, Steve Keen from the University of Western Sydney, was given too much exposure because he was good news copy. He tipped interest rates heading towards zero per cent like the US and house prices falling 40 per cent. One day he might be right, though I doubt it, but the problem was there was insufficient balance.

When the big bears were quoted on the 7:30 Report, there wasn’t always an optimist economist such as Craig James there to give the opposite view. This was bad journalism and it misled people.

I know I had financial planning clients to whom my advice was to stop watching the ABC! They wanted to switch to cash a few months before March 2009 because they were scared. They would have missed the big bounce of the market.

Since the Four Corners program this week, which I missed, I have received emails of concern and it means the show must have been one-sided.

Double dip unlikely

Nearly all, but not every economist, admits the US is slowing down but they don’t see a double dip recession nor deflation. It doesn’t mean they’re right but that’s the consensus.

Today’s existing home sales figure in the US is bad but it’s a monthly figure, however analysts on Wall Street today recommended investors buy home builder stocks because they have been beaten up so much!

This morning, I received an email from the team from IHS Global Insight, which ran with the heading: “Not all forecasts are being downgraded”.

On the US, they said the US recession was worse than was originally reported and the recovery will be slower but they underlined that “the risk of a double-dip downturn is low”.

History has shown that a W-shaped recovery where an economy dips a second time into recession is caused by an external shock such as a big oil price spike, a quick increase in interest rates or the raising of taxes.

As Nariman Behravesh, chief economist from IHS Global Insight concluded: “This seems unlikely in the United States in the current environment”.

My final warning is that you watch the ABC with caution and if they don’t look for alternative spokespeople on controversial subjects, just view it as crappy journalism and scaremongering.

Published on: Wednesday, August 25, 2010

by Peter Switzer

Monday in the US again told this story and it’s as though the investors who make or break a market — the big financial institutions — are just waiting for a reason to buy again. The Dow lost 39.21 points or 0.38 per cent to 10,174.41 and the S&P 500 fell 4.33 points or 0.4 per cent to 1067.36.

This becalmed status or sideways trading range comes as talk of more quantitative easing by the Federal Reserve is being spruiked in the US, at a notoriously bad time for stocks — August and particularly September as well as October.

The Investment Company Institute reported $33.12 billion had left US stock-based mutual funds in the first seven months of 2010.

Four positives

At these times it is good to search for some positives on the basis that negativity has many vocal supporters.

First, merger and acquisition (M&A) activity is on the rise. This, historically, has been a positive sign for the market. It means while the major investors might be ‘on pause’, major companies such as BHP Billiton think a company such as Canadian-based Potash is undervalued.

Second, corporate earnings in the US were unambiguously good and RBS Morgans’ chief economist Michael Knox says the US market is undervalued. He expects a late-year rally and that the economy will prove more resilient than investors are predicting.

Third, there’s neither enough data to prove the US is heading into recession, nor, unfortunately enough data to prove the opposite. This explains the becalmed position of the stock market.

Fourth, the return on bonds is so low that eventually the bond bubble will burst and there will be a quick exit for the stock market. However, we need to see a big, positive injection of positiveness.

Market triggers

This week Fed boss Ben Bernanke speaks at a famous conference at the strangely-named Jackson Hole, where he could say something about quantitative easing or giving more money supply to the US economy to get home loan and commercial interest rates down.

This could be the trigger to help the market, however, what we really need to see now are jobs being created in the US. When that happens the shares will be the place to be and that’s why it’s always easier to be an investor with a long-term focus.

Published on: Tuesday, August 24, 2010

If Labor won, there would be no change but if there was a hung parliament, there could be a fall.

Markets hate uncertainty, and short-sellers see it as an opportunity to sell the market down. Of course, if Labor won it would have been more of the same and so no local reason to move the market. However, if the Abbott team had got up in their own right, the reality of no resource tax would have surely helped resource stocks.

When making this assessment in my regular spot on the 6pm news bulletin on Sky News Business Channel, I did also suggest that if Wall Street had had a big positive or negative night then the election would have minimal impact in determining direction.

In addition, I had no idea of what kind of hung parliament we would see but this one could raise hopes for some speculators.

Loud and clear

You see, provided the Coalition can win 73 seats, which now looks likely but still could be beaten by the flow of postal votes, then I bet Abbott becomes our next Prime Minister.

My thinking is that the three independents, all ex-Nationals, represent a largely conservative constituency. They left the Nationals because their voices were being ignored but now they will be heard loud and clear.

Clearly, if Abbott negotiates like a fool he could miss the chance of being PM but given how he has surprised everyone, including the likes of Bob Hawke, who praised his campaigning efforts on Saturday night during the election coverage, I suspect he will be all ears when the independents start talking.

Post-election world

Sure the NBN could be a plus for Labor but during the election we only got our heads around the NBN versus Abbott’s ‘poor man’s version’. In a post-election world there are obviously alternative and cheaper versions of the NBN that the independents could sign up to.

But of course, the starting point will be the Coalition getting 73 seats. If they fail and Labor picks up 73 seats then the Gillard team could take the prize. This could be a messier outcome because I have difficulties of seeing Bob Katter putting up with Labor for too long. He has a short fuse and he’s politically very different from many of the Labor MPs who came from the union movement.

Coming up

On the week ahead, Wall Street is still grappling with the slow job creation and the run of largely disappointing economic data. This week all eyes will be on the Chicago Fed National Activity Index, existing home sales, a report on durable sales, new home sales, some Treasury note auctions and on Friday the second quarter GDP figures, corporate profits and consumer sentiment.

Locally, numbers on construction and capital spending will be noted to see if business is starting to spend but the prime focus will be the numbers coming out of the Australian Electoral Commission!

For advice you can trust, contact Oxygen Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, August 23, 2010

In summary, the Dow lost 144 points or 1.39 per cent to 10,271 while the broader S&P 500 gave up 1.7 per cent to finish at 1075.

More M&A

On the plus side, merger and acquisition activity is on the rise as evidenced by the BHP move on Potash this week. This reflects the fact that companies have repaired their balance sheets, cut costs and now have a pile of cash.

However, we need to see some progress on unemployment in the States to see the stock market really get excited in a sustained way. Dealogic says the M&A deals topped US$84.8 billion this week, which is huge on recent figures.

In the news

Having a look at the offending economic news and the Philadelphia Federal Reserve’s survey of manufacturing activity dropped to –7.7, which was the worst result in over a year. A rise was tipped by economists.

Against this, the July leading indicators reading did rise in July by a slim 0.1 per cent but it fell 0.3 per cent in June, so there was some improvement, though not much.

The worst news was that jobless benefits claims for first-timers went up by 12,000 to 500,000, and this is the highest level in nine months.

If this ordinary news persists the US government might have to seriously consider extending the Bush tax cuts.

Clearly, we’re in a wait-and-see game until the US economy starts creating jobs again.

 For advice you can trust, contact Oxygen Financial Services.

 Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, August 20, 2010

So a call from him makes me a little jumpy and the nervousness does not ease up when he asks what I am seeing and thinking about the market right now?

After offering my cautious optimism line, which sometimes can vary between very positive to, believe it or not, even very negative, he then reveals what he’s seeing.

Two weeks ago his charts had him negative and he was right, however, this week he’s seeing some positive signs — not over-the-top positive — but some indications that sentiment might be turning.

In limbo

At the moment we’re captive to big macroeconomic news while we are wedged between Wall Street’s reporting season and so tomorrow’s jobless claims figures in the US could help or hinder the two-day winning run on the New York Stock Exchange and the Nasdaq.

And I think we’re in limbo until after the November mid-term elections in the States where, as I reported yesterday, after the past 17 polls 16 times there has been a good bounce on the stock market. This adds historical weight to my long-held belief that we will see a Santa Claus rally in December this year.

So until those elections, economic readings and left-field events such as the debt concerns in Europe earlier this year will determine how our share prices respond in coming months.

On the markets overnight

The Dow put on 9.69 points to end at 10415.54 and the other indexes were up a bit but nothing to write home about.

On the plus side Target reported better-than-expected results but the other retailer reports weren’t over-positive and American Apparel could be on the brink, according to reports.

And at long last some good housing news with Americans applying for mortgages surging last week with the strongest registering for home loan refinancing in a year and a quarter.

What’s ahead?

By the way, BHP-Billiton’s offer for Potash was slammed as inadequate by the takeover target.

The big news overnight will be the latest jobless claims, leading indicators and the Philadelphia Fed survey. There will also be earnings from the likes of HP, Dell and Gap but they come after the closing bell, though they could affect our market on Friday.

I hope Lance is right that sentiment could be turning but we do need a bit of turbo charging from some better than expected economic news.

For advice you can trust, contact Oxygen Financial Services.

Published on: Thursday, August 19, 2010

Overall it was a great day at the office for Wall Street with the Dow up 103.84 points or a little over one per cent to 10,405.85 and the S&P 500 up 1.22 per cent to 1092.54, taking the index through an important technical level of 1079.

Data overnight

The market was also helped by some encouraging earnings reports and it was also good to see that stocks that are linked to optimism — materials, industrials and consumer discretionary — all did well.

Not only did industrial production numbers beat expectations — a one per cent rise against a 0.7 per cent expectation — but capacity utilisation rose 5.7 per cent to 74.8 per cent, which has to be a solid sign that the double dippers out there are exaggerating the weakness of the US economy.

For those wondering why the market seems locked in a trading range some analysts blame the upcoming mid-term elections in the US. History shows that in the past 17 elections the stock market has had a strong bounce, wait for it, 16 times.

There were good profit reports from Wal-Mart, Saks and HomeGoods. Others gave mixed messages — some good, some weaker than hoped — but once again none pointed to economic disaster ahead. In fact, some of the outlook statements were positive.

For deflation worriers, producer prices rose by 0.2 per cent in July, once again showing the doomsday merchants are wrong.

BHP not panicking

Finally, BHP has offered $US38.49 billion for Potash but experts say it will have to pay more. Potash was not looking for a buyer but it’s another good sign that the board of BHP is not panicky about the future and in fact is showing long-term investors what the strategy should be — buy great assets when prices are depressed.

For advice you can trust, contact Oxygen Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, August 18, 2010