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On Sunset Strip > Trading Day Wrap From Blue Ocean 20170912 -
Economists have been forecasting RBA rate rises since 2014. Funny that it may come true when the property market has started to roll over. Sadly I think RBA is stuck and I can't see them moving till they have to...and that could be longer than most expect as US Fed, ECB and BOJ continue to play currency musical chairs.
In a tough market, timing is everything...good call. S&P 500 had the first fall over 1% since Oct 2016.
On Technicals - Dow Jones - at same overbought levels as in 2007 and 1999 -
In a market where bottom up investors have struggled to deliver outperformance, momentum models (like technical analysis) have allowed investors to better time the entry and exit points. I found that an integrated multi-style approach (i.e. including momentum) seems to smooth out big swings in the market. The macro risk in global trade and Euro issues may be the catalyst that drives the profit taking.
On Technicals - Dow Jones - at same overbought levels as in 2007 and 1999 -
Sure....I think that has played a decent part in their growth. What we are seeing with China is that they realized that they needed to grow the overall growth pie by helping the infrastructure and industrialization boom in all these countries. We are seeing this in large parts of South America and Africa as well as other Asian countries like Singapore, Malaysia, Indonesia, Sri Lanka and even Pakistan of late. The capital investment driven by China is helping these countries to attract more external investment capital to make the next energy, infrastructure and industrialization steps. As we have seen in the past, when these countries make these steps forward, they create bigger middle class which drives more consumption. China's global strategy has moves to growing the pie than taking a bigger slice of a declining pie.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
Agree....I like gold in the long term portfolio hedge basis, but on the commodity price perspective, we are likely to see oil outperform gold in the next 6 months.
Yep...but that effect was also seen in the overall market. The interesting trend is the the average index now outperforming the weighted index. Sustainable Yield is not just with banks!!!
On SHIELD – Sustainable High Yield | Rudderless economy heading to lower growth -
Funnily enough market can get too negative from too positive region after a few sentiment killer articles. Banks are moving mainly on macro factors and they will move as US Fed changes. Banks will come back in favor as the market risk/return mix matches up. If the US Fed flags no rate changes, AUDUSD goes to 80 and RBA cuts rates...then Banks are going to move 10-20% higher. We live in a fickle world where risk and return are a relative measure that can change dramatically within a few days.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
I agree. The VIX and the corporate profits are all pointing to market looking for a reason to fall over. FOMC flip flopping seems like a good enough trigger to push this market into another profit taking slide.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
The new media and outdoor media have had their big runs, but the old media has been ignored for a while. M&A and Election spending should bring them back in fashion. I think APN, PRT and FXJ are really cheap. Never discount the need of Foxtel to acquire to make a float viable.
On Equity Industrial Engineer | Media Sector: Time to cover your Shortens and Turn-bull -
That has been a trend globally with demographic change, but the drop in US has been a lot higher than Australia in the same period. Even if we assume that is the case, then that sets up other issues regarding the sustainability of the US economy and debt with lower workforce. These are issues faced my all the major economies, but US as the shining star is pricing in too much optimism. US is growing, but likely to grow slower than what the market is expecting for the next year or two. This will put real pressure on US Fed to stay on the sidelines in 2016.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
Since my Tigers are not there, I hope JT finally gets his title. Tigers stole the title from the Cowboys a decade ago and we feel bad...not really.
On Footy Finals 2015 | Hawks and Cowboys expected to deliver in tough final series -
The PE bands are based on forward long term average PE as well as +/- 1 standard deviation and +/- 2 standard deviation. History tells us that market pre GFC traded just above +1 standard deviation over fair value with high interest rates and high currency. Given the current low rates and low currency, we should get close to +2 standard deviation in the medium to long term.
On Chart of the day -
The EPS Growth decline is a 5 year trend despite better balance sheet, lower cost of borrowing and lower currency. The Earnings Revision and ROE trends point to low growth outlook well into 2016. Yield premium is the trade for 2016....again!!!
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
The last time CSL traded above $100 (i.e. pre 1 for 3 split) was 17th Oct 2007 (i.e. pre GFC high for the market).
The great thing about technological change is that the competition will force the next step even faster. Big global disruptive firms with fancy brands always help to give exposure and drive change even faster. The tide has turned with battery technology and clean energy. Already utilities in Australia are marketing packages with solar and battery very openly. It would be logical to assume the efficiency will improve exponential in the next year or so as we have seen in solar cells. Tesla may or may not be the answer, but they definitely made the world aware of where battery technology is at and how well it can co-exist with clean energy.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
Great event and hope this is the start of many more information sharing events. It's good to hear from quality people with over 20 years experience. Finance sector in Australia has been shrinking in size and quality for a number of years.
US population compared to Australia is approx 15 times. If we are averaging around 30,000 new jobs for the past few months, on comparable basis that is like US creating around 450,000 new jobs. The reality is that US is creating half that despite it being one of the few countries on the recovery path. I am no statistician, but the relative comparison tells me that there is something wrong when economic growth is below trend, business capex is weak, consumer sentiment is weak, there is no credit growth and we are coming to the end of "once in a lifetime" commodity boom. As a broker I would love to see this kind of job recovery, but it does not add up. I could be wrong :)
Banks have been beaten up a fair bit and I expect them to see buying support by the end of the week. There will be a lot of noise with NAB that will confuse the sector for a few days, but rates are staying low for a while and yield is still the main game.
Just to update our view on TRS: We still maintain a very negative view on the overall retail sector with domestic consumers expected to cut spending even further. We turned negative on retail staples last month as WOW decided to initiate a large scale price war. TRS is basically going to get even more pressure from the K marts, Targets and Big W’s with the race to the bottom. The key risks mentioned before like currency, budget, unemployment, competition and consumer sentiment are all still in play. If I had to pick beaten up retailers…SUL and KMD offer better risk return than TRS.
After watching this clip I realized why kids in grade 4 get more done than governments :)
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
History tells us that nothing with big margins ever last as the cycle turns. Iron ore cycle has turned and it does look inevitable that we will see even lower prices as Roy Hill supply comes on while smaller players hang on to dear life and burn cash. Miners only care about self interest and not about the overall damage to the business model.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
I'll keep an eye on it. If the problems persists, I'll load up the pdf.
On Sunset Strip | Aussie Afternoon Institutional Market Wrap -
I always found it quite amusing that no one really talks about it...must be some central bank club rules like the fight club.
Agree, but the historical trend of RBA suggests that they are likely to change the words towards an easing bias and leave the rate change to Apr/May. But in the longer term I can't see investors staying out of equities for long given that the low interest rates are here to stay.
Unemployment is the key to the consumer sentiment. I think if the currency stays above 80 cents in early 2015, we will get a cut. On the flip side if the currency falls below 80 cents then we will not get a rate cut. Retail will struggle even if you cut rates and the currency is 75 or below. If a few retailers start rolling over, then you start adding to the unemployment line and there will be a cabinet switch.
We had a sell on JBH around $20 with target price of $15 soon after the budget. Recent update and macro headwinds suggest that JBH will most likely go lower in the short term. You can't fight the macro when you are a cyclical.
I think the uptick was mainly short covering after AGM comments. The weakness since then shows that the market is not willing to buy at these multiples given the headwinds. Even on a relative basis, DSH offers better store rollout growth story in similar space at lower multiple.
The credit goes to our gaming analyst Nick the science project Caley in picking the winner.
Credit is where credit is due. They outplayed the Roosters in their own game. Now lets hope they got another classy game in them.
The market is trying grapple with the move from yield to growth when there is very little growth. I don't think they are mutually exclusive. You can have good quality stocks on relatively good value with good growth and yield outlook. Once the FOMC short term risk is out of the way, market will start to trend up again. Institutional investors will be taking time off with school holidays next week while retail investors will have a bigger say. I expect we will see majority of the big caps to turn positive by the end of the week.
Breville will recover with new management announcement while Myer needs serious work. Myer is struggling to work out who is their customer base and what they can offer that is unique....till then there is no need to be there.
Short STO/WPL Long BHP/RIO
That is true, it is a bit like being negative on the market. Things all move in cycles, it is a matter of where you are in the cycle. House prices for me are driven by return on investment of the asset and underlying growth in real disposable income to support the asset. Once both branches are over done, I think it is a matter of time before the correction comes. If the argument is that the Chinese are parking their savings, I think US and Europe offering better risk/return than Australia. The question you have to ask is who is positive on house prices and their motives...Brokers, Governments and central banks have to hope that they hold up till the global growth picks up or it could get very messy.
On Sunset Strip | Aussie market delivered a flat day despite the positive global lead -
Bunnies still run with only one GI. If GI gets injured, they are history. Hard to look past Roosters and Manly in the big games. Storm and Cowboys are the momentum players. Not saying Souths are not a top 4 team, but for their roster...not showing the class of Roosters or Manly consistently.
This is the big problem right now for stock picking. If a stock gets belted enough, M&A becomes a potential. It's almost like US economy and QE for th epast few years. I think in that space WEB has moved up and will stay strong, but FLT is by far the best in class. Backing FLT to hit $55 despite few brokers going negative.
On Sunset Strip | Aussie market had another boring low volume flat day due to lack of global sentiment -
I remain a big fan of TMT stocks in the next 12mths. Stocks that have missed the recovery cycle in the last 12mth compared to their peers are CRZ, SXL and TEL. Given the regulatory changes are coming, SXL for one is going to be front and centre in terms of M&A target.
On Sunset Strip | Aussie market had another boring low volume flat day due to lack of global sentiment -
It is also funny that market is shocked that warm winter hurts KMD. KMD has a solid brand and global expansion plans. Not sure you need discretionary retail exposure, but KMD is one of the better picks and I expect it to recover from these levels.
Quant targets are driven by relative valuation trends and macro thematics. Global growth expected to remain low while travel industry expected to remain stronger with higher currency and consumers looking for experience spending. Downgrade matters if its structural, but cyclical downgrades like this is no reason to change targets. FLT remains a top quality global growth travel stock with solid growth outlook. We expect FLT to hit $55 in the next 12mths and reach over $60 in 24mth assuming the business model and the global macro outlook remains as we expect now.
That is correct. Market does not move in straight lines and we have had a positive long term view for a few years. In the short term we see times when profit taking makes sense when return outlook is less than the risk on the back of macro, valuation or even sector switch. The red lines are the time to take profit or reduce market exposure while the green lines are when you add to your exposure.
Exactly. Any short term change in our market call will be reflected on Sunset Strip.
I have been negative on Discretionary Retail for a while and we went negative on the market earlier this month. We were very negative on MYR and TRS from the start of the year and now the rest are looking stretched with macro outlook.
On Harvey Norman (HVN) - When Harvey meets Hockey - Quant Sell ($2.75) -
I am very positive long term, but short term the expectations have priced in substantial growth that is unlikely to happen. But if we get some stellar numbers out of the big US companies and Russia settles down, we may yet bounce back quicker than I expect....it's a long shot at these multiples.
I agree...When you line up school holiday, may selloff, currency, Aussie VIX and valuation levels....it makes sense to take profit.
On US market move breaks momentum and currently on technical support level to break the uptrend -
It's easy to be a pundit when you are not held accountable to your calls. Always check if a strategist or pundit has a model portfolio, if so, how have they performed. Generally the pundits with no accountability are the noise.
China stimulus and Euro printing promise if inflation stays low did not stimulate the market. It needs a real kicker to get over the US highs. I expected us to have a down day today with the whole world waiting on US job data and tapering implications.