To tee off there’s been some serious rumblings regarding Harvey Norman this week. We all would have read about it and/or heard about the recent batch of bad news. Anyone who doesn’t know my thoughts on Harvey’s I ask you to please read my last seven months of work on the space. Harvey Norman is a dead man walking even without the alleged accounting scandal & ASIC investigation hanging over their head.
Firstly to the weekend papers where I noticed the Financial Times have run a full page article on the Internet Of Things. This is a great read and highlights how the CIA is allegedly using Smart TV’s to spy on users. It goes on with more detail on the dangers we are exposing ourselves to by allowing these devices to become such a trusted part of our lives.
Over the years you learn a thing or two about equity markets. To state the facts, the Australian market does not go up in a straight line and is inherently less bullish than its bigger brother in the USA. There are a number of considerations to be made when looking at why this divergence occurs between the two markets and most notably it is that we are dominated by 2 sectors: Banks and Miners.
Another month flies past and we barely have time to think about what’s ahead. February was obviously dominated by Trump and Reporting season. As much as company reporting takes focus away from global events no one could look away as the lead up to and delivery of Trump’s address to Congress. From the start of February to the end, the chances of the Fed raising rates has moved from “maybe” to “definitely” which makes our US banks trade all the more valuable. As at the start of March the chance of the Fed rate rise next week is 80%. Already at the time of writing it is much higher. See chart below, courtesy Bloomberg.
As many would know, reporting season puts a bee in my bonnet. Many companies reporting things they may/may not have forecasted & the market rewarding/beating them up appropriately. I don’t chase stocks, nor do I react to the financial press so it’s usually a time to sit by the side and look at the big picture, preferably an interesting one.
The following looks at your language and how everyday things you take for granted are being used to make money.
It would be remiss of us not to start this month’s Review with what was far and away the biggest event of the year, that being the election of Donald J. Trump. Four weeks ago he was given no chance of winning the Presidency with some market commentators predicting disaster to markets in the rare likelihood of his election. Today he is the President-elect with a wide range of business friendly policies ready to roll out when possible. The market reacted negatively upon seeing the first signs of Trump’s miraculous win.
October was a shaky month for the ASX200 which underperformed most major indices, finishing the month down around 3%. The market shot down to 5200 where there is clear support but whether it can hold this level leading into election week is another story.
Japan has always been a country with which I am fascinated. Almost certainly this was inherited from my father who dealt with Japanese companies for most of his career and much of this rubbed off on me. I’d like to hope my dealings in business and life reflect his tutelage.
So it was with interest I read in The Economist over the weekend about the current trend of expectant mothers to opt for doctors over midwives and painkillers over the absence thereof. Apparently women are traditionally expected to endure the pain of childbirth in order to better the bond between mother and child and prepare the mother for what lies ahead. I’m not about to question centuries of Japanese Buddhist tradition but as a long time reader of The Gartman Letter I’m always interested in fertility rates of advanced countries, on which this article touches. Japan, with a fertility rate of 1.5 children per woman and a non-existent immigration policy, has a has a declining population. A country requires a rate of 2.1 to replace its population and the Japanese Government is keen to get theirs at least up to 1.8 per woman.
Firstly some sad news. With all the work we do and all the research we read and compile and regurgitate, were I to write a fresh note I would almost certainly write something nearly identical to last week.
Fed looking like it will raise, bonds getting sold, USD rallying, OPEC deal can’t be trusted, markets are undergoing a sector shift.
No different from before.
So as means of a distraction here’s this from Investec regarding what part of the mining cycle (or “clock”) we are:
The Fed will hike in December. I don’t know a sensible person who isn’t now of that view. We were given a warning early last month of what would happen if they were hiked out of the blue and now, a month and a half later, we are now adequately conditioned for what is now a world at the bottom of the rate cycle. This being said, I’ll dust off some old notes (from September 20th) that are now the serious game plan for the rest of the year.