The Market Wrap 25-5-12

Time to start working with your Cerebrum Frontal Lobe.

By Jason Fittler

The market is back at the bottom of the trading range. This is the fifth time in the past 12 months, each time it bounced back.

Is it different this time?

To answer that question we need to take a look at how we humans process stimulus. Our Brain is broken into four main sections, the Cerebrum, Cerebellum, Limbic System and Brain Stem. It is our Limbic System which is causing you stress about the current market and news flow.

Our Limbic System is broken into four parts the Thalamus, Hypothalamus, Amygdala and Hippocampus. The Amygdala is located in the temporal lobe and looks after things such as memory, emotion, and fear. It is this part of our Brain which protects us from harm, for example if you burn yourself with hot water this part of the Brain remembers the pain so that next time you are more careful with the hot water.

It is your Limbic system which is telling you to panic in this market, to sell out and run for safety. Recommending to buy while the market is in free fall does not compute with the Limbic System as the Limbic System is emotions based.

At the same time your Cerebrum Frontal Lobe which is the part of your brain which deals with reasoning, planning and problem solving and is telling you that this is a good opportunity to buy quality companies and to take advantage of the situation.

The Cerebrum Frontal Lobe is the part of your brain which controls common sense. Is Woolworths going to go broke because of elections in Greece? The answer is No; therefore if the price of Woolworths has come back due to panic selling on the market then it is a good time to buy. The same is true for all large blue chip companies in the Australian Market.

With the GFC only three years ago you will be forgiven for your Limbic System working overtime. However to make money moving forward I recommend that you start working with your Cerebrum Frontal Lobe.

Back to the question…“Is it different this time?” No, I expect that we will continue to see weakness in the market over the coming months but medium term we will see the market move back towards fair value of 4700 in due course.

In the meantime sit back and watch the dividends flow in. Now is a time to be buying quality companies, feel free to hedge your bets and buy in stages.

The Market Wrap 11-5-12

Bad news from Europe; their elections once again showed how investors are still nervous about the markets and a threat of another GFC.

We have seen a pull back in the Australian and major markets across the world. Our market managed to stay around the 4300 level.

The Budget seems to have had little effect on the marketplace for the week although I note it did drop the most on Wednesday the day after the Budget was announced.

I am still positive on our market but it’s not going to be a straight line back up. 

I see fair value for the market around 4700 and expect that we will see the market above 4500 in the near future.

As predicted previously I expect Greece will fall out of the Euro and this could be the next big news.  Although this has been flagged extensively over the past 12-months I suspect that the media have now only just started to listen.

Picking the high and lows of the market is always done in hindsight, as such I will continue to buy quality blue chip companies when they are undervalued for long term growth and income.

There are still plenty of good opportunities on the market for the long-term investor as long as you can see through all of the noise around Europe.

For more information on any of the above please contact us on 07 4771 4577.   

The Market Wrap 4-5-12

By Jason Fittler

This week we saw the Reserve Bank cut interest rates 0.5%.

The big banks will look to pass some of this on over the coming weeks. As per my weekly newsletters this rate cut was expected so is another rate cut in the coming months.

Currently Australia has two major problems; lack of government to stimulate the economy and a high exchange rate. By cutting interest rates the Reserve Bank addressed both of these issues.

As foreign investors leave our shores in search of a better return our exchange rate drops and on the other hand everyone with a mortgage has a little more to spend at the end of the month.

The big banks are also the winners, they are able to hold on to some of the rate cut to improve their margins which benefits shareholders and employees.

I expect to see the Reserve Bank go further and cut as much as another 0.5% over the next 12-months. These low interest rates will be short lived and I expect to see them on they way back up in 2015.

The market has now moved to 4400 although dropping on Friday. 4700 is still my fair value for the market so medium-term I expect to see the market higher.

Short-term you have a couple of variables to deal with, first is profit taking. It is very tempting for the big fund managers to get nervous and lock-in some of the recent gains for the past four months. The second is seasonal fluctuations in the market, traditionally the month between May and October under perform the months between November and April.

I suspect that given the nervous nature of our market at present, we will see a pull back in May and June.

For the long-term investor simply hold quality companies for the dividends, as even at these levels the market is still cheap.

For more information on any of the above please contact us on 07 4771 4577.   

The Market Wrap 20-4-12

By Jason Fittler

There is now significiant pressure on the Reserve Banks to cut interest rates with this pressure being applied in the public arena.

Our market is moving up now towards 4450 points as investors look to gain some sort of return on their investment. This is due to us facing a low interest rate enviroment.

Next week will mark the beinging of some of the big news events for the year with a veritable storm of market moving news.

• The Reserve Bank will meet on May 1… expectation are that the rates will be cut. However, will the banks pass this on? I expect not in full.
• ANZ reports on the 2^nd of May then Westpac reports on the 3^rd of May.
• We have France and Greece going to the polls May 6.
• Orica reports on the 7^th of May.
• NAB on the 8^th of May.
• Then we have our Budget brought down on 8th of May, with tax increases expected for the “Wealthy” along with a reduction of rebate for the “Wealthy”. Once again, many items in this budget have been leaked to the press, with the big one being Super Surcharge. This is where individuals earning more than a certain amount get slugged extra tax on their contributions. John Howard did away with this tax in a bid to encourage people to invest more into super and provide for their own retirement. 

Our current fiscally challenged government is so short-sighted in achieving a budget surplus to try and recoup the funds wasted in the stimulus packages that they are now digging a hole for the future. 

For more information on any of the above please contact us on 07 4771 4577. 

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The Market Wrap 13-4-12

By Jason Fittler

For some time now, I have been looking for the market to move above 4300 points.

As you can see from the above chart this is a point of resistance for the market. The question is will it hold through May.

The saying goes in the US “sell in May and go away” which indicates that investors historically tend to take profits in May before taking holidays. The difference here in Australia it is budget time and the very public pressure being put on the Reserve bank to lower rates.

Let’s look at why this pressure is being applied. The government has spent all funds, which they had to stimulate the economy.  As such, the only way left to stimulate the economy is to cut interest rates. There are two major advantages to cutting rates: 

The problem is that the Australian Government does not control the Reserve Bank as such they need to put pressure on them to reduce rates.

It has been long held that the Reserve Bank works to maintain inflation around 2-3%. Many so-called experts are now saying that this figure should be higher say 4-5% and therefore justifying a rate cut.

Higher inflation will cause more long-term problems but I guess that will be the LNP’s problem.

I am confident that interest rates will be cut in the coming 6 months; this will stimulate the economy and lower exchange rates. This should see our market move higher as investors become more positive.

Keep in mind that the market is still trading well below its fair value of 4700.

Income is still the key as our economy has a way to go before it is mended, I suspect that we will see some good growth this year in underlying values and I will be looking to take some profits if the market gets carried away.

I continue to buy quality blue chips paying high yields and quality fixed interest hybrids.

For more information on any of the above please contact us on 07 4771 4577. 

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Market Wrap 4-4-12

By Jason Fittler

It has been a slow raise for the market to move above 4300 points but this week it managed to get and stay there.

This was helped along by the US markets which have performed well on the back of lower then expected unemployment, interest rates staying on hold and the increase in the sale of second hand homes and retail sales holding steady which all point to a recovery getting under way.

It is not yet time to get bullish on this market as we are not currently trading in line with the DOW Jones. This is mainly due to a number of reasons;

1. Demand is dropping in China for iron ore and coal
2. Carbon and MRRT are concerns for foregin investors
3. Unstable government in Australia
4. Loss of work place efficiencies in Australia

As you can see in the below chart the DOW Jones has outperformed our market over the past 12 months.  I expect that our market will be holding around below fair value of 4700 until at least the elections next year. 

I maintain my view that Australia still has some tough time ahead. And things will get worse for the average Australian in the up coming budget where we are now being asked to pay for the over spending stimulas that the government made in the GFC. 

Business will continue to do it tough but large Blue Chip compnies will continue to cut costs mainly through improving work place efficiencies (expect a lot more strike action) and cuttings staff numbers.

This is a positive for the investor in these companies as the dividend levels should be maintained and these companies will cut the fat and be ready for strong growth which will come eventually.

I countinue to buy blue chip companies for the dividend yield, my model portfolio returned 11.5% gross return over the last quarter.

For more information on any of the above please contact us on 07 4771 4577. 

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Market Wrap 27-3-12

The market continues to trade in this ascending triangle as we approach 4300. 

You can see from the above chart that there is support for the market below the line and it is quick to recover from any drops and quickly and moves back in the trading range.

This means the US has started to recover. 

In Australia with interest rates on hold and expected to pull back in the coming 12 months, investors are once again confident enough to get back into the market all be it only on the dips. Our market is not strong enough to create a new Bull market but investors are looking for better results than cash. 

We have all heard that China is slowing but when this is put in context of historical sales to China they are still buying more Iron Ore and Coal then the historical average and this will continue.  

With the US recovery on the way and China demand still strong, I can only see one head wind at this stage. 

That head wind is the current Federal Government. The Carbon Tax and the Mining Resources Tax will slow development in this sector in Australia. On the 23/03/2012, Queenslanders shot a warning shot over the bow of the ALP. Clearly, the people are unhappy with government policy. 

The GFC is now coming to the average person, unemployment is moving up, interest rates are higher, lending is tight both residential and commercial property values are down. 

I suspect that unless the Federal Government starts to listen to the people of Australia then we will have a major shift in leaders in the 2013 election. This to me will remove the final head wind for our economy and the markets starting to recover in earnest. 

Until then, I will continue to buy Blue Chips shares for the income.  

For more information on any of the above please contact us on 07 4771 4577. 

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Market Wrap 16-3-12

By Jason Fittler

With the US recovery now started, we find our market back this week knocking on the door of 4300. 

The US has reported a fall in unemployment and an increase in the retail spending which has seen their market put on nice gains for the week with the Dow Jones closing above 13,000 points. There is a lot of positive talk coming out of the US right now. 

Although this improvement in the US does not directly relate to an improvement in the Australian markets, it provides us with a better long-term picture. Given the size of the US and its economic reach an improvement in the US will over time filter through to all markets. 

Back home, our big concern is the slowdown in China although this is not as big as it is made out to be. We all knew that China was slowing; if you put in context to the demand that they have for our exports compared to historical demand we have nothing to worry about short-term. Long-term we expect that India will open up providing a new export market.

On the 17/02/2012 I wrote about the Australian Dollar due to start to pull back with the strength in the US we are now starting to see this take place with the dollar topping at $1.08 and closing this week at $1.05. I expect to see the dollar pull back under the $1 mark in the coming 12 months. 

Over the past month, we have seen two very successful capital raisings. 

• Cardno where the share price moved from $5.50 to $6.70 the rights cost $4.90. 
• QBE moving from $11.60 to close at $13.14 on the back of its Share Purchase Plan…  cost of the shares under the plan is $10.70. 

These sorts of movements highlight how undervalued our market truly is…  as such there are still plenty of good opportunities to buy at the current level. 

For more information on any of the above please contact us on 07 4771 4577. 

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The Market Wrap 9-3-2012

By Jason Fittler

Last week the RBA left rates on hold, WOW Sight and Sound went into receivership, and unemployment went up by 0.1% to 5.2%. 

The market closed close to where it opened for all of the news flow not a lot of action. 

Let us review the following decisions and impact on the markets. 

RBA leaving rates on hold provides some room to move over the coming 12-months. One look at the Governments financials and it is clear that further stimulus packages such as $900 for everyone, roof bats, solar panel or hot water systems or $1000 because of a flood or cyclone are now off the table. 

Government debt is getting close to $200 Billion, which will limit their ability to waste further funds. In addition, they have promised a budget surplus. The only way to stimulate the economy going forward will be by reducing interest rates.  

Not good for those holding term deposits as your income is about to reduce. 

WOW Sight and Sound’s receivership was caused by an 8% fall in sales and a $20 million bad debt. This follows Woolworth announcing the closure of Dick Smith.

All is good news for JB HI-FI, as competition is getting smaller. Unfortunately so is retail sales, just ask any shop owner. 

For now, I continue to hold JB HI-FI with a long-term view. 

Unemployment went up slightly or so we think. The devil is in the detail; the percentage of people looking for work has fallen. This means that people who were previously looking for work and as such classified as unemployed are no longer looking for whatever reason. If you adjust for this, unemployment could be running as high as 7%.

These all indicate that the tough times are on their way for us the individual or the consumer as the government prefers to call us. 

My expectation is that we will not see the return of a Bull market for at least 3 years. 

Therefore, we continue to focus on blue chip stock paying high dividend yields. 

The Australian Market will remain undervalued for some time as such, if you take a buy and hold strategy you will get the companies cheap and income better then bank interest rates.  

For more information on any of the above please contact us on 07 4771 4577. 

Subscribe to Grow Your Wealth the FREE weekly financial newsletter.

The Market Wrap 28-2-2012

By Jason Fittler

The market is struggling to move above 4300 points, which is no surprise. 

We have had a good reporting season with only a few of the poor small performers yet to report.  I feel the market is strong. 

As you can see from the below chart it is getting set to make a sustained move above 4300.

This week we have had the political issues sorted which should provide the platform for companies to start doing some long-term planning. 

The next election is late 2013 and the welcome stability in our political sector will reduce the volatility in the market for now. 

Keep in mind that companies do not care who is in power they only care about knowing the rules and knowing that the rules are not going to change short-term. 

The average investor on the other hand is about to start feeling the effects of the GFC. Credit is tight, employment is tight, house prices have fallen, government borrowing is high and cost of living is on the raise.

This will cause less people to invest over the coming years and perhaps use the surplus funds to reduce debt.

For the astute investor this will be a great time to start slowly picking up those shares, which have been oversold.