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. 

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