Bears proliferate

The reporting season is starting to reveal a pretty gloomy story. The cheery assertions that everything is fine in Australia because of high employment levels is about to get a caning. The Australian economy has had some protection from the travails of the developed economies because of the resources boom, but the full impact of the combined effect of “Ducth disease” and the Great Recession is beginning to dawn on the market. As Charlie Aitken notes, money moving out of equities is both a global and a local problem (about $44 billion just in August outflows). Aitken points out that the ASX 200 has gone nowhere for 6 years and “more and more superannuants are throwing up their hands and saying ‘too hard'”. Sustained rallies are going to be hard with such outflows occurring.

Macquarie is also detecting the signs of a bearish change of heart from management:

This reporting season to date has seen minor downgrades to EPSg, although this should be reviewed in the context of the downgrades already announced. Results commentary this week however suggests managements are at a critical turning point in their thinking. Despite the tough operating conditions, hitherto they have been willing to “warehouse capacity” in the hope of a cyclical recovery. With increasing acceptance that this recovery is now increasingly unlikely, decisive action is beginning to be taken on costs – job cut and “strategic review” announcements came this week with a rush. We expect this trend to continue and even accelerate, with the outcome likely to resemble the last major cost-cutting wave seen in 1991/2.

Of course, one can go to high yielding stocks. But this looks like the recipe for some sustained bearishness. And it is industrials that are taking the hit:

The Industrial sector, particularly the domestic focussed, continued to standout for all the wrong reasons. While the overall sector FY11 EPSg forecast stands at -2.3%, it is critical to highlight the FY11 EPSg forecast for “domestic focused” industrials now stands at -4.8% and that of the “international” industrials +3.9%. Furthermore the FY12 EPSg revision trend divergence between these two groups is also notable (-1.5ppts to +15.3% and +0.7ppts to +17.5% for domestic and international, respectively. This is discussed in more detail following).

Stocks delivering results that have either been below market expectations, or with some issues investors have concerns around, have been significant underperformers –APN, BSL, CSL, WBC, OZL, GWA, OST, AWC.

It is increasingly looking like the non-resources part of the market is being sucked into the vortex that is increasing its intensity in developed markets.



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  1. SON please excuse my ignorance here. I don’t quite understand the term “money moving out of equities” Do we measure this by the total capital decline of markets?

    • Exactly my thoughts !

      How does $44billion move out of equity markets ?

      For every seller, there is a buyer. This means that you don’t have money ‘leaving’ equity markets when they rise or fall.

      It would be different if they had said that $44billion of value was wiped out.

      • Could it not be that the ‘buyers’ are ‘new money’ that always comes in per week from the 9% super collection, and that the money leaving is ‘old money’ not re-invested or retained? So whilst the aggregate may remain unchanged (a buyer for each seller) the net increase stalls , rather than just the inexorable increase.

    • If a company buys back their own stock, then the money exits the equity market for good. Not exactly sure if that is what is being described though.

  2. Witchsmeller Pursuivant

    Are you guys on crazy pills? Mr a, owner of x share sells @ $20. The share is bought buy Mr b for $15. Mr a pockets the $5 which is no longer in equities. Get it?

      • Witchsmeller Pursuivant

        Sorry, I meant to say Mr A BUYS for $20, and then sells for 15- he pockets the loss as it were. I was working and typing.

    • Mr A bought at $20 back in May from Mr B thinking XYZ was worth $25, but sells to Mr B at $15 after a ‘surprise’ earnings miss.

      Mr B had $20 in May to spend on XYZ, but took $5 off the table because of the earnings downgrade, and is willing to pay only $15 for the ‘juicy’ dividend yield.

      End result, $5 was withdrawn from the market.

      Obviously there aren’t just two participants in the market, and it doesn’t necessarily work one-to-one like this, but in the aggregate the analogy can be made.

      Alternatively, there are aggregate figures somewhere for net capital flows in and out of equities via managed funds and super allocations.

    • Thats not how it works. There has to be a strike price.

      Either mr b paid $20 or mr a would only receive $15.

  3. so charlie aitken is no longer sending out his daily notes with pictures of bulls chasing crowds into water like he was a few months ago? seems alot of these “experts” who were openly tuanting us bears not long ago as they beleived in the false healing powers of ben bernankes money printing have now converted? must be getting close to the bottom then, id say.

    • Charlie has been broadly spot on with this one, he was warning of a pull back and a conservative equity policy before this happened. He was out by the magnitude but he admitted that it went deeper than he thought it would. Personally I like Charlie’s style and its a daily read for me

      • i like reading CA aswell but blind freddy could have seen this coming. all you had to do was look at what happened when QE1 finished.

        “he was warning of a pull back and a conservative equity policy before this happened” no he wasnt. he was warning of a pull back as it happened. before it happened he was taunting bears with silly little pictures for months at the bigining of the year. If you read CA everyday you should remember this.

        • Point taken GB. No-ones perfect (JBH call for one!)! But for the myriad of stuff pumped out of broking houses daily I like the personality of his daily…

          • agreed Rich, if i only have time to read one daily it’s CA’s. he does suffer for bulls desease though which means he can never spot bubbles but does call things generally well. definately a good commentator to listen to when all the others are capitulating as he looks at fundamnetals and valuations which in the long run win out over sentiment. although he totally [email protected] up 2008, early 2009 was some of his best work. being naturally bullish means he takes a beating on the way down but gets in early and is fully invested at the bottom which is where the real money gets made.