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Macro Investor Volume 1, No 4
Macro The great market disconnect
- Perception is increasingly disconnected with reality in the market but this gulf has its own clear logic.
- By understanding how the market does work, rather than how it should work, you become a better investor.
- Rather than fight it, understand it. Your trades will improve and you’ll sleep better at night.
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Data Bright spots amid the gloom
- Cars still strong.
- Us consumer wilts but home building confidence soars.
- German ZEW weak but off the bottom.
Technicals Tipping points
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- Risk markets remain in trading range, although volatility is spiking across major markets.
- King US Dollar dominates but commodity markets continue to rise – disconnect underway?
- Australian stock market is sideways for now, probability of sustained breakout is increasing.
Stocks
- WPL is the pick of the bunch when it comes to Australian oil & gas stocks but it’s not without risk.
- The company has high gross and operating margins, as well as a strong trend of growth in value.
- WPL’s share price seems to have bottomed and appears compelling for value or pair investing.
- LNC is an interesting company that unfortunately requires a perfect storm in energy to work.
- While there has been much bullishness about this stock, we see it as far too risky despite its falls.
- LNC is our short in a proposed pair trade with WPL due to low margins and high operating risk.
- TPM is more than an ISP, with mobile telephony and infrastructure businesses adding value.
- The company is not a clear leader in any single area but it’s worth more than the sum of its parts.
- The NBN is as much an opportunity as a threat and TPM’s share price is undervalued.
- Australia’s second-largest ISP continues to grow rapidly through acquisitions and new customers.
- After the purchase of AAPT and, more recently, Internode, IIN is now a true threat to Telstra.
- The NBN is as much an opportunity as a threat and we believe IIN has further to grow.
Trades
- Beyond the ASX200 index, Aussie stocks are moving, presenting some interesting trade ideas.
- Several long trades have already been triggered in our model portfolio, with more likely to come.
- In particular, four companies that spin money for a living – ASX, QBE, TAH and NAB – suggest the most upside.
- This long/short hedge trade is based on the outlying possibility of either an oil spike or collapse.
- The trade’s premise is to go long a high-margin oil stock on the ASX200 and go short a low-margin stock.
- Following a move in the underlying fundamentals of these stocks or oil, this pending long/short would be reweighted.
(ISG)
- Singapore’s main index looks ripe for a possible bullish outcome from latest European summit.
- European stocks heavily oversold, exposure via unhedged iShares S&P Europe 350 ETF.
- Tactical trade for MacroGrowth portfolio that may build to a larger position.
Fixed Interest In a deflationary world
- The RBA signalled last week that rates are not going to be lowered any time soon.
- But the rest of the world is still cutting and driving the interest rate curve below zero.
- Australia might seem different but it cannot avoid the tractor beam of weak global growth and lower global rates.
Property
- Tightening housing supply across most of Australia has manifested in sharply rising rents.
- But the pace of rental growth has not been uniform, with Perth and Darwin fastest.
- Population growth and vacancy data suggest on the other hand sluggish growth for Melbourne, Adelaide and Hobart.
- Prices rise for a seventh straight week, with all major capitals except Adelaide experiencing growth.
- On a 12-month basis however, national aggregates remain in a downtrend.
- Capital city home prices have now fallen -5.9% since values peaked in October 2010.
Classroom Having it both ways is having it best
- It’s not a question of shares versus fixed interest – it should be both.
- Your portfolio allocation is dictated by your needs, not a formula.
- The ultimate focus should be on optimising returns within each asset class.
Portfolio
Below is the performance chart for Macro Investor’s three model portfolios – MacroIncome, MacroGrowth, MacroTrades – updated to this morning’s close:
