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Macro Investor Volume 1, No 7
Macro Bearish strategies, bullish tactics
- Strategies and tactics are often, necessarily, very different and thus sometimes confusing.
- In this market especially the long-term view may differ considerably from the short-term reality.
- Differing, even contradictory approaches may thus be required and this week we look at a few.
Data Chinese data, leading indicators down
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- Latest data is largely week, with domestic inflation and global activity particularly a worry.
- ABS unemployment and housing finance provided bright spots, but no panaceas.
- Chinese trade data, notably exports, meanwhile point to slowing aggregate global demand.
Technicals Volatility reigns
- Risk markets are at a crossroads – either they glide across a deep valley, or its BASE jump time.
- US Dollar is holding up as US bonds look to be shaking out the bears and commodities await.
- Australian stock market is looking quite bullish, but disappointing earnings may see a short-term setback.
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Stocks
- Global miner is correctly priced insofar as its intrinsic value is concerned but hubristic on China.
- While a staged stimulus is under way – and may ramp up – we feel management downplays risk.
- For a company that has been through dozens of cycles we believe it is surprisingly optimistic.
- CPU is a highly successful Australian IT export but it faces competitive headwinds in a flat market.
- Efficiency gains and recent acquisitions should deliver continued revenue and profit growth.
- Nonetheless, for its price and its risk we do not see a compelling case to invest at current levels.
- While traditional metrics – fundamental or technical – send warnings, AAC is better than it looks.
- Supply and demand-side factors are building to deliver stronger revenues and profits for FY2012.
- With remote, pasture-fed cattle stock, AAC could benefit from problems elsewhere in the world.
- Small-cap car parts provider looks cheaper-than-super-cheap and has growth prospects as well.
- With consolidation continuing in the sector, AMA’s consolidated business model looks attractive.
- While gearing remains high and overall risks moderate, its discount to value is compelling.
Trades
(Small banks ripening for a fall)
- This short-biased pair trade is based on deteriorating growth prospects for regional banks.
- While we like the regionals as customers and bondholders, we think the share price rises of some are overcooked.
- This trade will start off as a long/short, but could move into a double-short on the occurrence of certain signals.
- Amid concerns on over-capacity and a slump in demand, residential property developers are having mixed results.
- We feel however that the market hasn’t grasped the implications for share prices or the sector as a whole.
- Attractive shorting opportunities are presenting themselves in two ASX-listed property developers.
Fixed Interest Government bonds are great, except for you
- A high currency is not only distorting our economy, but also the market for Australian government debt.
- Yet the reasons why Australian government bonds are so attractive to offshore investors are irrelevant to you.
- Essentially, you can get the same guarantee and risk-reward ratio from an ADI term deposit, but with a much better rate.
Property Still expensive, but improving
- Fundamentals have improved on declining prices, lower interest rates, and higher incomes.
- Globally, however, Australia remains expensive measured by values relative to income and GDP.
- But on income terms, housing is becoming more attractive as prices and interest rates fall.
Classroom Zen and the art of forex
- Forex trading is sexy and can make you rich, but that doesn’t mean it’s for everybody.
- You need a mixture of luck, skill, knowledge, time and instinct, but most of all you require the passion and the temperament.
- Think of it like any career or vocation. If you are going to be a trader five or more days a week it needs to be about much more than the money.
Portfolio
