Macro Investor this week

• Risk, Europe and equity markets are running with an enthusiasm that would impress even the crowds at Pamplona.
• Nonetheless, investors will need much more than Mario Draghi’s mooted monetary policy to succeed beyond the rally.
• Uncertainties remain and though technical indicators on the market look promising, for the economy they look ominous.

DATA: Chinese data, leading indicators down

• Latest data is largely weak, 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: Watch those wedges

• Remember, remember, the woes of September – and the returning traders from holidays.
• Two major reversal patterns spotted in two major markets.
• Australian stock market is looking very bullish, next few weeks will decide rest of 2012.

STOCKS:

Stocktake

• Earnings season is underway and we include a full valuation update on the 25 stocks that reported this week.
• The sideways bear market on the ASX200 continues, with prices above next year’s estimates of value.
• Consensus earnings and price targets continue to be tightened as economic reality meets the market.

CBA

• Beyond the record profits and strong dividend, CBA is a stock facing negative macro headwinds.
• As the bank nears FARM’s $58.52 valuation, just above resistance, further upside is limited.
• Once ex-dividend today we expect CBA’s share price to fall. Better blue chips lie elsewhere.

NAB

• NAB’s flat quarterly result was largely attributed to higher funding costs in the UK.
• But while bad and doubtful debt charges have decreased, risks rise in its core market of Victoria.
• As Victoria’s property market and economy in general face pressure, NAB will bear the brunt.

NCM

• Brokers love to say NCM is cheap and are now pointing to a positive FY12 in support of this idea.
• Yet on our estimates its still too expensive and furthermore its technical position remains ugly.
• While we think that risk may yet come on again for gold there are better exposures elsewhere.

TRY

• While many gold miners remain dear in a sideways market, TRY stands out for value and growth.
• With record production on high margins, TRY is very profitable even if gold prices fall significantly.
• Sovereign risk is high and market condition remains bearish, but if gold breaks out so will TRY.

TRADES:

Trades update

• Earnings season continues its curving, twisting path through market volatility but few trading opportunities have been generated.
• Instead, profits continue to be taken on many Australian share trades, and risk management processes tightened.
• The MacroTrades model portfolio is up 4.8% since inception – a wonderful achievement considering we’re only using 5% of our portfolio.

Trading earnings season

• Trading during corporate earnings season is fraught with risks and sleepless nights.
• Reacting to new trends rather than foretelling possible breakouts can provide lower risk and higher rewards.
• Three potential new trends in companies who have already reported are a case in point.

• The gold price continues to move sideways, but support is rising on monetary stimulus hopes.
• Gold’s companion precious metal silver is not as bullish, with a bearish medium term technical outlook.
• A hedged pair trade on the presumption of a breakout or breakdown in either side could thus be suitable.

PROPERTY:

The pros and cons of Sydney housing

• Sydney’s under-performance in the last few years has seen its house price premium falling to levels not seen since the mid-1980s.
• Sydney housing is now looking good with relatively strong foundations, including tight supply, solid yields, and above-average jobs growth.
• Recently-announced supply-side reforms could, however, be a potential game changer, hurting both values and rents.

Prices update

• R.P.Data weekly price movements
• On a 12-month basis, national aggregates remain in a downtrend, but with significant divergences between capital cities.
• Capital city home prices have now fallen -5.8% since values peaked in October 2010.

SPECIAL REPORT: China stimulus or rescue?

• Chinese history offers vivid examples of strong leadership forcing through massive political reform, social change and economic projects when the need requires.
• It’s uncertain however whether China’s Politburo currently feel that need or, if they do, whether they have the necessary tools at their disposal.
• Most of all however, if stimulus was launched, just how many funds would need to be diverted to rescue the debt-addled projects that stimulus wrought in the first place?

FIXED INTEREST: Opportunities in rates confusion

• Competing views on the direction of interest rates are hard to reconcile; will rates fall, rise or do both?
• It’s a conundrum that highlights a belief that the RBA moves rates due to global uncertainty rather than Australian data.
• This is a fallacious however, as there is a rationality to rate setting. The question remains however: what is it and what to do?

CLASSROOM: Financial advisors and you, a love story

• One of the most important investment decisions you will ever make won’t be what to buy or sell, but who to ask.
• The financial planning and advisory industry doesn’t always have your best interests at heart.
• Still, good advisors do exist and sometimes even the most seasoned investor needs a little professional help.

MODEL PORTFOLIO: