(THURSDAY 7th OCTOBER - JAMES GERRISH - 7.32AM)... Another positive night in the States with the DOW JONES adding +131pts while the S&P 500 was up +1.77% on the session.
Commodities were strong overnight with the CRB index adding more than 2% and this should flow through to a good day on our MKT. As it stands, SPI FUTURES are pricing a rise of +69pts when trading kicks off.
The overnight move came largely on the back of reports that German Chancellor Angela Merkel and other European Finance Ministers were going to look at ways to recapitalise European banks. As we discussed on Monday, we believe this recapitalisation is a likely step in preparation for an orderly Greek default where bond holders (mostly German & French Banks) would take a haircut on their holdings before the European Financial Stability Fund steps in.
This view was actually dismissed overnight by the German Finance Minister who was at pains to point out that the discussions were not an indication that they were preparing for a Greek default - but I'm getting a little bit skeptical of politicians these days so forgive me if I don't take it as gospel.
From a markets perspective, we just need clarification and a little bit of certainty around the European situation and when you look at US economic data (not that bad..!) + company valuations, we've got the foundation for a strong market rally into year end.
I sent out a report to clients yesterday that was written by Charlie Aiken over at Bell Potter. I regularly read Charlie's report and although he's certainly not right all the time (no one is) and his views should be filtered somewhat to an individuals circumstances, he often presents well constructed market analysis. I think the report written yesterday is an example of this.
The view presented is certainly bullish (as Charlie's reports mostly are) however the reasoning behind this call is sound and fits my current line of thinking. I probably wouldn't be as aggressive as the report suggests, but the idea seems right. The report can be viewed by CLICKING HERE
CUT THE CRUD!
When MKTS are volatile and positions go into the red, its quite easy just to sit on your hands and wait for the inevitable recovery in your portfolio. Indeed, that can often be the best approach if you don't have the time, experience nor inclination to work a little harder and critically evaluate each holding you have. I'd actually suggest to be a little more active and look over your stable with an objective eye - it will improve your performance.
The first thing to consider is market psychology. What will other investors be buying FIRST if the market starts moving higher?
Will buying be focused on the top tier companies that dominate the index?
How long will it take for second tier stocks to garner some interest in what is likely to be a skeptical market for a while?
Am I positioning for a bounce, or using the opportunity to create a longer term portfolio that will offer a growing income stream as time goes by?
How have the economic conditions changed and what impact is this likely to have on the future earnings of my companies?
What are the future expectations for earnings in the businesses I own and do they have room to maintain a dividend if earnings drop?
If China slows too dramatically, what impact will this have on my overall portfolio? (we discussed FMG at the start of the week).
etc etc etc.....
There are such a vast number of questions that need to be asked around a portfolio and now is the time to ask them. Remember that re-positioning a portfolio even when it involves taking a loss makes sense. You're selling and buying into a depressed market and if you've done your homework, your acquiring a business that you anticipate will have greater prospects than the one you're getting rid of.
If you're struggling with any of the questions above, or feel that you'd like a second opinion on your portfolio, feel free contact me. james.gerrish@novuscapital.com.au
MODEL PORTFOLIO UPDATES
No new updates today - We expect to deploy some more cash shortly.
Australian Stock Prices Overnight
In New York, News Corp rose by US$0.36 to US$16.00, equivalent to A$16.58, A$0.23 above its last close on the ASX.
ResMed rose by US$0.75 to US$28.50, equivalent to A$2.95, A$0.01 above its last close on the ASX.
In London, Rio Tinto rose 134.5 pence to £28.47, A$2.15 higher in Australian currency terms.
BHP-Billiton rose 111.0 pence to £17.78, A$1.78 higher in Australian currency terms.
Henderson Group Plc rose 4.45 pence to £1.00, A$0.07 higher in Australian currency terms.
