(FRIDAY 7TH OCTOBER - JAMES GERRISH - 8.11AM)... Another positive night overseas and we're really seeing the risk trade back on. Sectors that led the recent sell off are now leading the recovery with commodity producers and financials the key drivers.
Overnight we saw the DOW JONES put on another +183pts while the S&P 500 was up +1.83%. Locally, SPI FUTURES are pricing a rise of +68pts this morning. This comes on the back of the best one day gain since Dec 2008 yesterday where we saw the ASX 200 rally +143pts or +3.65%.
Its important not to get too ahead of ourselves here as there are still a lot of risks in this mkt but I firmly believe current stock prices are factoring in massively negative outcomes in Europe and a recession in the US. As we wrote at the start of the week, less bad news will prompt a rally and that's what we've seen over the last couple of sessions. The biggest error an investor can ever make is to get overly bearish at the bottom - at the height of media/community negativity.
MY RANT...SORRY!
If you've followed the calls by investment banks/brokers etc who place targets on the index and other economic metrics such as expectations for growth, there is almost an uncanny trend that when we see upgrades to expectations, we're close to the top of the trend and when we see downgrades, we're near the bottom. This week we saw a massive round on cuts to index calls as well as expectations of global growth.... probably a bit behind the curve you might say and a clear indication that stocks are already pricing in said downgrades!
One of the other features of any mkt downturn that truly irritates me, is the calls by some advisers about cash levels. At the bottom of the market we see a trend of advisers coming out claiming massive cash levels when they clearly haven't made the call to go to cash in the first place. We also have the theme where mkts will bounce and advisers will claim after the fact that they added to positions at the start of the week/month etc the rally begun... but in the same breath are very reluctant to make an definitive forward looking recommendations. Call my cynical, but a lot of what I hear around the mkt is a load of **** and its understandable why investors get continually frustrated.
When you write a morning note (as we do), and publish model portfolios (as we do) you put your proverbial's on the line. It will be abundantly clear to all that we don't get calls right all the time and they'll be decisions we wish we hadn't made, but we do it because we believe in transparency, we believe in integrity and we understand that to make money you need to be ahead of the curve, rather than behind it.
AROUND THE GROUNDS ON FRIDAY
Firstly, a quote from John Templeton that seems fitting...
'Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria'.
MODEL PORTFOLIO UPDATES
Woodside (WPL)
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Why is WPL Worth More Than its Share Price? 06-Oct-11 24:43
WPL's share price has fallen 40% from April $50ps highs to this week's $30 lows. On what does our revised $64.90ps valuation rest? In our base line scenario we assume oil prices at US$80/bbl, close to current levels, though the A$/US$ exchange rate falls from current levels back to 0.80 long term. The company has some less favourable LNG contracts struck when energy prices were historically low. For newer LNG contracts we assume a price at 80% oil parity in energy equivalence. That is US$10.70/mmBtu.
Sandfire Resources (SFR)
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FY11 result - Degrussa progressing well 06-Oct-11 24:35
Development at Degrussa progresses well. Construction started in April and is already one month ahead of schedule. Income comprised $5m of interest with exploration and evaluation expenses of $52m and administration costs of $10m. Net cash was $74m at 30 June but the balance sheet will be leveraged during construction and until debt repayments in FY13.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.02 to US$16.02, equivalent to A$16.46, A$0.16 below its last close on the ASX.
ResMed rose by US$1.42 to US$29.92, equivalent to A$3.07, A$0.09 above its last close on the ASX.
In London, Rio Tinto rose 221.0 pence to £31.27, A$3.50 higher in Australian currency terms.
BHP-Billiton rose 104.0 pence to £18.82, A$1.65 higher in Australian currency terms.
Henderson Group Plc rose 6.5 pence to £1.06, A$0.10 higher in Australian currency terms.
