(TUESDAY 11TH OCTOBER - JAMES GERRISH - 7.47AM)...The US MKT was up strongly again overnight with the DOW JONES adding+330pts while the S&P 500 rose +3.41%. Locally, the SPI FUTURES are pricing a rise of +55pts this morning however I think we'll get more than that out of it.
The buying was on relatively light volume given it was a bank holiday in the US but it was fairly impressive non-the-less. As they said on CNBC this morning, it was all about policy leaders creating a plan for a plan in Europe with Merkel and Sarkozy offering a united front. It doesn't really sound too convincing on face value but it does put some timing around European leaders to make definitive progress in managing debt and the coordination between the heavyweights is encouraging.
The other important element is the realisation by leaders that the main game centres on the banks. It's really not that important whether or not we have a Greek default, the important element is the handling of Greek creditors which are mainly French and German institutions.
US earnings season kicks off tonight in the States with Alcoa and then hots up later in the week with some of the banks. We've seen expectations for US earnings come back in recent weeks which becomes a positive for mkts short term. As we've been saying for while now, stocks are priced for a recession in the States (I briefly discussed this in StockWatch yesterday - CLICK HERE) yet the data that we're seeing just isn't supporting this view.
We find that historically, stock prices follow earnings (makes sense really) but sometimes there is a variance. This ultimately provides an opportunity for investors. We've been discussing this theme based on the US mkt recently but the chart below shows this theme domestically.
Why Shares Look El-Cheapo 10/10/2011 04:52PM
Company earnings are still rising but share prices are falling - this is why Australia shares are looking like an increasingly good deal.
Source: ABS, CommSec (As seen on ABC last night from Alan Kohler & borrowed from the Eureka Report this morning)
MODEL PORTFOLIO UPDATES
We added to our existing position in CAT LIMITED (CEO) yesterday in the emerging growth portfolio which we first bought on the 23rd September. This is another Mongolian based coal play that has some great prospects. This is a high conviction play so its a relatively large position for the portfolio - and we may continue to ad to.
We also topped on Starpharma (SPL) in the Emerging Growth portfolio and added to Computershare (CPU) in the Buy Write portfolio.
You can always keep up to date with what we're doing by viewing the website, www.mymarketview.com.au. Any portfolio changes are made on the front page and time stamped when we suggest them. Of course, clients will receive a phone call or email with the trade details and will have the ability to act quickly.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.67 to US$16.97, equivalent to A$16.99, A$0.23 above its last close on the ASX.
ResMed rose by US$0.54 to US$30.21, equivalent to A$3.03, A$0.01 above its last close on the ASX.
In London, Rio Tinto rose 83.5 pence to £32.48, A$1.31 higher in Australian currency terms.
BHP-Billiton rose 53.0 pence to £19.21, A$0.83 higher in Australian currency terms.
Henderson Group Plc rose 4.2 pence to £1.13, A$0.07 higher in Australian currency terms.
