When you least expect it, expect it.
And that’s what equity traders learnt last week as the S&P roared ever higher against some strong negativity in the form of historically high P/E ratios, downgraded earnings into reporting and a sentiment still feeling very bearish.
We’re reminded again that the US market climbs a wall of worry and wherever the crowd is, that’s usually where the most hurt is too.
General feeling around the traps is that only when the last of the Fear of Missing Out money is exhausted, and only when the last short has been squeezed that the US will settle down for a pullback.
But what will be the spark that lights the fire? No one will pick it for sure but when you least expect it, expect it.
Perhaps last night’s declaration of NO DEAL by the Saudis at Doha will be what it takes? Perhaps it will be the Saudis pulling 750 billion dollars of US Assets should congress pass a law allowing families of nine eleven victims to sue the Saudi Arabian government.
So far the bill has been blocked by the Obama Administration so now you see how important it is to pay attention to who the new President will be next year.
Locally we had another indication of our own rising political risk with long serving MP Bronwyn Bishop being rolled for her seat at preselection.
It’s a taste of things to come because if that’s how her own party reacted to the leadership spill, how do you think the nation wants to react.
People are being sent to the polls ahead of time and for a relatively obscure piece of legislation. Fairly safe seats will become marginal as it stands now but Malcolm Turnbull will most probably still be the PM at the end of the year.
He’s going to the electorate on the back of a budget next month that local MPs in marginal seats will be praying has more in it than just economic austerity and a good sound balanced budget.
This is also the electorate’s first chance to vote for Turnbull and we know how people vote with their hearts ahead of their heads. If he doesn’t have a good song and dance they’re going to make him pay.
A 4% swing against the Government sees about 20 MPs lose their jobs and we’re looking at a hung parliament.
Staying local, the banks were backed heavily last week after being beaten up earlier this month.
Hedge funds have record high short positions on the big 4 and we are in a similar camp. Here’s why.
First, we have regulatory risk and calls for a royal commission aside, the sentiment at the moment is for the banks to receive a good solid kicking. Whether is from APRA, ASIC or the Government itself remains to be seen. Maybe all three but we see this as taking up a good deal of time, energy and money for the banks.
Secondly, the exposure to a housing sector leveraged to a long gone mining boom speaks nothing but risk to us.
We picture a small town miner with a mortgage, a car and three investment properties in Perth. He’s just lost his job after cutbacks at the mine and he’s in trouble.
The trickle-down effect of missed mortgage payments as being of obvious concern to the banks. Banks want people to pay their debt back plus the interest. They don’t want to be owning stacks of worthless housing in the middle of the desert.
Data released last week showed personal insolvencies have again risen for the quarter. That’s 4 quarters in a row and a run like that hasn’t been seen since 2009. 2009!!
That’s not a period of time you want to be compared to.
You don’t need an economics degree to guess where the bad debts are rising and if you guessed Queensland and Western Australia then well done you can be a financial analyst.
Speaking of which there’s a glut of apartments flooding the market in this country and it’s being felt the hardest in Perth. Perth CBD has the highest vacancy recorded since 1993. 1993!! I can’t even remember 1993.
Another risk to the banks was pointed out by the Bell Potter research team who updated their yield portfolio. 3 of the big 4 banks have been dropped from their selection with the 4
th under a caution. Why? A lack of positive dividend growth. That’s their model yield selections and it barely includes one bank.
If you want to keep buying those banks with all of these risks then please do so. Like I said markets climb a wall of worry. However maybe it’s worth looking at some debt consolidation or debt collection companies as a hedge against these risks.
Chinese data was exactly where it needed to be last week and I heard the expression ‘China is solved- get involved’
We’re happy to get involved but the days of continual ‘limit up’ on the London Metal Exchange are long gone and if they do come back it’ll be too late for the bloke missing his job. He’s still got car and house repayments and those Perth properties can’t shift.
Stay safe out there and remember when you least expect it, expect it.
