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Weekly Ramblings of an Australian Stock Trader – incorporating ASXweekendtrader.com

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Why The Australian Stock Market Isn’t In A Bubble.

Why The Australian Stock Market Isn’t In A Bubble

Investing legend Jeremy Grantham says stocks are heading towards a bubble.

He’s talking about US stocks.

He says they’ll reach the bubble stage when they’ve gained another 14%.

We have to say that doesn’t seem like a bubble to us.

Even if you look at where the US stock market has come from. Sure, it has come a long way. But a bubble?

No.

Not yet…

We like to call it ‘bubblemania’.

Just like any other mania, those caught up in bubblemania become obsessed by it.

It’s a craze…an obsession…it’s, well, a mania. They refuse to accept that anything could happen that would cause them to be wrong. They insist the stock market is in a bubble and that it must crash — sooner rather than later.

In our view, the bubble maniacs are just as deluded as the poor souls who think house prices and stock prices can only ever go up.

But if we had to pick sides at the moment…if we had to bet whether the stock maniacs or the bubble maniacs will win the argument over the next five years, we’ll put our money on the stock maniacs any day. [Read more →]

July 24, 2014   Comments Off

Three Things You Need to Know About Investing in China.

Three Things You Need to Know About Investing in China

Before you think about buying into China, there are three things you need to know.

Investing success in China will depend on the advice and insights you get. Perhaps a Chinese connection will set you on the right course. That’s why Kris decided to launch the New Frontier Investor service.

You will get the advice, insight, analysis and research.

So, what can you expect from China and what should you look for before you take the plunge?

An economy in transition
 

The first thing that you need to keep in mind is that China is an economy in transition. It has grown at an average rate of 10% over the last 30 years. It has achieved industralisation and modernisation at an amazing speed.

China has grown from a poor country to a middle income country. Its economy, finances and military might are a formidable size.

However, there is a catch.

China has grown with a focus on its manufacturing industry and fixed investments. This means it has thrown huge amounts of money at heavy and light industries. This includes energy, steel, machinery, paper and pulp, and other industries.

It’s not hard to understand China’s past growth model.

It’s creating industries at scale. The government initiates favourable policies and fixed investments into basic industries such as steel production. It then allows private money into the system through the banking sector.

This results in a strong positive feedback loop for real wage growth. This powers consumption, which leads to more investment.

Through this process, China has made entire industries out of nothing. It’s important to remember that, from nothing. However, the growth really has been in basic industries, not in services and technology.

Now China is at a crossroads. China will change gear to focus growth on private consumption, services and high value-added products such as technology. [Read more →]

July 24, 2014   Comments Off

Buy Stocks Now Before the Market Rally Begins…

Buy Stocks Now Before the Market Rally Begins…

The drumbeat for a market crash gets louder.

Yesterday’s Australian quotes a report from Australian Foundation Investment Company (AFIC).

It says:

We believe risks are elevated. There is the ongoing reliance on low interest rates to support sentiment and growth and the potential for subdued earnings outcomes.

If there were an award for stating the obvious, AFIC would be the unchallenged winner.

Of course the market is relying on low interest rates. Does anyone seriously think any different? This is how it has been for six years. And if our bet is right, it will be like this for another six years — minimum…

But what’s this?

It seems as though there’s another ‘Captain Obvious’ making an appearance. This time in the Financial Times.

Russ Koesterich, global chief investment strategist at BlackRock writes:

Still, once upon a time, a coup in an emerging market or the threat of a renewal of the cold war would have had investors worried about possible “contagion”. What is different now?

The simple answer is that this is a byproduct of central bank policies. Financial market volatility is mostly driven by the credit cycle. When monetary conditions are loose — meaning credit is both available and cheap — market volatility tends to be lower.

What do you know? We could swear that we’ve been writing about this stuff for at least the past two years. Heck, it has probably been even longer than that.

The difference is that we’ve written it in a way that investors can easily understand. We try to avoid mumbo-jumbo financial whiz kid speak.

But it all amounts to the same thing. Like never before, central banks are working together to keep interest rates low, volatility low…and stock markets as high as possible. [Read more →]

July 23, 2014   Comments Off

How Spindletop Tech Kicked off the Energy Revolution.

How Spindletop Tech Kicked off the Energy Revolution

The 21st century has seen more innovation than ever before.

And the oil and gas industry has been at the forefront of this technological innovation.

New oil and gas discoveries have been found in harsh environments everywhere — the Arctic, ultra-deep waters and even shale. To get it all out, the oil and gas industry has had to become one of the most technologically advanced in the world.

And the need for high powered tech keeps growing. It’s more important than ever to maximise field recovery. Maturing basins and hard to drill frontiers add to this issue.

Sure, oil and gas exploration has always been a high risk game. But at the same time, the reward from success can be huge.

The oil and gas business has never been as profitable as it is now. Globally, it invests over US$1 trillion per year to develop tech that can explore untapped resources.

Because of this tech, exploration risk is the lowest it’s ever been. Success has compounded because of technological innovation.

But new technology didn’t just help the development of the US shale oil story. Tech was what made the energy revolution possible in the first place.

Many thought there was oil at Spindletop Hill, Texas, in the 19th century. However, drillers had to drill through ‘salt’ to get to the oil.  This meant that there were hundreds of feet of sand. Because of this, wells collapsed and hopes fell at Spindletop. .

At least until the Hamill brothers came to Spindletop, along with their state of the art drilling rig. The Hamill brothers had a reputation for being innovative. They helped find the first Texan oil field, which produced 1,450 barrels of oil in 1886.

The Hamill brothers quickly got stuck into drilling. Like previous wells, they soon hit sand. Back then, drillers used water to hold up the well walls. But at Spindletop, the sand was too fine…and water was useless.

The Hamill brothers had to improvise, using only material they had on hand — water, dirt and cows. They struck on the idea of using mud instead of water. And they created it by getting the cattle to stomp around in a nearby water pit.

As the story goes, the mud worked, oil was struck, and Spindletop became the biggest ‘gusher’ that the world has ever seen. [Read more →]

July 23, 2014   Comments Off

Ignore the Noise, This Stock Market Has Further to Run…

Ignore the Noise, This Stock Market Has Further to Run…

‘Stocks are expensive.’

‘Valuations are stretched.’

‘Wall Street is heading for a fall.’

We’ve heard these comments non-stop.

Not just over the past week, but for the past year or more.

Even the US Federal Reserve is blowing hot air about stock values.

And yet, what has happened?

That’s right, stocks have continued to rise. And so far, contrary to what the crash predictors say, stocks continue to justify these so-called high valuations…

One of the big things we heard coming into the US earnings season was that stocks would struggle to match analysts’ estimates.

Well, tell that to the three-quarters of US stocks that have beaten estimates.

As Bloomberg reports:

About 77 percent of the 82 companies in the S&P 500 that have posted results this earnings season beat analysts’ profit projections, and 70 percent exceeded sales estimates… Profit by the gauge’s members increased 6.2 percent in the second quarter, and revenue rose 3.3 percent…

That’s pretty good.

And it’s a good sign when companies can increase revenue and profits. It tells you that companies have some pricing power. [Read more →]

July 22, 2014   Comments Off

Big Data Technology Hits Chinese Financials.

Big Data Technology Hits Chinese Financials

China is the world’s most important market.

However, it’s still behind in many areas of technology.

Big data is one of them…

This is the time of internet finance and banking.

Western markets have succeeded in the area. They made the full change from old-style banking to online banking.

But Chinese banks have only started.

I’m talking about online banking. I’m talking about mobile banking. I’m talking about mobile marketing and ecommerce.

These are huge growth opportunities.

Let’s use mobile banking as an example. There has been a strong push towards mobile banking.

The marketing and sales from all the major banks were strong. All wanted to quickly move their customers onto a mobile banking platform.

In the first quarter of 2014, Chinese mobile banking transactions totalled at AU$924 billion. This was a year-on-year growth of 298%!

Chinese banks have created the basic mobile banking platform. However, there will be more transactions and more functions. This will lead to more storage needs and new services.

Overall, there is still a lot of room for growth in the mobile banking sector in China.

Plus, there are other services developing. They include: Wechat banking, mobile payment and mobile marketing.

These services are the base for future financial applications. Spending in these areas will be even bigger than before. [Read more →]

July 22, 2014   Comments Off

The Stock Market Correction That’s Coming in September 2014.

The Stock Market Correction That’s Coming in September 2014

I’m wildly bullish on the stock market.

In fact, the last time I wrote about the Dow, I showed why it could go to 21,000 points by the end of 2014. If not, then certainly by June 2015.Interest rates are far too low and the search for yield remains intact.

Saying this, it’s likely that the Dow Jones is due for a mini-correction around September this year. A lot of money is sitting on the sidelines waiting for this to happen. When it does, the Dow Jones should climb to new highs. I’ll come back to this in a tick.

The Dow Jones Industrial Average (DJIA) is a favourite gauge for the US stock market. It’s probably the most widely recognised stock index in the world.

Despite the growth of other economies, such as China, whatever happens in the US markets usually has an impact worldwide. That’s what happened during the financial meltdown of 2008-09.

That’s why I follow the US stock market carefully. And based on the charts, a cooling off period is on the way.

To explain why, let’s take a look at the technical picture. The chart below tracks the Dow Jones. Each bar represents one week. [Read more →]

July 21, 2014   Comments Off

Wrapping up our Frontier Investing Focus…

Wrapping up our Frontier Investing Focus…

Today is the final day of the Frontier Investing week.

Of course, it was actually a fortnight of frontier investing.

We hope you got something out of it.

We ran it in conjunction with the launch of the new premium investment advisory, New Frontier Investor.

But perhaps you may wonder about the exact location of the frontier. That’s the thing about this frontier. It’s a frontier without borders. This frontier is everywhere…

This isn’t the first time that the frontier has been everywhere.

As Frederick Jackson Turner wrote in The Significance of the Frontier in American History, quoting from the Superintendent of the US Census for 1890:

Up to and including 1880 the country had a frontier of settlement, but at present the unsettled area has been so broken into by isolated bodies that there can hardly be said to be a frontier line. In the discussion of its extent, its westward movement, etc., it can not, therefore, any longer have a place in the census reports.

But just because the Census Bureau could no longer mark a clear frontier on the map, didn’t mean the frontier had gone.

From that point on it was just more of a mental frontier. Without getting too pretentious, it was a state of mind.

Well, the same thing is happening now. [Read more →]

July 21, 2014   Comments Off

Why Aussie Investors Have an Advantage in The New Frontier.

Why Aussie Investors Have an Advantage in The New Frontier

Your editor touched back down on Australian soil just past 5am this morning. (Today’s Money Morning comes to you from the walkway on the way to gate 20 in Brisbane’s domestic terminal.)

We’re back from our whirlwind 11-day trip of the ‘old frontier’.

By old frontier, of course we mean America.

And if there’s an old frontier there must be a new frontier.

The New Frontier is closer to Australian shores. That puts Aussie investors at an advantage.

In an age of instant internet, wireless and mobile communication it must seem odd to think that physical location can give you an advantage. But it can.

Here’s why…

We had two reasons for travelling to America. We wanted to check out the birthplace of probably the most famous frontier in modern history. Plus we also had a number of business meetings in Baltimore and Florida.

Those meetings were with some of the smartest folks in the financial publishing industry.

We learnt a lot about how we can provide you with a better service. But we learnt other things too. For instance, no one in America is talking about the same huge frontier opportunities that we’re talking about.

And it’s all to do with home bias and, dare we say, a bit of national pride too. [Read more →]

July 18, 2014   Comments Off

Who’s Making a Bundle in Emerging Markets?

Who’s Making a Bundle in Emerging Markets?

Today I want to show you an exciting trend. It could bring you huge profits from the frontier of investment.

If you’ve spent any time this year looking for growth stocks, you will have seen Aussie small caps doing it tough.

The small-cap S&P ASX Small Ordinaries [ASX:XSO] index is down nearly 1% in the year to date. Over the same period, the large cap S&P/ASX 200 [ASX:XJO]has slightly outperformed. It’s gained a little over 3%.

Frankly, figures like that make me yawn. You don’t invest in stocks to reap the same rewards you’d get from a savings account.

Some people invest in stocks to fund their retirement. Others invest for the mental challenge. But everybody invests for the potential to profit from explosive growth.

The so-so headline performance of Aussie Small Ordinaries this year masks plenty of issues. Chief among them are the challenges that many junior mining companies face. Firms exposed to iron ore and coal have borne the brunt of soft commodity prices. That’s what’s weighed on the small-cap sector.

But the beauty of stock investing is that you’re not obliged to invest only in Australian-listed companies.

Low-cost online brokers make it simple and cheap to buy shares listed on overseas exchanges. In fact, my mate Shae Smith has filmed a quick guide showing just how easy it is to start investing in global stocks. You can watch it here.

There has never been an easier or more attractive time to become a global investor. [Read more →]

July 18, 2014   Comments Off