Kris is busy meeting and greeting at the Wealth Symposium in Vancouver. And Swarm Trader Gabriel Andre is out with the fever that’s been making the rounds here at the Old Hat Factory. So I’ll man the good ship Money Morning for the day. And what a day it could be. A brand new day, even!
What do I mean? Why a new bull market of course! “The bear market that has pounded stocks for more than a year has ended, a broker said, as Australian shares head for their sixth day of gains,” reports Chris Zappone in today’s Age. “I believe we saw the bottom of the market on the ninth of March,” says Alex Moffat, a director at Joseph Palmer & Sons.
The S&P ASX/200 is up almost 29% since that March 9th low at 3,154. ”Whilst it won’t be a stunning straight back to 6850-points-type rally, I think we’re on a nice sustainable upward trend…Anyone who expects the sort of returns we saw between 2003 and 2008 really needs to be spending more time in a casino and less time in investing.”
Over in America, the S&P 500 has reached an eight-month high. You definitely get the sense that fund managers and investors are determined not to miss this rally. It’s become self-fulfilling. But is it sustained by underlying health in the economy and corporate earnings? Or is it just another trip to the Wall Street casino?
That’s the question that will be answered one firm at a time during earnings season. In Australia, we’ll find out production figures from key resource firms this week. Those figures will include the effect of lower commodity prices on profitability, as well as any changes in final resource demand.
Last week, for example, Rio Tinto reported that iron ore production was up 8% in the June quarter. But bauxite, alumina, and aluminium production were all down on lower demand. It was a mixed bag.
Uranium producer Energy Resources of Australia-which is 68% owned by Rio Tinto – says it will post first-half earnings of $120 million. To put that in perspective, it’s three times what the company previously expected. Why such a big surprise? It reported a 14% rise in uranium oxide production.
Did you know that uranium prices in the spot market are up 27% since making a low near US$40.50 in late March? I didn’t know either until I checked the Altex Global Uranium Spot Price Index. That index shows uranium prices in the spot market are now closer to US$51.50. It’s a nice recovery.
In this case, by the way, I think the recovery is independent of expectations about the global economy for the rest of this year and next. The chief consumers of uranium are utility companies that run nuclear power plants. They estimate fuel demands years out. And if you’re looking years out, you see big planned increases in the world’s nuclear fleet.
So why the big increase in the spot price? That’s probably just the normal way markets work. When a share or a commodity is oversold, it tends to rally.
By the way, if you’re interested in a North American perspective on how Rio Tinto’s stoush with China is being view, have a listen to this story from National Public Radio in America. It raises the question-without answering it – of whether Australia’s economic interests (aligned with China) are increasingly in conflict with its security interests (traditionally aligned with the U.S.).
Speaking of conflicting interests, did you see that regulators in both Britain and the U.S. are set to ban commissions paid to financial planners by the marketers of investment products? The thinking behind the regulatory ban is pretty simple: if a financial planner is paid to recommend a product to his clients, he’s got a financial incentive to do so, whether or not the product itself is a good fit for his client.
The ban was proposed in June after a study was released by Britain’s Financial Services Authority. I’m not going to have a crack at financial planners, because I’m sure there are many good ones out there. And everyone has to get paid for his or her services.
But it is worth remembering that the compensation structure for financial planners is often based on how much product you can sell. The business of the investment industry is to sell investments. Some of those might be good. Some not so good. But the individual investor should always remember the nature of the institution he’s dealing with.
A similar paper published by the US Treasury Department called “Financial Regulatory Reform: A New Foundation” also concludes that financial planners may often recommend investments that benefit themselves (via commissions) but do not benefit investors. Imagine that.
There’s nothing terribly surprising in these findings. But I think it just reaffirms that you probably shouldn’t subcontract your financial best interests out to a third party. Yes, you need good professional tax, super, and investing advice. But no one is going to take your money as seriously as you. Often, other people just want to take your money.
And one more note on super. “Regulators have been urged to crack down on the practice of ‘flipping’ corporate superannuation fund members into accounts with higher fees when they leave their jobs, often resulting in fund members unknowingly stung with a near doubling of administration fees,” reports Eric Johnston in the Age yesterday.
“The move, which generates lucrative fee income, is expected to come under scrutiny in a coming review of Australia’s $1 trillion super system by former Australian Securities and Investment Commission executive Jeremy Cooper, which will target fees and charges levied on super fund members.”
“Flipping is a practice where employees who leave a job are automatically moved out of the corporate super fund into a personal superannuation account. In many cases employees are unaware they have been moved into a fund that usually attracts higher charges, in most cases nearly double the fee.”
Again, no one would be too terribly surprised that this sort of thing happens. But if there was ever a time to take a serious look at more actively managing your super, now is it. More on that later this week from Kris.
Dan Denning
for Money Morning Australia
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I was wondering when you think inflation will start to take off & how high do you think the bank interest % rate will get and when.