What the heck is the Santa Claus rally? Well according to Wikipedia, “It’s a rise in stock prices in the month of December, generally seen over the final week of trading to the New Year.” Why you ask? That’s a good question. There isn’t really a plausible explanation. Some say it’s because of tax reasons. That’s rubbish because our tax year ends in June. Another reason is because people are happy around Christmas time. Does that mean happy people are more likely to buy shares than unhappy people? That’s rubbish too. And the other reason is that people tend to re-invest their Christmas bonus into the market causing it to rise. Right. If you think about it, they’re all pretty lame explanations. Either way it doesn’t really matter. We actually think it’s just another self-fulfilling prophecy similar to “Sell in May and Go Away” or “Buy in July” or the most well-known of self-fulfilling prophecies has to be, “Harry Potter and Lord Voldemort.” For those that don’t know, Lord Voldemort was destined to be killed by Harry Potter, making it a self-fulling prophecy. For what-ever reason, the message is clear, the market goes up in December. So get on board. Let’s look at some stats on the ASX 200 Index (XJO): Over the last 11 years the ASX 200 Index has gone 8 times. That’s a 72% certainty that this month will be a winner. I like those odds. The prophecy holds true. Last year the market was up 225 points (4.1%) and the year before that 129 points (+2.5%). With a 72% chance, the odds are stacked heavily in our favour. If we drill down into these stats a little deeper, you’ll notice that the market does rally in the last week of December, but it’s not as considerable as it’s made out to be. It seems that higher gains are made by having exposure from throughout the entire month. Some of you that are still a bit cynical, need to understand that the stock market doesn’t always behave according to the textbook. It’s an emotional creature. Rallies and panic selling sometimes can’t be explained by genuine reasons because its drivers are attributable to human nature and the collective psychology of stock market investors. People do weird and wonderful things that sometimes cannot be explained by rational thinking. Remember this famous cartoon? There’s a lot of truth to it. Stock markets are at times irrational and unexplainable. So with that in mind, we’ve decided to come up with the perfect Santa portfolio that we think you should hold to capture this upside rally based on themes that we think will play out over the month. Here is a list of themes that will impact our market this month: US Federal Reserve interest rate rise – The Fed is on track to raise rates by 25bps mid-December. This will have an instant knock on effect here. US dollar will rise, Australia dollar will fall and Bond yields will rise. That means “rotate our of bond proxy” and “don’t fight the Fed” time. Investors can do well to have their investments aligned with current monetary policy rather than against it. So – sell bond proxies and sell gold. Buy banks and stocks that benefit from strong US dollar. Example Buys are – NAB,…

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