What we liked
- A Royal Banking Commission was launched by the Prime Minister on Thursday morning after the Big Four banks asked for an inquiry into the sector. The move was done in order to end mounting speculation and restore public trust in the banking system. The Government will now act to ensure a properly constituted inquiry is made into the financial services sector is established to put an end to the uncertainty.
- Black Friday Sales – Australians spent $200m on Black Friday sales last week with fashion and holidays being the big ticket items bought. Sales were up 16% from last year. It will provide some of our local retailers such as Myer, Premier Investments, Kathmandu and JB Hi-Fi a little boost to their bottom line. In the US shoppers spent US$5.03bn. It still doesn’t top China’s Singles Day which raked in US$25bn.
- Iron ore continued its month long rally hitting US$67.94 a tonne. Chinese steel futures are hitting 10 week highs. It rose 8% last Thursday evening taking November’s gains to 16%. It’s good news for iron ore stocks such as Fortescue Metals, BHP and RIO.
- Tech investor and billionaire Alex Waislitz who is well known for picking winning tech stocks has turned his focus onto the mining services sector. He is the founder of Thorney Investment Group his past investments include Updater and Afterpay. Waislitz says the big miners are still producing and they spend big on equipment. For that reason he says Austin Engineering, Southern Cross Electrical Engineering and MMA Offshore are ones to look at.
- Julie Bishop says a Royal Bank Inquiry won’t do much but offer false hope to Australians while threatening confidence in the sector. It won’t compensate or resolve disputes. These commissions can take years and can undermine confidence in the banking sector.
- Amazon founder Jeff Bezos is now worth a $100-billion as of Monday as the online retail giant raked in cash from the holiday weekend’s cyber shopping spree. Microsoft co-founder Bill Gates is trailing closely behind at $89.4bn. There are reports that Amazon could be targeting the banking sector after it takes out the retailers.
- Business investment spending plans have been upgraded over the last few quarters which is a positive sign for the economy. Investment plans were up 34% to $108.9bn since Feb. Next week’s accounts are tipped to show that GDP has grown during the September quarter.
- The OECD is forecasting Australia to continue this period of rosy economic growth combined with resilient employment figures. They see the RBA starting to increase interest rates in the 2H18. But a major correction in house prices could upset household wealth and consumption. It expects GDP for Australia to hit 2.5% this year, 2.8% next year and 2.7% in 2019. Unemployment to hit 5.6% this year, 5.4% next year and 5.3% in 2019.
- Queensland’s $80bn LNG industry is set to enjoy a stellar month, with revenues topping $1.1bn.
- OPEC and non-OPEC producers led by Russia have agreed to extend oil output cuts until the end of 2018 to clear a global over supply. There is no clear message on how to exit the cuts to that the market doesn’t go into deficit or so that prices don’t rise too fast and bring on the US shale gas frackers. Saudi is preparing its stock market for the Amarco listing and Russia needs to balance its budget.
What we didn’t like
- Bitcoin – The bubble keeps getting bigger and bigger with the cryptocurrency hitting US$10,000 an all new high. That’s up 950% over the year and is up 54% just in the last two weeks. Domain Group have reported a Melbournian putting his home up for sale, willing to accept Bitcoin as payment. Seems like lunacy. Given Bitcoin’s extreme volatility, the seller will want to pray that the price of Bitcoin doesn’t plummet after the sale. It’s now 7 times the price of gold and its market cap is more than IBM or McDonalds. With no intrinsic value, this is the mother of all bubbles. The only way it has value is if the next guy is willing to pay you more for it – the greater fool.
- The spread between the Australian 2 year and 10 year Government Bond yields is narrowing. The Australian 2 year Government Bond yield is 1.75% and 10 year is 2.50%. Banks borrow short and lend long. Therefore a shrinking gap means narrower profits for the big banks. It’s the first time in 20 years that short-term bond yields in Australia are equal to and will soon move lower than the US. Bond yields in both countries are 1.76%. This means that the prospects in the Aussie economy are expected to be softer than the US for the next few years. Here is a chart from the AFR.
- Is the property boom finally over? The tune has changed and media headlines are now reading very different headlines to a year ago. Sydney is finally tipping over and the momentum has slowed in Melbourne. Here was one scary quote seen in press “Households are now trice as indebted as China’s.” With interest rates on the rise, you have to wonder how bad the impact will be on these consumers.
- Amazon – The official launch date of Amazon Australia was again pushed back after a series of technical problems prevented the launch. It was supposed to go live November 24. The retailer said it “failed” to launch last week was due to glitches in its backend. Amazon Australia hasn’t disclosed any details about their launch, so it’s still up in the air.
- The US has warned North Korea of absolute destruction if it doesn’t play its cards right. This week the rogue nation once again test fired its most advanced intercontinental ballistic missile which now puts the US within striking range.