Marcus Today Free Podcast

THE MARCUS TODAY MORNING MEETING - Tuesday 14th June

June 14, 2022 Marcus Today
Marcus Today Free Podcast
THE MARCUS TODAY MORNING MEETING - Tuesday 14th June
Show Notes Transcript

Anyone who has been in broking will tell you that the Morning Meeting is how all brokers start the day.  The format is to have a quick look at the overnight markets, consider what's coming up in the day ahead, hear from the analysts, share ideas and get set up for the day's stock market activity

Article mentioned:
The One Stock Portfolio 
 
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Marcus Today offers information that is only general in nature. It does not take into account your personal financial situation, needs or objectives. Nor does it take into account the financial needs of any specific person. You should consider your own personal financial situation and needs or seek financial advice before making any decisions based on this information. For more information please see our Financial Services Guide.

*PLEASE NOTE: Transcripts are autogenerated and may contain errors, especially Stock Codes and Names.

SPEAKERS

Tom Wegner, Chris Conway, Ben O'Leary, Henry Jennings, Marcus Padley

 

Ben O'Leary  00:00

Good morning, everyone, it is Tuesday the 14th of June. Lots to catch up on after a long weekend here and a couple of sessions in us, Marcus, you've got the rundown for us?

 

Marcus Padley  00:22

I have we should be playing Chopin's funeral march in C minor to the back of this podcast, then it's bad day for the mic emceeing this bad for a while futures over two days, the futures combined to be down 289 This morning, and our markets been down 366, down about 320 At the moment, and Wall Street obviously had to 880 point falls on the trot kicked off by their CPI number on Friday, which came in higher than expected, the core number wasn't really that much higher than expected. They're expecting 5.9% and the call number was 6.0%. But whatever a 40 year high driven by airfares, energy prices and up 8.6% At the headline, and that's enough to cause the bond market to start factoring in a 75 basis point rate rise with FOMC meeting which will be Thursday morning, our time and the chances of a 75 basis point rate rise have gone from 3% to I think around 33%. And there's even some chatter about 100 point base rate rise and that the Fed won't now pause as suspected in September but will raise rates 50 basis points consistently every meeting this year. And so by the end of the year, they should be at 3% Somewhere around there. So inflation is still a problem rates to rise more aggressively than expected. And then of course has kicked off fears of a recession. The two year bond yield has gone above the 10 year bond yield which of course, that inversion is a precursor to most recessions. They have inverted regularly without a recession, but there has been no recession without them inverting so of course. That's a great headline for the media to pick up on inverted 10 and two year bond yields and you've seen the recession fears also impact the Aussie dollar which has had a very sharp dive and it's very highly correlated to the resources sector. So the bank sector which topped out last week on the RBA is surprised 50 basis point rate rise has been one of the main supports of our market that gave way and this morning the resources sector is giving way with falls of sort of 6% in BHP and Rio as people start to factor in slower growth a possible recession lower commodity prices are lower Aussie dollar and lower resources stocks so that sector now topping out as well which suggests our market is going to and has done this morning dropped through any semblance of technical support from previous lows and is now headed into the opposite of blue sky would you call that grey skies grey seas anyway into the abyss technically into the abyss with no obvious support level? Doubtless I think it will firm up a little bit because a lot of bad news is hit us in a very short period of time and will relax a little bit and then take our lead from the FOMC meeting on Thursday morning. The other sentiment indicators as I've put in the strategy piece today are things like Bitcoin down 19.8% overnight as one of the coins paused withdrawals that's a funny way of saying we're going bust and we've got your money paused withdrawals on their platform and that of course scared everybody so Bitcoin down 90.8% in a night but down 67% from the top so a crypto crash happening right in front of us and that will probably do us the only people picking goals today of a Socceroos. The other thing I noticed also on the news this morning driving in was that the boat people have arrived at seems they think Anthony Albanese is going to let them in, which is probably erroneous. I don't think any policies have changed at all, but they start to describe what life is like in Sri Lanka. And they had Sri Lankans telling you that we're prepared to risk the lives of our children because of the state of our economy. So you can see that whilst we have cruised post pandemic, other economies have been devastated. And that of course, and one of the risks I wrote about in the weekend newsletters one of the risks the Americans are seeing for their technology stocks is the reversal of globalisation. If you suddenly found that Apple couldn't sell iPhones in Sri Lanka, or let alone China because of some geopolitical Fallout, you can see that there is precipitous risks of sorts with those relationships and with emerging economies, which have obviously helped these big tech companies now learn from me today.

 

Ben O'Leary  04:49

Sri Lanka situation puts the 5% fall in the stock market into a little bit of context, doesn't it?

 

Marcus Padley  04:54

Absolutely. You see the pictures are 91 people on one boat holding children in life jackets. I mean, it's just Before we mentioned Ukraine, which is just anyway, let's just count our luck today that we're sitting in Australia with the stock market down 5%. It really doesn't matter that much.

 

Ben O'Leary  05:09

Yep, that's it. Speaking of the stock market, Tom, what's happening in the Australian market?

 

Tom Wegner  05:12

Thank you, Ben. Yes, it is an ugly day for the ASX 200. When I took my notes the market was down 5% or 350 points to 6587. Every sector is in negative territory as you probably expect tech and miners are the worst performers block s q2 is down. 17% Fortescue FMG down 8% consumer staples and utilities are outperforming if it is any comfort Atlas arteria the toll road operator in Europe Ilex down only 1.6% computer share CPU down only 2% and Woolworths WW down only 2%. big four banks all off between 4.8 and 5.2%. And bhp and red are both slowing more than 6% each. We have a NAB business survey out today if anyone is interested. And this week, it is all about Central Bank's FOMC decision out Thursday morning Bank of England decision and GDP data out as well this week Bank of Japan decision and we have local unemployment data on Thursday. So a lot of events that could offer more volatility Ben.

 

Ben O'Leary  06:22

Thank you, Tom. No Layton in today. So I'll cover off broker stuff in his absence. And this morning we have mCherry focusing in on consumer spending with the summation that winter is coming, which I believe is a reference to Game of Thrones. I'm not a Game of Thrones person, but I think they've been a little bit funny. They're McQuarrie they have a bearish outlook on consumer expenditure amid the rising inflation and interest rates we're seeing and they're also seeing or expecting a rebound in service consumption after the last couple of years which has all been goods consumption. So they've downgraded a few consumer discretionary names a common theme of over consumption over the last two years in those names coupled with the macro picture now they see makes quite significant short term risk in these so we've got Harvey Norman h v n downgraded to neutral their target price has been pulled down 31% But as of this morning before the market opened was still Kempson above the current share price probably more like 15 Now JB Hi Fi JBH have been pulled down on underperform with a price target dropped 29% similar to Harvey Norman's brings them about in line with their current price and wares. bombers have also been downgraded to an underperform rating a 9% drop in their price target also bring them in line with the current as of this morning again, so probably a little bit above Now the flip side of that was to Macquarie upgraded endeavour group ADV to an outperform with optimism around the scope for endeavour to reinvest in their hotel network and gaming, which plays into that theme that they spoke about on the top line of being the rebound in service consumption. So they've upgraded to an outperform that with the target price steady and around 8% above the current share price at $7.70. So consumers in the barrel there for Macquarie again. And Chris, what have you got for us in trading today?

 

Chris Conway  08:04

Thank you, Ben, as we did this morning with the portfolios and as Henry and Marcus have done with their portfolios, I'm taking some risk off the table in the trading section almost pointless doing a chart of the day to day certainly pointless doing a long bias chat of the day. So I'm taking a look at answer which has been falling. This is the story with a lot of these sorts of companies that had the wind in their sails during the pandemic, demand for personal protective equipment was through the roof and importantly costs were low. What has changed, of course, is that demand for that personal protective equipment has fallen away considerably post the pandemic and costs have skyrocketed. So raw materials account for around 55% of and sales costs. And with decreasing demand and rising prices. margins have been absolutely smashed and investors know this and they're treating the share price as such. Tom sorry, yes. 

 

Tom Wegner  08:49

And I would like to add on to that, Chris, that there's been chatter about risk of Ansell missing their full year guidance as well. So that's another downer for the share price.

 

Chris Conway  08:58

Yeah, very good. So it's all reflected in the chart, as I say no point focusing on alongside charts today. And then finally, I'll be on the call at midday with coffee. I think we'll be talking about degrees of selling today as opposed to buying anything. So it'd be an interesting hour to say the least.

 

Ben O'Leary  09:12

Nice work, Chris. Look forward to watching that a bit later. Henry, what are you writing about today?

 

Henry Jennings  09:17

Thanks, Ben. Well, obviously not much fun today, selling a few things. There's the actual crash alarm going off once again, but not much fun, especially in small caps, even 35% cash and 4% in bbose, it's not going to help some things are just getting absolutely smacked to the extent I've actually taken some profits in the bbose Zed with it down around 350, which may or may not turn out to be correct, but we'll see how things go and also chopping out some of the dogs that really don't have a lot of hope of recovery in this kind of environment. But there's certainly no looking around the place. Everything is connected to everything these days and we can see it in commodities, one commodity falls and the rest go NASDAQ goes and the rest of the market goes interest rates go higher. If the Aussie 10 years hit Oh percent today, which is a huge level, and that's those that we've got some serious pressures to come. But the one thing that has held up remarkably well is the oil price. 122 bucks us a barrel, you believe the world is heading into Armageddon and a recession and China is going to close down again, the one thing that stands out like the proverbial is the oil price, which isn't falling. And you would imagine that that one should be falling because it's connected to everything else. But it isn't. And there are a number of reasons for that supply is still very, very tight, especially coming out of the US refinery margins. And refining capacity is really tight. There's also some issues in Libya as well. And with their supply, I think half of their supply currently is off the market. So it's remaining very tight. But you would imagine that one day, we will wake up and oil will be down 10% On the back of global growth fears. So bear that in mind, apart from that, not much else to add, apart from what Marcus has been saying it has been brutal today, but we will have a look through the ashes at some stage and there will be some really significantly great buying opportunities I suspect to come out of this and Australia should be better place than a lot of economies certainly better place than poor old refugee in Sri Lankan boat heading for Australia or in Ukraine at the moment, that's for sure.

 

Ben O'Leary  11:20

Yes, indeed. It is. Thanks, Henry. Marcus, back to you for today's strategy.

 

Marcus Padley  11:23

Back to me. Yes, I've done most of it already. Let me just give you the summary is if I didn't have a newsletter, I didn't have transparency. I didn't have portfolios and funds, I would as an individual, which is what the most of our members are sitting at home, I would just shut my books and go and play golf for a month. It's one of those moments that if I had no transparency was not open to criticism. Truth is I'd given the stock market rally for a while these sharp moves down do not reverse on a six months. But that's me. That's my risk profile for other people. For long term investors experienced long term wealthy investors whose standard of living is not threatened by the stock market probably won't flinch. This is just part of the cycle happens every few years. I don't think it's precipitous, I think there's a sort of 20% precipitous chance. And we've really just had the precipitous bit. But I would say just be cautious from an Australian point of view, the banks topped out last week, the resources topping out today, they both held up very well. But that's sort of taken the foundation away from the Australian market. And I know there are dividends coming up on resources, stocks, but at this point, you can lose the dividend in a day. So I would just think if you are in a position to sell, many people aren't they've got capital gains tax problems. But if you're in a position to sell, I would be just putting whatever cash I could in the back pocket today by looking through my individual stocks and going I could probably sell that I could probably sell that. And don't be too brave about banks, I've got an idea on the banks later for income investors, you probably won't flinch either ahead of the results season. But one idea for you guys is Westpac, NAB, and said that aren't going to pay you a dividend five months, the tide is against them. And at this point you what you might do for income is look to sell them and look to buy the CBA before it goes ex dividend. And that will be August sometime. So you got six, eight weeks to do that. And so out of banks, out of those three banks and looking to buy CBA might be the go for traders, active investors amongst you would probably have simply cut and run by now let the dust settle and look for bargains. Later, thrill seekers wouldn't be buying, you know, be Basel bear. All they'll have to say I thought about buying the bonds this morning and thought to myself, I bet it'll rally into the FOMC meeting. And then it's just a gamble on the FOMC meeting in the short term. So there's no guarantees there. But that's what thrill seekers would be doing. But I think overall point to make strategy wise, it's going to take time for these three macro headwinds to blow themselves out. That's inflation being more entrenched than expected interest rates rising more aggressively than expected. And recession risk rising. As I say, it'll take months to solve that conundrum. And until there are genuine improvements in those that might any bounce will probably fail. So the game at the moment is cash up where you can if you can be bothered. And then the big game, of course, will be that we are building up to one of the best buying opportunities in years. And are you going to be in a position to take advantage of that. And we'll we'll obviously address that moment when it comes but I think it might be months away rather than a day away. And although as always there for MC I think the FOMC are going to go hard because they've opened up the space for them to say right we're gonna go hard on rates. And to back off at this point and try and pacify the financial markets just would be an utter mistake probably backfire. So I think they've got to go hard and they could do 70 Five basis points just to get this uncertainty out of the way quicker. What I've done today is more to make the point but I've cleared out the strategy portfolio to cash just to make the point that held an ASX 200 ETF a iShares s&p 500 ETF and a NASDAQ better shares ETF which surprisingly ahead of today we're only down 9%. And I've also cleared out the ideas portfolio as well to make the point and sold everything that we behold Computershare and QB E, which are both interest rate sensitive and noticeably have dropped less than the market today and should benefit out of interest rates going up. But at this point, trying to make money in stocks, it's not really the game, even if they do have their merits. So clearing out everything except for the eyes, Zed Zed ETF, which is a proxy for the Chinese market, which if you look at the chart in the strategy piece, Chinese markets rebounding from their sell off from that COVID sell off at the moment. So happy to keep holding on that. And that's about that for me. I think so. Yeah. Emails, why are you selling at the bottom? I don't think it's the bottom.

 

Ben O'Leary  16:04

Good and that flows into our question of the day today, which is on the flip side, if you were forced to create one of the famous one stock portfolios today, what stock? Are you putting all your money in?

 

Marcus Padley  16:15

Mean? Meaning? The one stock portfolio concept was this idea that if you had to sell everything you own and buy just one stock, then what would it be? And that was the one stock portfolio concept. But you do so much work on that one stock, it was actually less risky than holding 20 stocks you don't know anything about but what you're saying is...

 

Ben O'Leary  16:32

If you were forced to hold one stock right now and buy it today, what's that stock worth noting? If anyone has not heard the one stock portfolio before go onto our website, type one stock portfolio into the search bar the band even more detailed explanation, a few good articles there too. Chris, could you please give us a view on stocks?

 

Chris Conway  16:48

Yeah, I agree with Marcus that I don't think this is the bottom and have had that thought for a while so I'd be buying the most defensive stock that I could possibly think of and that would be cold because everyone's still gonna eat.

 

Ben O'Leary  16:58

Very good. Tom?

 

Tom Wegner  16:59

I am going to go with the quarry. And purely because I remember Henry when the pandemic because edits the height and fear was everywhere that he said if the courier drops below 100 just load up on it. It's not quite at that level. But the theory holds. theory still holds for me. They know how to make money in any environment.

 

Marcus Padley  17:21

$162 bucks, good idea Tom.

 

Ben O'Leary  17:23

Might be at 100, by the end of the...

 

Marcus Padley  17:26

Loading up...

 

Ben O'Leary  17:26

Henry?

 

Henry Jennings  17:27

I think you know, you have to stick with quality and obviously Tom is sticking with quality with Macquarie my pick would be bhp, I have to say it is a resource stock, but it has a huge yield and getting bigger as the share price falls. And it's obviously exposed to the commodity cycle. And although the world is slowing, I was still going to need an awful lot of stuff that bhp produces. So I think bhp would be my pick here moment. So it's come back aways but I think long term it's still offers a very attractive opportunity.

 

Ben O'Leary  17:59

Thank you, Henry Marcus?

 

Marcus Padley  18:00

I heard a member who said I run an income fund with 100% in the CBA. I sort of thought I should that's not bad. Because if you really want to yield and the CBA is never really going to stuff up. Is it so that would be one there are a couple of thoughts here. One is I would just buy the ASX 300 accumulation equivalent ETF and that is low volatility low risk and sleep at night with it and you're getting it now what how much are we down 15% cheaper than the top. So that would be a good long term thing, that sort of thing to myself, actually, the Australian economy's really boring, so I'd probably buy an s&p 500 ETF if I was going to play that game, and now think to myself, Well, I'm a bit of a sucker for something that's fallen a lot. So probably by the end DQ ETF which we just sold today in the strategy portfolio, but faith in the NASDAQ or faith in the s&p 501 of those two, I think I'd probably probably had to go the s&p 500 But I'd really be...

 

Ben O'Leary  18:59

Be brave man to be buying the tech based...

 

Marcus Padley  19:02

I know but the world's a cycle isn't it and it's not different this time. It'll come back.

 

Ben O'Leary  19:07

My pick, I was gonna say college but you saw my time that Christopher so I will go with Computershare as Marcus, you mentioned before, it's one of the few stocks that does better in a high interest rate environment, they get something like 90% of the benefit of a rate rise pushed straight to the bottom line. So that would be my pick, not rushing to buy anything today at all. And I think that's it because thanks for that well done.