Stocks: Are We Back to Business as Usual?

Monday, 31st August, 2015
Melbourne, Australia
By Callum Newman

  • The number one banana skin
  • Launch of The Gowdie Letter
  • What you need to know about China starts here

After a wild ride early last week, stock markets settled down in the end. Last Friday the Dow basically closed where it opened, but for a few points.

So where does that leave us then?

I’d say business as usual, when it’s all said and done.

Jason McIntosh over at Quant Trader did some sleuthing on this for us in his latest update.

Jason pointed out that the current correction in the Dow Jones is 16% from the recent high the market made in May.

He put that into a historical perspective, looking at the drops in the Dow going all the way back to 1900.

Here’s what he found:

‘Yes, this week’s sell-off is a big deal. But it’s not unique.

Have a look at the table below…

He then showed a chart of the Dow over the long sweep of the 20th century.

He went on to say,

The big sweeping up trends are easy to spot — they dominate the chart. A handful of corrections also stand out.

But do you notice all the 10, 15 and 20% corrections? Probably not. They quickly fade into the background as the longer term trend advances…

No one knows how long this bear market will last. But we can be sure of one thing — it will pass. Just like every correction in the past.’

There are actually benefits to the drop we saw last week. You can pick up stocks you want to own at a lower price. But you have to put aside the emotion and the drama.

It also shows us which stocks reacted the least under selling pressure like that. It gives us clues as to which stocks are in ‘strong hands’.

Speaking of strong stocks…

The number one banana skin

The Australian Financial Review reported this morning on a recent study done on the insurance industry.

The researchers wanted to find out the biggest fears of the insurers.

Care to take a guess what was number one?

It was cyber attacks and hackers.

According to the article, cyber risk has risen from a lowly 19th place just four years ago to now be the biggest concern of the insurance industry. Or the ‘number one banana skin,’ to borrow a phrase from the report.

Think of the victims of hacks we’ve seen in the last 12 months: Sony, Ashley Madison and the US government.

These are hardly small fry operations that can’t afford to pay for proper security.

The paper cites Scott Fergusson, insurance team leader at PricewaterhouseCoopers (PwC) Australia as saying,

We’ve seen some survey commentary from participants showing up to 20 hack attempts a day [on the insurance industry] in Australia… It’s more about hackers who want to get hold of people’s personal information or credit card information. Insurers are pretty rich with that data.

This is of course increasing the cost of doing business for insurance companies.

But it’s heaven for companies that can tap into this market and provide products and services to keep data and information safe.

Sam Volkering, editor at Revolutionary Tech Investor, calls companies that can do these his ‘Defender’ stocks.

Even better is that three of the seven he’s tipped in this sector are listed here in Australia on the ASX.

One of them is up over 300% on Sam’s buy list — even after the panic last week.

This problem is becoming so acute it’s causing a shortage of skilled professionals to deal with it.

Last week, the Commonwealth Bank sounded the alarm about how this could open the way for more and more high profile and damaging computer attacks.

Sam sent this across from his office in London…

The CBA says there’s a shortage of cyber security professionals. The government forecasts 20% growth in demand for them. Try this on for size too. India is facing a shortage of cyber security professionals of 1.5 million.

It’s such a problem global security giant Symantec is working with the Indian government to cut that shortage. When companies like the CBA (worth $129 billion) and Symantec (worth US$14 billion) are worried about this we should be terrified of it.

This skills shortage will mean more attacks doing greater damage unless cutting-edge cyber security companies can put a stop to cyber attackers from having their way with our digital world. As a side note, if you’ve got a kid under 12, I’d be getting them into computer sciences ASAP.’

So, rising demand and a shortage of supply. Sounds to me like the right dynamic for a bull market in the stocks that can benefit from this.

If you’d like to know more, and how to profit, check out Revolutionary Tech Investor here.

Launch of The Gowdie Newsletter

Our resident permabear Vern Gowdie has launched a new service called The Gowdie Letter.

Vern’s got his eye on the buildup of government debt and risks in the financial system. His paramount concern is keeping your money safe — capital preservation.

By nature, Vern doesn’t mince words. But he’s still got plenty to say. So much so he wrote a book about the issues most mainstream commentators ignore — issues that you as an investor (and Australia) need to know.

The book is called The End of Australia. You can find out how to pick up a free copy here.

Also, if you read The Daily Reckoning you will know the DR’s founder and guiding spirit is bestselling author Bill Bonner.

Bill agreed to include his latest book, Hormeggedon: How Too Much of a Good Thing Leads to Disaster, for Vern’s subscribers too.

The launch of Vern’s new service has become the biggest in Port Phillip’s 10 year history.

If you want to know why he’s hitting a nerve with investors like you, make sure you check out what he has to say.

Whether or not you agree with him, it always pays in markets to consider both sides of every trade.

Finally, for today…

What you need to know about China starts here

I spoke to China analyst and resident Shaun Rein on the latest Daily Reckoning podcast.

He’s the author of two books on China, The End of Cheap China and The End of Copycat China.

Some of the points we spoke about were:

Why the mainstream view of China’s currency is wrong…

How the Western press rigs and distorts news about China…

The two factors most pundits look at that don’t reveal what’s REALLY happening in China…

The two indicators to watch to gauge the health of China’s economy…

The main factor driving Chinese money into Australian and American real estate…

And the best opportunities for Australian businesses and entrepreneurs to cash in on over the next 5–10 years.

You can check out The Daily Reckoning Podcast on iTunes here or Stitcher for Android users here.

Cheers,
Callum Newman [+]

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End of day market data

We’re now including a few snapshots of market data in Port Phillip Insider. So far, the feedback has been 100% positive. But keep sending in your feedback. We’ll keep coming up with ideas of what to include, but it would also be great to know what you’d like to see too. If we can accommodate that, we will.

Drop us a line at letters@portphillipinsider.com.au, and type ‘Market data’ in the subject line.

52-week highs: 13 stocks, including 1-Page Ltd [ASX:1PG], The Citadel Group Ltd [ASX:CGL], HUB24 Ltd [ASX:HUB], and RCG Corp Ltd [ASX:RCG].

52-week lows: 18 stocks, including Cash Converters International Ltd [ASX:CCV], Diploma Group Ltd [ASX:DGX], Ecosave Holdings Ltd [ASX:ECV], Intueri Education Group Ltd [ASX:IQE], and Sunbird Energy Ltd [ASX:SNY].

Selected Market PE Ratios: the price to earnings ratio for selected indices based on the total market capitalisation and earnings of the stocks within the index.

S&P/ASX 200 — 18.98x

Dow Jones Industrial Average — 14.49x

S&P 500 — 17.58x

FTSE 100 — 22.76x

Selected Market Dividend Yields: the dividend yield for selected indices based on total dividends paid out by each stock within the index

S&P/ASX 200 — 5.00%

Dow Jones Industrial Average — 2.56%

S&P 500 — 2.16%

FTSE 100 — 4.16%

Advance/Declines: the number of stocks that are up or down compared to the previous day’s closing price.

S&P/ASX 200 — 64 advances/126 declines

US S&P 500 — 268 advances/231 declines

UK FTSE 100 — 78 advances/23 declines

Japan’s Nikkei 225 — 46 advances/172 declines

Volatility: the VIX reflects the estimated volatility of an index derived from the prices of call and put options on the respective index.

US S&P 500 VIX — 26.05 (52 week high/low: 53.29/10.88)

Australian S&P/ASX 200 VIX — 26.10 (52 week high/low: 33.26/10.53)

CBOE Oil ETF VIX Index — 51.56 (52 week high/low: 64.41/16.21)

Year-to-date: the performance of various indices from the start of the year through to today.

S&P/ASX 200 — -3.77%

Dow Jones Industrial Average — -6.62%

S&P 500 — -3.40%

FTSE 100 — -4.85%