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Good afternoon,

The ASX 200 had a very strong, risk on week adding 2.6% to close at 6057.  Everything up really. 

I thought this week I'd just run through a few interesting charts/questions that keep me up at night. I'll try and throw a few stocks in as well to keep the non-client readers happy (fun fact: this list now has 8 non-client readers for every 1 client who subscribes.)

As an aside, to the non-client readers, do you think I do this for fun? I don't.  Open an account, invest in the SMA and support an Australian small business! 

Seneca Australian Shares SMA has now done 14.05% gross return since 6 May inception date and is outperforming the ASX 200 incl dividend reinvestment by 2.26%.

You can buy it by filling out your details here.  $25k min investment.
There's lots of ways to show you this risk-on shift, but the copper/gold ratio is a beauty.  Think of copper as a signal of economic activity - you demand more when you are building stuff, expanding.  Think of gold as a useless store of wealth that you buy when you have nothing better to do with your money (i.e. you expect negative returns everywhere/fear).

You also buy long dated government bonds when you are fearful/have low return expectations in risk assets... so you won't be surprised they are correlated - US 10yr yields in blue vs Copper/Gold ratio in green below.  What's interesting here is the recent divergence.  Commodity markets are telling us global growth is about to accelerate while the bond market is telling us there is no inflation/growth. 
The bond market is as good a place as any to look for a forward looking indicator.  Plus watching what's happening in spec gold at the moment tells me there's a lot of gold bulls out there. 

Gold testing the $1800 level with a lot of momentum, might break out towards $2000/make a new 10 year high. 
Hard to see that happening without a bit more risk aversion in markets, which might mean to this risk on rally fades. 

Citi (US) run institutional client surveys, here's what their client's expectations for gold are. It's defintely skewed to the upside, but only averaging out a bit lower than current prices.  
The market (ASX200 below) has tried twice to push through 6,200 points recently and was then sold off heavily down to 5,700. 
And I mean, let's face it, this rally has been driven by growth stocks.  You'll see it later in the weekly movers & shakers at a stock specific level, locally.  But I can show it best on the below chart of the S&P500 (US) Growth Index.  Looks to me like index is breaking out... 

Hard to see this moving into higher highs while gold does the same, right?
Well maybe not... gold vs S&P 500 Growth stocks recently...
This is all fabulous, but it's all about the central banks at the end of the day.  I got a random note from Citi insto equity sales this week from a contact.  I saw this chart and I had to read it twice.

The chart below shows the correlation of the S&P500 (Y-axis) with Central Bank balance sheets (X-axis).  R-squared for the statistically-inept is the measure of how much does X explain Y... 100 is X fully explains Y.  You'd normally be stoked to find something with 40-50 explaining stock returns... the Fed is 90!
On final one, from the same note is how much money has been raised in Australia over the past few months.  As a percentage of market cap, we've issued an extra 1.20%... that's a sh*tload more than other geographies.
Why is this?  Well our companies aren't very cash-rich as a general comment, they weren't sitting on much cash in Jan and Feb and were caught with a liquidity crisis as sales dried up faster than expenses. Think about the hoardes of cash the US tech sector is sitting on by comparison.  

With an fairly immature debt / bond / hybrid market here in Australia, companies really only have one source of funding... equity. 

Here's a quick little chart of the CAGR over the last 6 halves of the number of shares companies have in issue. 

Some of these are paying down debt, or growing rapidly.  Others are poorly run, low margin or taking advantage of a cyclical high point in their field. 
Movers & Shakers

Tech had a huge week.  APT (not a tech company), NEA, NXT, MP1 all doing well.  NEA now up 60% in our model portfolio.

Collins Food (CKF) had an excellent result across its store network here in Australia - we own it in the model portfolio. 

Healthcare also did well this week, a bit of news getting around the likes of COH, FPH but you can read about that in the AFR.  Again, we are overweight healthcare in the model portfolio. 
On the downside, Reliance (RWC) saw institutional shareholders Paradice (7% to 6%)& Bennelong (15% to 10%) both reduce which I think spooked the market.  They both bought more at $2.40 so I don't mind a bit of profit taking in this market. 

Stock is worth $3.00 in my mind until they can get their act together.  I like the tailwinds, but market has no confidence in short term. 

Elsewhere, Adelaide Brighton (ABC) got whacked after its lots a $70m contract.  
Boral (BLD) shorts through the roof, but still only 3% of the stock. 
More interested in short interest increasing in CTD and SXL (which fell 8% this week).  Below is the total short sold stock as a % of all stock on issue.  So while the changes above matter, really only in the context of the absolute position... 3% short is nothing to worry about even if its up 100% on last week.  Know what I mean?
Quick run through the dividends...
Alright, that'll do me for a Saturday morning.  Better go hang my washing up and then settle in to watch the West Coast disappoint me for 2.5hrs against the Swans.
Have a good weekend, 
Luke Laretive
CEO & Investment Adviser

T  +61 3 8639 1601  |   M  0451 122 656 |
Level 2 Professional Chambers
120 Collins Street Melbourne VIC 3000 
AFSL No. 492686
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