Interdum stultus opportuna loquitur...

Wednesday, July 16, 2008

OzRant: WOW Factor is Misguided...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

Australian markets breathed a bit of a sigh of relief despite a moderately bleh session in the States. Woolies was prepared to reiterate its earnings guidance, and so everybody piled into Consumer Staples... honestly - does anybody bother to have a bit of a think before they hit 'Buy at Market'?

I'm not going to bother to put up a chart of WOW's consensus estimates and how they have been slashed over the past 6 months. I'm not going to make snarky comments about how corporate managements are far more likely to reiterate earnings guidance when they have a bunch of mates who are on the verge of selling escrowed 'deferred compensation' stock. I'm not going to bother carrying on about how WOW wouldn't know if it was going to make its numbers until the day before they are released. I'm just not going to bother.

Frankly, the fact that a mid-price-point supermarket chain is able to satisfy some fairly mild growth assumptions, is not surprising. Following the guidance of my former economic Yoda (Dicko) I refer to this as the 'Bread and Cakes' phenomenon. 'Bread and Cakes' was (and maybe still is) an Industry category in the Monash CGE model (and in models derived therefrom). One of its characteristics is that it's not very volatile, because demand for its products is driven in large part by 'non discretionary' spending, and less by 'supernumerary' spending.

Back in the olden days, we used Bread and Cakes to explain to Westpac how we went about doing a stochastic simulation with the Monash model; it was designed to help them arrange their lending and credit policy along sensible lines, given plausible scenarios for the forecast period (and sensible departures from departures from said scenarios... it became my PhD topic, which remains an Unfinished Symphony).

The core issue (for Westpac) was that there are industries who over-borrow when times are good as well as bad; our thinking was that this over-investment was driven by high levels of uncertainty about rates of return and also by static expectations. So if a busienss in such an industry experienced very high rates of return near and economic peak, they would borrow heavily to expand just at the wrong point in the cycle. They would behave like small non-commerical futures traders, in other words.

Bread and cakes isn't an industry in which rates of return are volatile. That industry chugs along, selling white loaves and the occasional fairy cake. Doubtless the credit-driven pretentiousness of inner-urban housewives meant that fairy-cakes were renamed Madeleines or some such, and Sally Lunns became something else and cost $8 a pop. But for the most part it's white square bread and stable rates of return. And basic shopping centre retail is the same.

And at bottom, it is a stylised fact that the last thing that consumers will cut back on, is their essentials... Bread and Cakes. Retrenchment is hierarchical - supernumerary buget shares fall first.

So if anything can be taken from WOW's announcement, it is that consumer retrenchment has not properly started.

Major Market Indices

The broad market - the All Ordinaries (XAO) - advanced modestly, rising 37.4 points (0.76%), finishing at 4947.5 points (4950-ish). The index hit an intraday high of 4960.9 at 2:18 pm, while the low for the day was 4880 - set at 10:06 am Sydney time.

Total volume traded on the ASX was 1.43 billion units, 8.6% below its 10-day average. The ASX's daily listing of all stocks included 1415 different 3-letter FPO's which traded (i.e., had non-zero trade volume). Of these, 408 issues rose, with volume in rising issues totalling 619.3 million units; 662 stocks lost value for the session, and donside volume amounted to 578.7 million shares.

Of the 495 All Ordinaries components, 179 rose while 246 fell. Volume was tilted in favour of the losers by a margin of 1.1:1, with 381.63 million shares traded in gainers while 437.49 million shares traded in the day's losers.

The Index that forms the cash basis for the SFE's Share Price Index Futures - the S&P/ASX 200 (XJO) - managed a solid gain, adding 54.9 points (1.14%), closing out the session at 4870.6 points.

GT Intraday Chart
Name Close +/-(%)
All Ordinaries 4947.50 37.40 (0.8%)
ASX 50 4769.30 70.30 (1.5%)
ASX 200 4870.60 54.90 (1.1%)
ASX 300 4868.50 51.90 (1.1%)
ASX Mid-Cap 50 4769.40 1.10 (0.0%)
ASX Small Ordinaries 2843.60 -22.00 (0.8%)
ASX 20 2735.70 44.60 (1.7%)
ASX 100 3940.70 50.20 (1.3%)

The "heavy hitters" of the Australian market - the ASX 20 Leaders (XTL) - performed solidly, in moving up 44.6 points (1.66%), closing out the session at 2735.7 points.

Among the 20 big guns, 15 index components finished to the upside, and of the rest, 4 closed lower for the session. The 20 stocks which make up the index traded a total of 172.69 million units; 15 index components rose, with rising volume amounting to 108.72 million shares, while the 4 decliners had volume traded totalling 16.7 million units. The major percentage gainers within the index were

  • ANZ Bank (ANZ), +$0.91 (5.32%) to $18.03 on volume of 13.4 million shares;
  • Wesfarmers (WES), +$1.36 (4.39%) to $32.36 on volume of 3.1 million shares;
  • Foster's Group (FGL), +$0.18 (4.17%) to $4.50 on volume of 9 million shares;
  • Westpac (WBC), +$0.69 (3.69%) to $19.37 on volume of 8.8 million shares; and
  • National Australia Bank (NAB), +$0.92 (3.63%) to $26.28 on volume of 8.8 million shares.

On the less salubrious side of the big-cap fence, the following stocks were the worst-performed within the index - for the most part due to the orchestrated skinning of newbie Crude Oil traders. As for CSL? who cares... I said five years ago - with CSL at over $50 - that unless people started bathing in blood plasma CSL wouldn't go anywhere. Despite Cheney's best efforts ,the world is not yet enough bathed in blood:

  • Woodside Petroleum (WPL), -$1.83 (2.98%) to $59.60 on volume of 2 million shares;
  • CSL (CSL), -$0.36 (1.07%) to $33.44 on volume of 1.5 million shares;
  • BHP Billiton (BHP), -$0.33 (0.84%) to $39.03 on volume of 12.2 million shares; and
  • Rio Tinto (RIO), -$0.92 (0.75%) to $121.08 on volume of 1.1 million shares.

At the other end of the market-cap spectrum lie the denizens of the ASX Small Ordinaries (XSO) - the sweet spot for stock analysis (these companies generalyl do't pay for coverage by the big houses, and so are both under-researched and non-manipulated). The small-fry swam in the opposite direction to the big fish today - a reversal of the rotation that I have been blathering on about for the last few OzRants. 

The tiddlers stayed underwater while the Top20 posted a gain. The Small Ords slid modestly, falling 22 points (0.77%), closing out the session at 2843.6 points.

Among the stocks that make up the Small Caps index, 62 index components finished to the upside, and of the rest, 122 closed lower for the session.

The 195 stocks which make up the index traded a total of 249.81 million units: volume in the 62 gainers totalling 96.12 million shares, with trade totalling 136.01 million units in the index's 122 declining components. The major percentage gainers within the index were
  • Record Realty (RRT), +$0.01 (17.02%) to $0.06 on volume of 1.1 million shares;
  • Spotless Group (SPT), +$0.31 (11.61%) to $2.98 on volume of 568.9 thousand shares;
  • Rubicon America Trust (RAT), +$0.01 (9.89%) to $0.10 on volume of 3.2 million shares;
  • AWB Limited (AWB), +$0.19 (7.69%) to $2.66 on volume of 1.5 million shares; and
  • Mineral Deposits (MDL), +$0.05 (6.29%) to $0.76 on volume of 127.4 thousand shares.

In the red-zone of the little-stock index, the following list represents the biggest downers (in terms of percentage decline):

  • Galileo Japan Trust (GJT), -$0.04 (11.67%) to $0.27 on volume of 995.6 thousand shares;
  • Albidon (ALB), -$0.36 (11.21%) to $2.85 on volume of 344.8 thousand shares;
  • Perilya (PEM), -$0.07 (10.77%) to $0.58 on volume of 2.2 million shares;
  • Panoramic Resources (PAN), -$0.19 (7.06%) to $2.50 on volume of 1.2 million shares; and
  • MYOB (MYO), -$0.07 (6.48%) to $1.01 on volume of 374.8 thousand shares.

Index Changes
Code Name Close +/- % Volume
XAO All Ordinaries 4947.5 37.4 0.76 938.5m
XFL ASX 50 4769.3 70.3 1.5 369.2m
XJO ASX 200 4870.6 54.9 1.14 805.8m
XKO ASX 300 4868.5 51.9 1.08 862.2m
XMD ASX Mid-Cap 50 4769.4 1.1 0.02 243.2m
XSO ASX Small Ordinaries 2843.6 -22 -0.77 249.8m
XTL ASX 20 2735.7 44.6 1.66 172.7m
XTO ASX 100 3940.7 50.2 1.29 612.4m
Market Breadth
ASX20 XTO XJO XAO XSO Market
Advances 15 61 96 179 62 408
Declines 4 34 94 246 122 662
Advancing Volume 108.7m 268m 351.1m 381.6m 96.1m 619.3 million
Declining Volume 16.7m 254.6m 355.6m 437.5m 136m 578.7 million
GICS Industry Indices

Among the 11 industry indices, 8 registered an advance for the session, the remaining 3 lost ground.

The best performing index was Consumer Staples (XSJ), which added 229.7 points (3.54%) to 6716.5 points. The 11 stocks which make up the index traded a total of 40.58 million units; 9 index components rose, with rising volume amounting to 34.68 million shares, while the 2 decliners had volume traded totalling 5.91 million units. The major percentage gainers within the index were

  • AWB (AWB), +$0.19 (7.69%) to $2.66 on volume of 1.5 million shares;
  • Wesfarmers (WES), +$1.36 (4.39%) to $32.36 on volume of 3.1 million shares;
  • Foster's Group (FGL), +$0.18 (4.17%) to $4.50 on volume of 9 million shares;
  • Woolworths (WOW), +$0.74 (3.15%) to $24.20 on volume of 6.2 million shares; and
  • Futuris Corporation (FCL), +$0.04 (2.93%) to $1.23 on volume of 3.3 million shares.

Second in the index leadership stakes was Financials ex Property Trusts (XXJ), which gained 148.9 points (3.25%) to 4728.4 points. The 30 stocks which make up the index traded a total of 90.09 million units; 21 index components rose, with rising volume amounting to 75.4 million shares, while the 8 decliners had volume traded totalling 14.69 million units. The major percentage gainers within the index were

  • ANZ Banking Group (ANZ), +$0.91 (5.32%) to $18.03 on volume of 13.4 million shares;
  • ASX Limited (ASX), +$1.28 (4.41%) to $30.33 on volume of 964.1 thousand shares;
  • Tower Australia Group (TAL), +$0.10 (3.75%) to $2.77 on volume of 763 thousand shares;
  • Westpac (WBC), +$0.69 (3.69%) to $19.37 on volume of 8.8 million shares; and
  • Insurance Australia Group (IAG), +$0.13 (3.69%) to $3.65 on volume of 8.7 million shares.

The bronze medal for today goes to Consumer Discretionary (XDJ), which climbed 29 points (1.9%) to 1558.2 points. The 25 stocks which make up the index traded a total of 51.67 million units; 18 index components rose, with rising volume amounting to 39.8 million shares, while the 7 decliners had volume traded totalling 11.87 million units. The major percentage gainers within the index were

  • David Jones (DJS), +$0.15 (5.56%) to $2.85 on volume of 2.5 million shares;
  • GUD. Holdings (GUD), +$0.38 (5.06%) to $7.89 on volume of 147.6 thousand shares;
  • Fairfax Media (FXJ), +$0.12 (4.55%) to $2.76 on volume of 7.4 million shares;
  • Ten Network Holdings (TEN), +$0.06 (4.48%) to $1.40 on volume of 1.2 million shares; and
  • West Australian Newspapers Holdings (WAN), +$0.34 (4.31%) to $8.22 on volume of 370.6 thousand shares.

The worst-performed index for the session was Energy (XEJ), which dipped 253.7 points (1.38%) to 18099.5 points - not bad considering that Crude fell over 4.5% on US markets (at one stage it was down 6% or so). The 17 stocks which make up the index traded a total of 39.05 million units; The 13 decliners had volume traded totalling 31.73 million units, and 4 index components rose, with rising volume amounting to 7.32 million shares, The major percentage decliners within the index were

  • Arrow Energy Limited (AOE), -$0.15 (4.41%) to $3.25 on volume of 3.6 million shares;
  • Beach Petroleum Limited (BPT), -$0.06 (4.4%) to $1.20 on volume of 4.7 million shares;
  • Oil Search Limited (OSH), -$0.2 (3.5%) to $5.51 on volume of 5.8 million shares;
  • Woodside Petroleum Limited (WPL), -$1.83 (2.98%) to $59.60 on volume of 2 million shares; and
  • Nexus Energy Limited (NXS), -$0.04 (2.91%) to $1.34 on volume of 4.4 million shares.

Just missing out on the wooden spoon was Utilities (XUJ), which slid 32.7 points (0.62%) to 5241 points. The 10 stocks which make up the index traded a total of 77.96 million units; The 6 decliners had volume traded totalling 69.49 million units, and 4 index components rose, with rising volume amounting to 8.46 million shares, The major percentage decliners within the index were

  • Babcock & Brown Power (BBP), -$0.03 (4.69%) to $0.61 on volume of 5.3 million shares;
  • Babcock & Brown Wind Partners Group (BBW), -$0.03 (1.91%) to $1.54 on volume of 2.2 million shares;
  • AGL Energy Limited (AGK), -$0.23 (1.73%) to $13.06 on volume of 2.3 million shares;
  • Hastings Diversified Utilities Fund (HDF), -$0.03 (1.4%) to $2.11 on volume of 285.1 thousand shares; and
  • Envestra Limited (ENV), -$0.01 (0.69%) to $0.72 on volume of 765.4 thousand shares.

Third-to-last amongst the sector indices was Materials (XMJ), which slid 46.4 points (0.33%) to 14161.5 points. The 42 stocks which make up the index traded a total of 160.2 million units; The 29 decliners had volume traded totalling 99.38 million units, and 10 index components rose, with rising volume amounting to 50.46 million shares, The major percentage decliners within the index were

  • Perilya Limited (PEM), -$0.07 (10.77%) to $0.58 on volume of 2.2 million shares;
  • Panoramic Resources Limited (PAN), -$0.19 (7.06%) to $2.50 on volume of 1.2 million shares;
  • Mincor Resources NL (MCR), -$0.14 (6.01%) to $2.19 on volume of 1.2 million shares;
  • Coeur d'Alene Mines Corporation (CXC), -$0.15 (5.79%) to $2.44 on volume of 292.8 thousand shares; and
  • Kagara Zinc Limited (KZL), -$0.18 (4.93%) to $3.47 on volume of 947.6 thousand shares.

Sector Indices
Code GICS Sector Close +/- % Volume
XSJ Consumer Staples 6716.5 229.7 3.54 41m
XXJ Financials ex Property Trusts 4728.4 148.9 3.25 90m
XDJ Consumer Discretionary 1558.2 29 1.9 52m
XIJ Information Technology 490.8 6.7 1.38 2m
XNJ Industrials 4390.1 45.5 1.05 84m
XTJ Telecommunications 1463.9 7.8 0.54 55m
XPJ Property Trusts 1177.3 5.4 0.46 194m
XHJ Healthcare 8072.1 13.2 0.16 12m
XMJ Materials 14161.5 -46.4 -0.33 160m
XUJ Utilities 5241 -32.7 -0.62 78m
XEJ Energy 18099.5 -253.7 -1.38 39m

All Ordinaries Major Movers

All Ords Volume Leaders
Code Name Close +/- % Volume
BBI Babcock & Brown Infrastructure Group 0.85 -0.01 -0.58 58.6m
TLS Telstra Corporation Limited. 4.25 0.00 0 47.3m
OXR Oxiana Limited 2.16 -0.04 -1.82 30.7m
GPT GPT Group 1.40 -0.05 -3.13 27.3m
SDL Sundance Resources Limited 0.24 0.01 2.17 23.8m
All Ords Percentage Gainers
Code Name Close +/- % Volume
RRT Record Realty 0.06 0.01 17.02 1.1m
AEP Allco Equity Partners Limited. 1.79 0.19 11.88 13.4k
SPT Spotless Group Limited 2.98 0.31 11.61 568.9k
HWI Housewares International Limited 1.17 0.11 10.38 88.8k
RAT Rubicon America Trust 0.10 0.01 9.89 3.2m
All Ords Percentage Losers
Code Name Close +/- % Volume
TGP Trafalgar Corporate Group 0.81 -0.21 -20.2 243k
MAFCA Multiplex Prime Property Fund 0.25 -0.05 -16.67 97k
SHV Select Harvests Limited 5.30 -0.70 -11.67 13.4k
GJT Galileo Japan Trust 0.27 -0.04 -11.67 995.6k
RNY Reckson New York Property Trust 0.23 -0.03 -11.54 229.3k