Media Playing Up The Bear Case - Be Careful

[Michael Cornips]

I noticed yesterday that the mainstream media headlines really played up the bearish story on the fall in company gross operating profits. The March 2011 quarter profits fell by 2% from the previous quarter. According to the ABS, March profits came in at $63.5 Billion, down from December's $64.8 Billion. Sounds bad but March 2010 the profits were $58 Billion, so there was a 9.50% increase over the year.

Also, although total profits were down $1.3 billion for the quarter, mining profits were actually down $1.5 billion for the quarter. This means everything else was up $0.2 Billion. After the supply disruptions in the mining sector due to the floods, it is a reasonable expectations that profits will rebound in the next quarter.

Adding to the current bearishness has been the active short selling occurring in the banking sector over the last 5 business days. Short selling has accounted for about 33% of the stocks' turnover.

The current news has been reflected in the banking figures published over the past months and was also reflected in the recent budget forecasts. Yes, economic figures have been quite lacklustre these past few months, and the Gross Domestic Product figure will quite likely be negative for the quarter when it is published on Wednesday.

But the budget and treasury forecasts were all premised on the expected growth in the economy, so it is about the future, not the past.

No doubt the traders will sell into the expected negative GDP figure on Wednesday, but what short term traders sell - they will need to buy back. Remember, NAB is paying an $0.84 fully franked dividend on Thursday, which equates to $1.20 when you add in the franking credits. That is a 4.80% dividend for six months. You could call that a value trap, but with $70 billion a year entering the superannuation system, there will be plenty of value buyers in the market looking for the cash-flow and of all the banks, NAB has been growing its lending book the most.

If the sellers lose their commitment, look for a quick pullback.

Michael Cornips

 

[Halifax]

Interesting info, thanks.

How/where do you find the data regarding the % of turnover that is from shorting? I'm assuming it's some sort of premium data?

 

[Logique]

I noticed yesterday that the mainstream media headlines really played up the bearish....Yes, economic figures have been quite lacklustre these past few months, and the Gross Domestic Product figure will quite likely be negative for the quarter when it is published on Wednesday.
But the budget and treasury forecasts were all premised on the expected growth in the economy, so it is about the future, not the past. ...

Good points. We must expect headline GDP to take a hit after an autumn of natural disasters, especially floods.

On the other side of the argument, consumers have been frightened witless by a range of current and proposed new taxes, along with rises in fees and charges, especially in utilities and council rates. Add to that the spectre of rising interest rates and resultant mortgage stress, which may be considerable.

With tax, the Govt's latest thought bubble about increasing the tax-free threshold (i.e. post-carbon tax) may help, if it is delivered.

 

[Michael Cornips]

Interesting info, thanks.

How/where do you find the data regarding the % of turnover that is from shorting? I'm assuming it's some sort of premium data?

We maintain our own database.

ASX do publish it daily @ http://www.asx.com.au/data/shortsell.txt

cheers

 

[nulla nulla]

Try this one as well. From A.S.I.C. Supposed to be the open shorts as advised by those that comply with the rules.

http://www.asic.gov.au/asic/asic.nsf/byheadline/Short+position+reports+table?openDocument

Interesting discalimer:

"It is important to note that ASIC’s aggregated short position reports are reliant on the accuracy of reports we receive from individual short sellers. While we will monitor compliance with short position reporting and provide additional guidance where necessary, we are unable to verify the accuracy of all individual reports submitted to ASIC, nor to verify that all short sellers in our market (both in Australia and
overseas) are lodging reports.

Disclaimer: No responsibility is accepted for any inaccuracies contained in the matter published."

Thats their disclaimer not mine.

 

[Michael Cornips]

Try this one as well. From A.S.I.C. Supposed to be the open shorts as advised by those that comply with the rules.

http://www.asic.gov.au/asic/asic.nsf/byheadline/Short+position+reports+table?openDocument

Interesting discalimer:

"It is important to note that ASIC’s aggregated short position reports are reliant on the accuracy of reports we receive from individual short sellers. While we will monitor compliance with short position reporting and provide additional guidance where necessary, we are unable to verify the accuracy of all individual reports submitted to ASIC, nor to verify that all short sellers in our market (both in Australia and
overseas) are lodging reports.

Disclaimer: No responsibility is accepted for any inaccuracies contained in the matter published."

Thats their disclaimer not mine.

They need the disclaimer because the ASIC data bears no resemblance to the ASX data. eg the ASIC data for ANZ was out by 50% against the ASX over the last week.