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Australian Shares Sparty's Blog

Comments on this blog should never be taken as investment advice

Posts on this website are general "tips" and nothing more than that and should never be used to make an investment or trading decision. All information should be carefully cross-checked against official sources for accuracy. Sparty's posts nearly always relate to companies that he either holds, has held or intends to hold.

Main ForumMedia Playing Up The Bear Case - Be Careful

  • 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

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