Weekly Market Update

Robert Davies, Patersons Securities

Follow me on Twitter @davies_robert

16/07/2012 12:32:46 PM Page 1 of 3

Weekly Overview
Week ending 13 July 2012

Impressions from trip to the USA (NY, NJ, Washington DC) o Obama and Romney evenly matched. Romneys only hope is a substantial weakening of the US economy which will swing undecided voters to the Republican side. If the economy holds, Obama is the likely winner o While there are all sorts of doomsday scenarios about US economic performance, there are many positives. The energy sector is booming from massive increases in shale oil and natural gas, Unemployment is high, but homelessness is not largely noticeable. Educated, skilled people have jobs and are doing reasonably well. o Many people are refinancing mortgages. Current rates are about 3.5% for a 15+ year mortgage. This is the main factor contributing to stabilisation in the housing market. Obviously, when the market decides higher interest rates are necessary, further declines in housing prices will likely follow. o The building industry remains in the doldrums (Northern New Jersey). o Rents are increasing in NY City, which is being explained away as an improving economy. Although my impression was lack of finance means more demand from renters. o Obamas healthcare legislation passed the Supreme Court while I was there. This remains a highly controversial bit of legislation. o Tourist areas (Times Square, NJ Shore) were all packed with sightseers, spending away. Although places like Empire State Bldg were readily accessible without long lines. o I didnt talk to anyone who was happy with the largesse of the US Federal Government. However, neither candidate seems to be willing to shake things up. o There remains a strong level of angst and distrust among non finance people about what Wall Street has done to the country over the last 5-10 years. Its unlikely retail investors will re-enter the equity markets in force for a considerable period of time. Chg (week)
-1.9% -1.5% -1.7% 0.0% -3.9% 0.4% 2.4% 3.1% 2.7% 0.0% 0.2% -0.3% 0.4%

2011
All Ords Index S&P 500 Shanghai RBA Cash Rate US Treasury Bond (10yr) Spot Gold Price Copper, spot Oil WTI Oil/Gold Ratio USD Index AUDUSD EURUSD USDCNY 4,111 1,258 2,199 4.25% 1.88% 1,563 344 99 6.3% 80.23 1.022 1.294 6.299

13 July
4,118 1,335 2,186 3.50% 1.49% 1,590 349 87 5.5% 83.29 1.023 1.225 6.394

Chg (ytd)
0.2% 6.1% -0.6% -17.6% -20.7% 1.7% 1.6% -11.9% -13.4% 3.8% 0.1% -5.4% 1.5%

200 year low for US bond yields Stable YTD World production up, price down 6% is the long term basis Holding above parity Euro is very weak Chinese economic weakness pushing currency down

Technically Speaking (All Ords Index)

The Index has moved in a tight range between 4070 4400 for the past year, currently in the lower half of the range. Positive catalysts (Australian elections, China stimulus) remain far off. Bad news permeates the global economy as the debt deleveraging cycle continues. Your focus on investing remains on high quality, dividend paying stocks. Stocks that have high debt levels should be avoided (see Seven West Media). Telstra remain a standout performer. After we failed to push through the 4400 level in April, its hard to make a strong case for capital appreciation outside of a few select companies. This is why, for now, we continue to focus on income which is materially higher than what is available through bank term deposits.

Weekly Market Update

Robert Davies, Patersons Securities
Follow me on Twitter @davies_robert

16/07/2012 12:32:46 PM Page 2 of 3

Weekly Stockwatch
Telstras 10 year price chart is below, a great recovery story now that regulatory and technology concerns are behind it. Telstra continues to be the markets standout performer as investors look for companies with strong income returns. With the dividend now down to 7.2% fully franked.. The shareprice has now broken through almost all technical barriers and looks like it will settle above $4.00 shortly. Just one of the reasons I like Telstra. Consider what has happened to the media sector with print newspapers no longer profitable due to readers moving online. As this trend continues, the company making money is Telstra, charging their clients for data usage which continues to grow strongly.

TLS.ASX@AUX: 3.85, 3.86, 3.835, 3.84

MA (TLS.ASX@AUX): 200 3.2317, 35 3.428, 10 3.666 5.6

5.2

4.8

4.4

3.6

3.2

2.8

2.4 Vol (TLS.ASX@AUX): 8319.034T 1000M 0 RSI (100.000000): 14 76.6879

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Weekly Market Update

Robert Davies, Patersons Securities
Follow me on Twitter @davies_robert

16/07/2012 12:32:46 PM Page 3 of 3

Chart of the Week

Thinking of investing in Melbourne property? Dont before you look at the below chart. With stock available for sale continuing to ratchet up, the price pressures in property will continue to hurt investors for a considerable period of time.