Listen to the Market, not Company CEOs

Let’s look at the Aussie market. The past two days have been brutal. The Financial Review helpfully tells us we’re in a bear market…as if you needed to know.

The latest sell-off came via the banking sector. ANZ [ASX:ANZ] and NAB [ASX:NAB] are both trading at multi-year lows. They’ve given up all the gains provided by the RBA’s post 2011 interest rate easing cycle. This week, Westpac [ASX:WBC] broke below support and is now at multi-year lows too.

Only the Commonwealth Bank [ASX:CBA] continues to hold up. It reported a decent result yesterday, which provided share price support in a weak market. But the numbers are history. Global credit markets have tightened considerably since CBA ruled off the books for the half year to 31 December.

Banks don’t like it when the cost of credit rises. It means weaker margins or lower demand for credit. It’s only a matter of time before CBA joins its big four mates in hitting new lows for this cycle.

But you wouldn’t know it from reading columnist Chanticleer in the Financial Review. Always a good mouthpiece for corporate CEO’s, Chanticleer says that the first big day for the profit reporting season tells us everything is good.

The biggest day so far in the profit reporting season shows that the economy’s transition from mining to non-mining led growth is not only proceeding well but delivering solid profit growth.

The article cites the solid results from CBA, Boral [ASX:BLD] and Stockland [ASX:SGP]. The results were good. But CBA is 23% below its 2015 high, and in a solid downtrend. The market is saying the good times are over. BLD is down 23% from its 2015 high too…and in a downtrend.

And SGP actually sold off on yesterday’s good result. It’s down 18% from the 2015 peak. The article points out that Stockland’s CEO, Mark Steinert, says that all of its growth is coming from the east coast of Australia.

The east coast of Australia is the country’s debt engine. The recent performance of the banks tells you that debt growth won’t come so easily in the future. Which is why the market wasn’t too impressed with Stockland’s profit numbers. It is yesterday’s story.

Always remember this: company CEO’s double as a marketing and sales rep. Their primary aim is to sell a company’s story and image to investors. You won’t learn anything by listening to a CEO.

Listen to the market instead, it’s much more discerning. Right now, the market is breaking down to new lows. That tells you to be cautious. No one knows whether this bear market is close to the end…or just getting started. Not the Fed, not company CEO’s…and certainty not finance journo’s.

Greg Canavan,
For Markets and Money

Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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