Good afternoon from sunny Perth,

I’m over here spending a week in our Perth office and meeting with a bunch of companies, advisers and contacts – as well as spending a bit of time with the family.

ASX 200 has put a really strong week together, up over 2% and closing Monday trade at 6665 points. For context, here’s a 20 year chart of the top 200, almost back at pre-GFC highs.

While I’m at it, here’s the ASX 200 accumulation index vs the ASX200 index, indexed at 100, 20 years ago. This highlights the importance of reinvesting dividends into the market (note: not blind and passive dividend reinvestment into the same shares you already own) and also why retirees who are living off their dividends shouldn’t be using the ASX 200 accumulation index as their benchmark (because whilst you receive the dividends, you don’t reinvest them and benefit from the compounding effect.) This is a common and all to frequent error when comparing returns.

Generally speaking, large caps/liquidity is outperforming small caps/illiquid, growth continues to outperform value and defensives outperform cyclicals. I’m struggling to see why the markets continue to re-rate our PE higher, whilst earnings growth forecasts remain unchanged and the economic environment, by all metrics, is deteriorating, not just in Australia, but around the developed world.

ASX 200 back trading above +1 standard deviation above average.

Tech, energy and defensives – aka. everything that benefits from falling interests rates, easy monetary policy outperformed this week whilst consumer stocks underperformed.

I still think it’s a little erroneous at this point in the cycle to assume that low interest rates results in higher asset prices and that all high duration assets appreciate the most – its a low interest rate environment for a reason… there’s no growth. We’ve gone from “TINA – there is no alternative” to “TING” – there is no growth.

Outside the 200 but mining technology company Imdex (IMD) talked about a few weeks back in this note starting to break out, $1.17 up from 94c. Worth upwards of $1.40 on my reckoning based on growth profile, earnings quality improvement and sector peers.

Afterpay (APT)…. three lower highs so whilst it’s bounced this week, don’t be surprised if the shorts get after it again now.

Much maligned Ausdrill (ASL) finally catches a bid on the back of a $800m contract win in Botswana. Very cheap and analysts have it being worth over $2, assuming it can get it balance sheet in order (which it sort of looks like it is).

Otherwise, you won’t be surprised, its energy, tech, defensives, property and high beta stocks that make up the list. Central banks rule the world.

Caltex (CTX) had a gnarly profit downgrade on higher input prices, Metcash (MTS) similar story today. Webjet (WEB) presented at Ords and has been sold off ever since. Perhaps a bit of tax loss selling in Galaxy (GXY), Pilbara (PLS), Sppedcast (SDA) and Eclipx (ECX) – all down heavily on this time last year.

Have a good week,