Cochlear tanks 18%

COH down more than 18% today after it released a dreaded 'Market Update' to the ASX.

Always shy away from putting too high a percentage of your portfolio into individual stocks. 

It is tempting so to do in order to chase big gains, but it is better to create wealth slowly and surely.

A well-diversified LIC can hold well over 100 of the top stocks and trusts (and sometimes even invests in other LICs) so an individual company running into problems has little impact. 

Focus on the growing dividend stream and not only the day-to-day share price and buy more when the market is low.

Cochlear's 6 month chart:

Source: ASX

ASX 200 - largest two day gain since December 2011

XJO up 1.68% today following yesterday's big gains of 1.63% - two of the largest gains in 2013 back-to-back.

If there's anything to learn from this it's that chartists often have as little clue as anyone else what often-irrational share markets will do next, however cleverly they try to word their predictions.

Source: ASX

Key data this week to determine direction of rates

Labour force data on Thursday and then housing finance on Friday.

Also keep an eye out for the NAB Business survey today as a guide to confidence.

The next RBA Board meeting and Official Cash Rate announcement will be on August 6.

ASX 30 Day Interbank Cash Rate Futures August 2013 contracts are trading at 97.335 which indicates only around a 4 in 10 expectation of an interest rate decrease to a new record 2.50% at the next meeting.

Key factors in the forthcoming decision will be unemployment figures on Thursday, whether or not the dollar experiences anything resembling a major collapse (currently just back above 91 cents) and of course the inflation data on July 24. All capital city property markets are experiencing rising dwelling prices, but the RBA has suggested that this may be a necessary pre-cursor for construction to pick up.

The yield curve still implies another rate cut by November before the economy begins to pick up again in the second half of 2014 as low interest rates stimulate activity...

Source: ASX

ASX sell-off

Markets down as expected following the Fed announcement, but it turned into something of a sparked sell-off, with the XJO down 2.12% on the trade.

The dollar is getting whipped, touching 92.3 cents, somewhere much closer to 'fair value' and a more comfortable place for our economy by and large.

Source: ASX

Rio hits record iron ore production

Rio Tinto (RIO) released its second quarter operations review showing sizeable y/y increases in production and shipments of iron ore, as well as material increases in copper, aluminium, thermal coal and titanium dioxide production.

If you've been up to the Pilbara in recent times, you'll already know what a spectacular sight the operations up there represent. From the ASX release:

"-Record first half iron ore production, shipments and rail volumes despite a conveyor belt 

breakage resulting in one of five ship loaders being side-lined for almost three weeks and 

unseasonal wet weather which led to flooding in the Pilbara. 

-Expansion of Pilbara capacity to 290 million tonnes per year remains on budget and on time to 

deliver first tonnes by the end of the third quarter of this year. Delivery of first tonnes will be 

followed by a steady commissioning and ramp-up period. Completion of the Rail Capacity 

Expansion infrastructure project was the most recent milestone reached in the quarter."

Some have pointed out that this is not all beneficial to Australia as our major resources companies are 100% not Australian-owned.

This is true: Rio has a very complex group structure being a dual-listed group with a maze of subsidiaries, and ownership is spread widely around the world - as indeed are its ~70,000 global employees.

A glance at Rio's segmental reporting disclosures in its most recent annual report shows that a large chunk of the group's gross revenue is from iron ore production, with a sizeable percentage being shipped to China.

The Australian-based employees will benefit from the group's massive wealth (the group has a global market capitalisation of well over $100 billion) and of course Australia will benefit from mineral royalties, which is good news for the state of WA.

Such major projects also create employment and revenues for mining services companies, so the increasing levels of production can have a knock-on effect.

And this, naturally, is what Australia wants to happen through the second phase of its mining boom.

Meanwhile, Rio will hope that the iron ore price stays as high as it is today at above US $125/tonne.