“This market is going to fly”


“The market is going to fly,” said Chad Morganlander on Bloomberg. “Get ready. This is going to be some rally.”

Admittedly Mr Morganlander is talking about U.S. markets, but we all know where they go, we go.

So should we here in Australia expect the mother of all sharemarket rallies? It’s the $64,000 question. We wish we knew. But, if investing was that easy, we’d all be millionaires.

Carbon tax free zone
There’s an old saying that sharemarkets climb a wall of worry. Worries? We have a few, and that’s without even getting into the whole carbon tax debate. We’re happy to leave that one well alone for fear of alienating half our readership. We love you all…

We’re a little more circumspect with our predictions than our bullish friend Mr Morganlander. But we do have a hunch we might be in for a decent sharemarket rally coming into Christmas and through to January.

Between us, Dean and Bruce have been actively investing for close to 50 years. We’ve seen our fair share of bull markets, bear markets and everything in-between. Another day, we’ll tell you all about “The January Effect”. It’s a riveting tale.

Whiplash
Over the past 4 years, since the GFC began, the market has felt anything but “in-between”. The S&P/ASX 200 index has whipsawed from a a high of 6,750 down to 3,145, back up to 4,985, back down to 3,765 and now back up to 4,250.

Talk about whiplash…

Someday, all this volatility will calm down again. In fact, as measured by the VIX, otherwise known as the fear index, markets have already digested a Valium or three – it’s down 31% over the past 10 days.

The good old Aussie dollar (AUD) is our very own fear index. As markets have jumped higher, so has it, soaring from 95 cents all the way to parity and beyond. As of writing, our Aussie dollar fetches $US1.02.

The cost of a strong AUD
Why the man in the street gets so excited about the movements of the dollar is beyond us. When the dollar jumps above parity, do thousands of Aussies suddenly start planning overseas holidays? Or do they jump onto eBay and go shopping, internet style? Answers on the back of a stamp…

A strong dollar might make for cheaper overseas holidays and flat screen TVs, but it comes at a cost.

What manufacturing jobs are left in Australia will soon follow the thousands already outsourced to China. In-bound tourism, one of our largest industries, will continue its decline. We may have the Great Barrier Reef, but it costs a bloody fortune to see it.

So, whilst you cheer the dollar higher, think about the long-term damage it’s doing to Australia Ltd.

We’d be very happy with a lower dollar. The problem is, a lower dollar comes with a sharply lower sharemarket. Right now, with the Aussie dollar being a proxy for risk, wherever world sharemarkets go, it follows along.

One day, probably in the not too distant future, we think the AUD will de-couple from the movements in the sharemarket. A good old interest rate cut or two will start the process, a recovering U.S. economy finishing it off. We could easily imagine the AUD trading around 90 cents in 12 month’s time.

Don’t waste your time
Don’t hold us to it…we’re not currency traders, nor are we macro-orientated investors. As The Motley Fool’s Investment Analyst Dean Morel said previously…

The economy and sharemarkets are too complex for even the best economists to accurately predict. The good news is there is no need to predict the future to succeed in investing. In fact the more time you waste predicting the future the less time you have to focus on what’s right in front of you.

What are we looking at today? The market climbing a wall of worry, plenty of shares still on sale, and a lots of cash on the sidelines.

Take BHP Billiton (ASX: BHP) for example. Back in early September, Dean advised Motley Fool readers to prepare to load up on BHP shares. Today, after dipping below $34, the shares trade at around the same level as a few weeks ago. If they were cheap then, they’re still cheap now.

Dean is busy preparing for the launch of our brand new subscription-only investing newsletter, provisionally named The Motley Fool’s Wallaby Herder*. We can’t give away too many details at this early stage, apart from saying it will be focusing on bringing you the greatest ASX investment opportunities.

That’s easy to say, but harder to do. Luckily for us, that’s where Dean comes into play.

Hidden sharemarket gems
Dean finds opportunities where most others don’t even look. Sometimes we’re talking smaller companies, other times we’re talking growth companies, not forgetting dividend-paying companies, value opportunities, special situations, technology companies, biotechnology companies and resource companies. If it’s quoted on the ASX, it’s fair game for Dean.

Although Dean thinks BHP Billiton is cheap, he probably won’t be selecting it for Wallaby Herder* subscribers. If you want to get the latest analyst opinion on such a massive, widely-followed company as BHP, there are plenty of places you can get that for free, including here on Fool.com.au. The Wallaby Herder*, like it’s name, aims to be different. We’ll keep you posted.

As an aside, to get a sample of Dean’s work, you might want to request our latest free report, The Motley Fool’s Top Stock For 2011-12. Click here to sign up now, whilst it’s still free and available.

Europe: As clear as mud
The observant amongst you might notice we haven’t once mentioned Europe.

If you want the blow-by-blow account of what might happen, when, to whom, and what effect it might have on the price of souvlaki in Mykonos, we offer this from Bloomberg

Global stocks rose today as European Commission President Jose Barroso called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes. Barroso urged a “coordinated approach” to deliver a “significantly higher capital ratio of highest quality capital” for banks, while offering government funds only as a last resort.

Clear as mud? Apparently that was enough for world sharemarkets to continue their mini-recovery.

We fully admit to not knowing how this will all turn out. If we were guessing, we’d say European politicians will find a muddle-through solution in the short-term, whilst hoping an economic recovery comes in to save the world, and the euro, between now and the next European elections.

We think it’s called kicking the can down the road. In the meantime, we’ll stick to wallaby herding.

Until next time…

* The name Motley Fool’s Wallaby Herder is unlikely to get past the brand police. But ever since our International Ops Manager Brian Tighe came up with the name, we’ve become rather attached to it. Reply to this email with your thoughts, including any alternative name suggestions. We bet you can’t top Wallaby Herder.

Bruce Jackson has an interest in BHP Billiton. The Motley Fool’s disclosure policy is herding wallabies. Click here to request your free copy of The Motley Fool’s Top Stock For 2011-12

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