Good riddance May.
As the old saying goes, you should have sold in May and gone away.
Banks especially took it on the chin, Westpac (ASX: WBC) leading the big four down, slumping 16% in May, with NAB (ASX: NAB) falling 15% and ANZ (ASX: ANZ) 13%. Commonwealth Bank (ASX: CBA) lost just 8%, a relatively shining beacon amidst the carnage.
A rude reminder
It was a rude reminder to yield-chasers, and to investors in general, that shares can go down as well as up.
It's all rather predictable.
We've long been warning investors steer clear of the banks. We've long been avoiding mining stocks, and especially steering a very wide berth around mining services companies. We've long been bears of the Aussie dollar, going so far as to recommend you use its strength to invest in U.S. stocks.
And as for gold… please tell me you didn't fall for that bubble! Please?
House prices warning — turbulence ahead
Speaking of bubbles, the property market is roaring back to life, with Sydney auction clearance rates hitting 80%.
The Australian Financial Review says "well-positioned family homes are selling above reserve in front of big auction crowds" with "low interest rates and a fall in the Australian dollar" leading to more confidence in the housing market this year.
Fickle bunch, we Australians.
All at once we first rush for dividend stocks. When they hit a bit of turbulence, we revert to type and pile back into the property market, hoping to buy before prices shoot back up again.
I'd hate to go sailing together. Not only would I get horribly sea-sick, the chances of us capsizing would be an unbackable favourite.
Don't get me wrong. I get it. With interest rates low, and likely headed lower, Australian investors are desperate to generate income. $100,000 earning 3% per annum in a term deposit account might just about cover the annual electricity bill… and that's only if you use the air con sparingly.
You won't find me going anywhere near the property market.
I admit it… I like stocks
I'll admit I'm biased towards stocks, favouring their liquidity, their low buying and selling costs, zero maintenance costs, and their proven long-term return profile, especially including fully franked dividends.
By comparison, Aussie houses are virtually unaffordable for first time buyers, and with unemployment almost certain to move upwards in the coming months, the downside risks of property far outweigh the upside potential.
Note to RBA: Slash interest rates to 1% and be done
The RBA meet today to decide the fate of interest rates for at least the next month.
Consensus is for rates to remain unchanged, although AMP capital chief economist Shane Oliver thinks the RBA should cut rates, saying it's "crunch time for the Australian economy". Mr Oliver is expecting a cash rate of 2.25% by year end.
Note: The RBA voted to keep rates on hold, noting however they have further scope for easing if required.
As ever, Motley Fool Share Advisor Investment Advisor Scott Phillips is as calm as a cucumber. He thinks the difference between a cash rate of 2.75% and 2.5% is neither here nor there, and won't make a jot of difference to the economy.
It certainly won't make a jot of difference to Scott's investment strategy, as showcased in Motley Fool Share Advisor, our 'best-of-the-best' stock-picking service.
Recommending good stocks at good prices, whatever interest rates, whatever the market, is a strategy that's served our service well.
Scott reckons if the RBA were really worried about our economy, the still high Australian dollar, and wanted to enter the global race to the interest-rate bottom, they should just slash the cash rate to 1% and be done with it.
Crash goes the Aussie dollar… and up fly the miners
That would put the cat amongst the pigeons. The Aussie dollar would crash. The stock market might soar, especially dividend-paying stocks and exporters, including mining stocks, especially BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). House prices might take off even further. Petrol prices would soar, as would inbound tourism, and inflation. And retirees and savers alike would be in uproar.
Welcome to life in most of the developed world, including the U.S., the UK and the rest of Europe… except they've also got persistently high unemployment and massive, structural budget deficits to deal with.
By comparison, although you wouldn't read about it in our doom-laden press, Australia really is the lucky country.
Swinging bankers, and interest rates still headed lower
Back in the real world, having been burnt once before, I'm not going to make predictions about which way Glenn Stevens and his merry band of bankers might swing today.
What I will say is that, if not today, I think interest rates are still headed lower. Adjust your investing sights accordingly — the hunt for yield is here to stay.
The hunt for yield turns back to Telstra
Speaking of yield, up until the middle of May, Telstra (ASX: TLS) has been the poster-stock in the rush for dividend yield.
Including its fully franked dividends, from the time, in Take Stock (our free investing email newsletter), when we named it as our top ASX 20 stock in August 2011, to its mid-May 2013 peak of $5.15, the return on Telstra shares was nigh on 100%.
Today, Telstra is hitting the news for all the wrong reasons, accused of abdicating its responsibility to manage the risk of asbestos in the construction of the national broadband network.
Even before asbestos-gate, Telstra shares had been on the nose.
But this asbestos affair, despite CEO David Thodey assuring investors he did not believe Telstra faced any material financial risks from potential lawsuits, has sent the shares back down to $4.65. That's a near 10% haircut in double-quick time.
Still, on the bright side, it's got nothing on Billabong's (ASX: BBG) near total wipeout. The surf wear company today announced takeover talks had collapsed, again, coupled with a profit warning, again, all of which sent the shares down 40% to just 27.5 cents. It's a far cry from the heady days in June 2007 when the shares topped $18.
Back to Telstra. The Australian Financial Review ran a story today titled "Telco is looking less safe as a haven for investors", amongst other things saying…
"…those looking for an excuse to sell out after a doubling in the share price in the past two years now have one. The path of least resistance seems lower."
Investing shock: Telstra's dividend yield still juicy
Such commentary is music to my Foolish Investing ears.
Telstra may not be the bargain they were in August 2011, and sure, they have their challenges, including asbestos, but they still have a booming mobile business, a dominant position in the market, and now trade on a fully franked dividend yield of 6%.
In a world of low interest rates — even if the RBA won't slash them to 1% — I can't imagine it will take investors too much longer to again cotton-on to Telstra's juicy dividend yield. It sure beats term deposits.
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Of the companies mentioned above, Bruce Jackson has an interest in ANZ, CBA, WBC, BHP and Telstra.
