Remember when the stock market would throw one hell of a hissy fit when there was even a hint of US interest rates increasing?
Not any more.
On the contrary, it now cheers the prospect of higher interest rates. And right on cue, later this month, the Federal Reserve looks certain to deliver.
Markets. About as predictable as a Donald Trump tweet.
But who's counting? It's a bull market. Hang on for the ride.
Speaking of predictions, two months into the calendar year and already Wall Street strategists are scrambling to revise their year end targets.
Predictions of a 5% rise in the market for 2017 have been thrown out the door, with Deutsche Bank's Binky Chadha looking for the S&P 500 to finish the year at 2600, according to The Wall Street Journal.
That would translate to a 16% gain for Wall Street in 2017. Some bull market that would be.
What are the chances?
I don't know. No-one knows. Just because the market has had a strong start to the year doesn't mean it will carry on higher from here.
That said, the global economy is ticking along, growing nicely, with the US leading the way. Never mind that Trump's phenomenal tax cuts and huge infrastructure spending will leave the country in hock until kingdom come. None of us will be around to see either the day of reckoning or the day the US balances its books.
As Citigroup CEO Chuck Prince said a year before the GFC struck…
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
Today the markets are dancing to the tune of Trump.
Money is flooding into the blue chips, specifically the banks and miners.
Never mind the banks are growing at a snail's pace and trading at premium valuations.
Never mind the ongoing house bubble, particularly in Sydney and Melbourne.
Dance instead to the fully franked dividends. Dance like nothing can ever go wrong.
Speaking of which, the OECD has just released a report saying the single biggest threat to the nation is from a potential hard landing in the property market after years of double-digit price gain, according to the AFR.
The OECD puts the risk of an Australian recession at around one in five. Party poopers.
It's hardly rocket science. Record levels of household debt. Totally unaffordable house prices. Rental yields through the floor. Of course it's a bubble.
All at a time when interest rates are at record lows. All hell would break loose if interest rates were to double from here.
From here, two things can happen…
— Either house prices crash, throwing the country into one ugly recession, taking the banks down with it. We wouldn't know what hit us.
— Or house prices go nowhere for years to come, maybe decades.
Yet most are still dancing to a different tune, including the banks.
That house prices will keep rising. That consumers will take on more debt. That house prices never fall. That Australia never has recessions.
Still, what do I know? I've been wrong for as long as I care to remember about house prices, consistently thinking they simply can't go higher from here.
A case in point… just this week, the latest CoreLogic home price index for February showed prices jumped 2.6% last month in Sydney, bringing the annual price rise to 18.4%, according to the ABC.
Rather than slowing down, that is the strongest annual pace of growth in Sydney in more than 14 years.
Keep dancing.
Unless you think there's one almighty property crash on the horizon — in which case you'll already have sold everything, stocked up your armageddon bunker with gold billion, tins of baked beans and bottled water — the one tune you can keep dancing to is low interest rates for the long-term.
Unfortunately, for income-hungry investors, that means term deposits just aren't going to cut the mustard. Now or for the foreseeable future.
By comparison, ASX shares are trading very attractive dividend yields. Even more attractive when those yields are fully franked.
Now you could buy a bank or two. But my guess is you're already way overweight with the banks… not to mention the old house price risk. Citigroup shares are still down almost 90% since Chuck Prince uttered those infamous words. Australian bank investors don't know how lucky they are.
Or you could diversify your portfolio a little, looking outside the obvious blue chips.
One such stock is master franchiser, Retail Food Group Limited (ASX: RFG), owner of the Brumby's Bakery, Pizza Capers and Gloria Jean's Coffees brands, amongst many others. The RFG share price has fallen 10% over the last week, such that it now trades on a very attractive 5.3% fully franked dividend yield, or almost 7.6% when grossed up for franking credits.
Another is vet to retailing group Greencross Limited (ASX: GXL). Although the shares trade on a modest fully franked dividend yield of 2.7% (3.85% gross), the company is growing nicely, offering the potential of significant capital gains in the months and years ahead. The Greencross share price has gained almost 8% in the past month.
Andrew Page — our resident dividend expert — has a buy recommendation on both stocks.
But neither is his best bet right now. That privilege goes to the "fortress" stock he recently named as his top ASX dividend stock to buy now.
Unlike the big banks and Telstra Corporation Ltd (ASX: TLS) — who are struggling to meaningfully increase their dividends — Andrew's most recent recommendation just hiked its final dividend by a whopping 23%, such that it is now yielding more than 5%.
Sure beats term deposits, and the RBA's low interest rates.
