It may not feel like it…
But right now, we're smack in the middle of one of the greatest bull markets in history.
Something that could send the ASX above 6,000 and on the road to 7,000… sooner than you could ever have thought possible.
I'm not making this up…
Just yesterday Macquarie even tipped the ASX to hit 10,000 over the next 10 years, underpinned by a booming superannuation sector.
The stock market has been rising for 8 years now…
And many people think it can't go much higher.
Some even think we're on the cusp of an almighty stock market crash, something that by comparison will make the GFC feel like a stroll in the park…
But bull markets never end when people "think" they should.
– Bull markets end when interest rates are so high they strangle everything…
– Bull markets end when earnings start cratering…
– Bull markets end when everyone is talking about how much money they've made… and how much more they are going to make…
Yet cash holdings are some of the highest they've ever been.
Fund managers are cashed up, with one high performing small-cap fund reporting its cash holding is over 30 per cent, saying it's "at a level higher than preferred."
The average SMSF is sitting on cash balances of around $250,000.
All this is unlike 2008-9…
When people were PILING into speculative resources stocks…
When the oil price was trading at close to $150…
The iron ore price was trading around $170…
And people were borrowing money to invest even more money into stocks…
In hindsight, the warning signs were all around us. And sure enough, eventually, and inevitably, stocks CRASHED.
This time around, everywhere you look seems to be bad news.
– Trump
– North Korea
– House prices
– Budget deficits
– European elections
Yet the stock market is still beginning to go vertical.
Imagine what could happen once that wall of money gets deployed into the stock market.
Imagine what could happen once the Australian economy starts humming again.
The signs are good…
Just yesterday the Reserve Bank of Australia governor Philip Lowe reaffirmed the central bank's forecast for falling unemployment and an acceleration in economic growth.
Malcolm Turnbull's government is belatedly joining the party, promising to spend up on major infrastructure projects which, in the short-term will create thousands of new jobs, and in the long-term will create big economic benefits to Australia.
All this at a time when population growth is slowing. Putting aside the immigration debate, more jobs spread across fewer people means unemployment falls – which is a positive for the budget deficit – and puts upward pressure on wages.
Wages growth has been the one missing ingredient for years… something that looks about to change.
Given this, not surprisingly, financial markets have slashed the chances of another interest rate cut to virtually zero.
Yet, at the same time, according to The Australian Financial Review…
"… policy makers (are) set to keep the official cash rate steady at 1.5 per cent for the foreseeable future."
While many Australian investors I talk to are worried about Trump…
And are still waiting for the market to crash, as it was predicted to do in the event of Trump winning the US election…
The Americans have moved on, now focusing on an improving economy, and the end of the earnings recession.
As quoted on Marketwatch, Phil Orlando, chief equity market strategist at Federated Investors said…
"Earnings season has been terrific, the best in four or five years, and if we can get anything out of D.C. in getting tax reforms in place, the market will go vertical."
Here in Australia, the experts are also moving on.
Moving on from the political infighting…
From all the house price bubble talk…
From worrying about China…
From caring about Trump…
From thinking a stock market crash is just around the corner…
To getting back to basics.
Like James McGlew of Argonaut Securities, who was quoted this week in the AFR as saying…
"… this is a market that's still chasing the very attractive yields that are on offer relative to bank [deposit] interest rates at the moment."
The basics of high quality ASX stocks trading on dividend yields of 5 per cent or more, often fully franked.
An RBA cash rate of just 1.5 per cent for "the foreseeable future" might be devastating for your term deposits…
But it looks to me at least to give the green light for dividend-paying stocks to not only continue to be great alternatives to term deposits, but to also offer the very real prospect of significant capital appreciation.
