ASX shares up, interest rates slashed, and a few more tricks to this pony

The RBA finally admitted it was wrong on interest rates. Let the race for dividend yields begin…

a woman

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The S&P / ASX 200 (Index: ^AXJO) (ASX: XJO) and the All Ordinaries (Index: ^AORD) (ASX: XAO) continued on their merry way, gaining 0.75 per cent and 0.68 per cent respectively on Tuesday after the Reserve Bank of Australia slashed the case rate by 50 basis points.

The RBA has finally admitted they've been calling the Aussie economy wrong the past few months.

Today's  slashing of the cash rate to 3.75 per cent confirms what many, including us here at The Motley Fool, already knew…

The Australian economy is flat lining.

You only have to open your eyes…
From an investing perspective, you only had to look at the recent profit warnings from JB Hi-Fi (ASX: JBH), Seven West Media (ASX: SWM) and Bradken (ASX: BKN).

From a common-sense perspective, you only had to look at empty shops, falling (and still unaffordable) house prices, high levels of consumer indebtedness, sharply slowing credit growth, the continued disappearance of manufacturing jobs, the stubbornly high Aussie dollar, and sharply increased savings rates.

And that's not to mention the 'politics factor', where one party is intent on trashing itself, the other intent on trashing everything that dares to get in the way of its path to Government.

You get the point…

Embattled mortgage holders are finally set for some relief, although the big four banks are unlikely to pass on the full interest rate cut.

What's bad for some…

The ASX initially jumped sharply higher. April's outperformance might be set to continue.

Who ever said a flat lining economy was bad for shares?

Source: Fairfax

Up 36 per cent in just seven months…
(ASX: TLS) shares rang up yet another gain, up 4 cents to $3.58.

Will it last? Certainly dividend yields on ASX 200 shares look very attractive in comparison to a cash rate of just 3.75 per cent. Aforementioned Telstra still yields 7.8 per cent, and its dividends are fully franked.

Long-time Motley Fool readers might recall, in August last year, Investment Analyst Dean Morel calling Telstra (ASX: TLS) his "…number one ASX 20 pick for the long term as it provides excellent cash returns, limited downside and reasonable upside potential."

It's turning out to be yet another great call by Dean.

Telstra's August 5th dividend adjusted share price is $2.64. Investors who took Dean's advice and bought the out of favour telco would now be sitting on a 36 per cent return in just seven months, not including franking benefits.

It's an outstanding return for any investment, but even better when you consider the size of the company.

One good trick
We've sometimes been labelled a one-trick pony when it comes to our stock-picking, that trick being Maverick Drilling & Exploration (ASX: MAD).

In 2012 alone, Maverick shares are up a casual 559%.

As far as tricks go, even if we say so ourselves, you'd have to admit it's a pretty good trick.

As an aside, we've just emailed a 2,500 word interview with Maverick executive directors Brad Simmons and Don Henrich to our Motley Fool Share Advisor subscribers.

Titled Turning Dirt Into Dollars, Brad and Don go into great detail about the Maverick of today, and the Maverick of the future. Needless to say, they are excited about the future.

Not losing any sleep over this loser…
Apart from Maverick, we do have other tricks…like Telstra and a couple of others mentioned below.

Of course, we don't get every call right. Specialty Fashion Group (ASX: SFH) has not turned out too well to date. Time will only tell if we were early into Specialty or wrong.

Last September, Dean even bought some shares in Speciality himself, paying 60 cents. Today the shares trade around 45 cents, the same price as they were in September last year.

I suspect Dean isn't losing any sleep over his investment in Specialty Fashion.


In a September article titled 3 growing ASX companies at value prices, Dean said at the time

"Sound portfolio management and position sizing ensures that even if Specialty went bankrupt — which is unlikely — it would have a very small impact on my overall performance."

More tricks…
As for the other two "growing ASX companies" mentioned in that same September article, they are up 30 per cent and 57 per cent.

Seems there might be more than one trick to this pony.

With interest rates on term deposits set to fall fast, investors might turn to the sharemarket to generate much needed income. If you're looking for income from your shares, look no further than "Secure Your Future with 3 Rock-Solid Dividend Stocks". In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

Bruce Jackson is The Motley Fool Australia's General Manager. Bruce has an interest in Maverick Drilling and TelstraThe Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).

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