Philip Baker in The Australian Financial Review calls it “a global war on savers and anyone invested in cash”, going on to say “central bankers are doing whatever it takes to get everyone invested in shares…”
Based on yesterday’s 56 point jump in the S&P/ASX 200, investors are coming along for the ride.
Heck, even BHP Billiton (ASX: BHP) caught a bid, now trading comfortably above $34. Courtesy of Glenn Stevens, Chinese growth and the global dash for dividends, my $30 top-up price is looking a distant memory. On the bright side, the family’s existing holding is looking that bit healthier.
Who can blame investors turning to shares, especially when high profile economists like Westpac’s Bill Evans and Macquarie’s Brian Radican are predicting the Reserve Bank cash rate will hit 2%?
Overnight in the US, the Dow and the S&P 500 both closed at record highs, the latter posting its fifth straight record close.
“There’s room to go on the upside, especially since you’re getting nothing on the fixed-income side,” said Scott Black of Delphi Management Inc. on Bloomberg.
Here in Australia, you can still grab 4% on a term deposit — if you’re quick. The $4,000 of taxable income you earn on every $100,000 invested might be enough to cover the electricity bill — if you’re lucky.
By comparison, according to Philip Baker in The Australian Financial Review, the dividend yield on shares, once franking credits are included, is still around 5.5%, still well above the yields available on term deposits.
No wonder then, in the face of the cash rate potentially falling as low as 2%, the same commentator says…
“Over the next 12 months stocks will fly upwards everywhere as everyone gets involved and bond rates will stay at record lows.”
Here at The Motley Fool, we steer clear of making sweeping predictions. We simply focus our attention on recommending good companies trading at fair prices. But if Philip Baker is even half right, share market investors are about to embark on a fun 12 months.
The holy grail of investing
Income coupled with capital growth is an investor’s holy grail — just take a look at the spring in the step of investors in the big four banks.
Today it was National Australia Bank’s (ASX: NAB) turn to report results. Profits were strong, but only grew 3%. The dividend was raised, but only by 3.3%. Yet the shares have risen 32% so far in 2013.
Eventually, something has to give. Banks don’t trade on P/Es of 19 and price to book ratios of around 2.2 for very long, let alone accident-prone varieties like NAB. I remind you — profit growth for first half was just 3%.
You wouldn’t catch me buying NAB with Tom Waterhouse’s money let alone my own hard-earned cash. Sure, the fully franked 5.5% yield (7.9% grossed up) is nice, but geez, it’s not as if there isn’t some significant downside risk…
But today, yield is king. It doesn’t matter that share prices of some companies are getting a little out of whack compared to their growth prospects. In the short-term, it doesn’t stop the freight train. But eventually, earnings drive share prices, and a stock without earnings growth simply cannot be a stock that keeps on going up, and up and up.
The Aussie dollar — the most overvalued currency ever!
Although it’s clearly not a stock, even if it is heavily traded by investment bankers, Japanese housewives and speculators alike, the Aussie dollar is a prime example.
It was only in 2011 some, including Macquarie Bank, were forecasting it could rise to as high as $US1.20.
This week Professor Ross Garnaut told The Australian Financial Review Australia’s real exchange rate was
“overvalued to an extent that has never been known before in a developed country”.
Then today, Stanley Druckenmiller, George Soros’ sidekick, says investors should bet against the Australian dollar.
“We think the Australian dollar will come down and will come down hard. It’s expensive.”
Better book that overseas trip now. And stock up on U.S. shares.
The 3D printing phenomenon — coming to a broker account near you
Speaking of U.S. shares, we regularly get enquiries about the whole 3D printing phenomenon.
In case you’ve missed it, no longer just cool prototypes, 3D’s printed parts are now relied upon in some of the highest-precision machines in the world, including Rolls-Royce luxury cars and F-18 Hornet fighter jets.
And one company’s focus on specific industries that use its products — think custom-made dental implants, crowns, and hearing aids — saw it added to our Motley Fool Share Advisor scorecard in December last year. I own the stock too.
Many Australians eschew trading in U.S. stocks, presumably because it’s just that little bit harder than normal to set up an international trading account.
It’s not. Give optionsXpress Australia a try. I have an account with them. Neither myself nor The Motley Fool Australia has any affiliation with the company.
The greatest growth opportunities on the planet
By not investing American, you are missing out on some of the greatest growth opportunities in the world.
Companies like Google (NYSE: GOOG). Like Amazon.com (Nasdaq: AMZN). Like Facebook (Nasdaq: FB). Even like Warren Buffett’s masterpiece Berkshire Hathaway (NYSE: BRK.B), by far my biggest position, one I’ve held and added to continuously since February 2000.
You are also missing out on what could be the best way to play the strength in the Aussie dollar…while it lasts.
Bet with me, George Soros
George Soros is not known for making losing bets. A stronger Aussie dollar gets you more shares for your buck than you’d get if it fell back into the 90 cent range.
As I write, official figures just released show Australia’s unemployment rate has fallen 0.1% to 5.5% in April. Expectations were for unemployment to remain steady at 5.6%. The death of the Australian economy has been greatly exaggerated…for now, anyway.
On the news, the dollar has jumped back above $US1.02.
It’s great for Aussies looking to invest in some of America’s top companies. Not so great for George Soros.
Still, I suspect the billionaire currency trader will have the last laugh. He usually does.
If you are in the market for more high-yielding ASX shares, get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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. This article contains general investment advice only (under AFSL 400691). Motley Fool General Manager Bruce Jackson owns shares in BHP, Google, Facebook and Berkshire Hathaway.