Stocks up, gold down.
It has been a familiar theme ever since September 2011, when Motley Fool colleague Morgan Housel told Sydney Morning Herald readers to… "Dump your gold in favour of shares." You have to admit it was a pretty good call. Since then, gold has slumped 31% and the S&P/ASX 200 has jumped 30%. Stocks 1, Gold 0.
Australians may have enjoyed our Easter Monday, but there were no such luxuries for the Americans — it was straight back to work for them. And work they did, overnight U.S. stocks rising for a fifth straight day, the S&P 500's longest winning streak since October. So much for that tech wreck crash, huh?
Facebook (Nasdaq: FB) shares jumped almost 4% higher to around $61. Although they are 15% off their March peak, the shares are up 138% over the past year. The "glass half-empty" brigade will focus on the 15% share price slump in the past month. They'll look at Facebook's valuation and cringe. They'll convince themselves the rising share price is simply a precursor to the mother of all tech-wreck crashes.
My big Facebook bet
For Facebook stock-holders like me — people who aren't caught up in the day to day minutiae of trying to predict tomorrow's share price — we just hold on for the ride. At the end of the day, Facebook will either grow in to and beyond its current valuation, or it won't. That's the bet. I'm betting it will. I realise it's a higher-risk bet. But heck, what's wrong with that, as part of a diversified portfolio? After all, there are only so many bank stocks a portfolio can have.
ASX bank stocks. Those darlings of the private investor, especially the SMSF Army, and understandably so too. John Wasiliev summed up the love affair in the Weekend AFR… "…every pension-paying super fund that owns Commonwealth Bank of Australia (ASX: CBA) will not only have banked $3.83 a share in cash dividends for the 2013-14 financial year, but will also receive a tax refund of $1.64 a share after the fund has lodged its tax return. The combined $5.47 is a nearly 8 per cent income return." Not bad, especially when you consider the rates on offer from a plain vanilla term deposit account.
Dancing with the big four banks… and a red hot housing market
Regular Motley Fool readers will know we've been avoiding the big four banks. We're nervous about their valuations — on a price to book and a price to earnings basis they are amongst the most expensive banks in the world — and nervous about their exposure to a red hot housing market. We'll happily watch this one from the sidelines. My family is holding onto some of its bank stocks — we too cannot ignore the delicious fully franked dividends — but in proportion to our overall wealth, our bank holdings are very modest.
Yes, Motley Fool reader. If you think it sounds like a case of me dancing as long as the music is playing, you're absolutely correct. Except, instead of doing the tango, I'm doing the soft shoe shuffle. It all reminds me of days gone by… when in July 2007 then CEO of U.S. bank Citigroup (NYSE: C) Chuck Price told the Financial Times… "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."
That one ended badly. Very badly. Citigroup shares are down around 90% since those fateful words. And Chuck lost his job, although he did walk away with a $38 million final pay package, the poor soul. Such a fall to the Aussie banks would put rather a large dent in the balances of many SMSFs… to say the least. Best to not even think about that prospect.
A week to savour for bank stocks
Meanwhile, the banks are merrily dancing, buoying the market in post Easter trading. Perhaps it's down to comments in the AFR from Market Matters stockbroker Shawn Hickman who was quoted as saying… "Historically over the last 20-odd years, the banks have gone up 3.2 per cent in April. They are only up 0.8 per cent so far this April, so I can quite easily see a 2 per cent rally in the banks [this] week."….. Dance banks, dance.
Who knows? Mr Hickman might be right, although bank stocks will have to get a wriggle on in this shortened trading week… something that cannot be said about Woolworths (ASX: WOW), it jumping to another all-time high. Looking back at 20-year data might get you quoted in the AFR, but it's not a great indicator of what's ahead.
As for us here at The Motley Fool, we try to avoid rear-view mirror investing. Jack Bogle, founder of The Vanguard Group, calls it the rowboat syndrome… "You are always looking back where you know where you've been but have no idea where you are going."
That one ASX stock for the cloud computing revolution
Full steam ahead, Foolish readers, to tomorrow's big winners — like the one ASX tech stock we're convinced can win the cloud computing revolution. Perhaps not surprisingly, especially given the "Wall Street Tech Wreck" crisis seems to have passed, our ASX stock for the cloud computing revolution is up close to 3% today. Don't let that put you off — Motley Fool Share Advisor stock picker Scott Phillips still rates the stock a buy. If you missed my full report, click here to read The Technology Arms Race You Can't Afford to Miss.
And Finally… poor Joe Hockey
I couldn't help but chuckle with the headline in today's AFR… "Hockey not happy with RBA" Poor Joe Hockey. He's grappling with an economy in the slow lane, Australians living longer, a budget deficit for as far as the eye can see, and a prime minister who is desperate not to break these election promises… "… no cuts to education, no cuts to health, no change to pensions, no change to the GST, and no cuts to the ABC or SBS."
Oops. Doesn't leave much wriggle room for poor Joe Hockey. Joe can't turn on his boss, so he's now turning on the RBA, effectively blaming Glenn Stevens and his merry group of bankers for the high Aussie dollar. I'll help you out Joe…
That should do it. Although I can't claim credit — yet — the Aussie dollar is today trading at a two-week low. As to where it goes from here… well that's out of my control, and that of the RBA too. Sorry Poor Joe Hockey.
Low interest rates — here to stay
But one thing is for certain. Low interest rates are here for an extended period of time. Morgan's chief economist Michael Knox last week said… "Our view remains that there will be no increase in Australian interest rates before the final quarter of 2015." Good news for the mortgage belt. Bad news for savers. Good news for dividend paying stocks, like the banks, Woolies and Telstra (ASX: TLS). No wonder the share market is back on the up, the ASX again challenging 5,500.
After a great 2013, so far it has been a slow start to 2014 for the stock market. But all that could be about to change. Watch this space, Foolish readers.
