Welcome to the GFC, mark II.
According to yesterday's ANZ-Roy Morgan survey, consumer confidence clocked up its fastest rate of descent since October 2008. Who'd have thought one budget could wreak so much havoc on our economy? So much so that, from a consumer confidence perspective, it has parallels with the GFC.
The Age reports… "Nervous shoppers are threatening to close their wallets following the Coalition's hard-hitting budget…" Stating the obvious, we're not about to spiral into a full blown financial crisis, but this "budget crisis" is definitely having a negative impact on the psychic of the average Australian.
It's not helping our stock market either, the S&P/ASX 200 index going nowhere fast. Is it really a case of sell in May and go away? Not for me, Foolish readers.
Buy in May and make hay
On the contrary, I've been buying in May, going by the simple rule that buying cheaper is better. Late last week I picked up shares a small-cap ASX stock that's growing like gangbusters, yet whose share price has plunged 23% in the last three months, for no apparent reason. The company has no debt, a bright future, the icing on the cake being the very juicy 5.6% fully franked dividend yield.
Telstra hits 9-year high, still yields a fully franked 5.4%
One Motley Fool Share Advisor recommended stock I can tell you about is Telstra Corporation (ASX: TLS). Yesterday the telco juggernaut jumped to a 9-year high of $5.30… a far cry from depths of $2.60 back in 2011. The rise and rise of Telstra is no surprise to me. My family owns the stock. Having long enjoyed the juicy 28 cents fully franked dividend, now we can enjoy the capital gains, and the growing dividend.
In this low interest rate environment, it's the best of both worlds. I suspect Motley Fool Share Advisor subscribers are similarly chuffed, given Scott Phillips tapped Telstra as his 'best of the best' ASX stock pick in July last year, when the shares were trading at just $4.65. The stock is up again today in morning trade, now trading at $5.34.
The best of both worlds just got even better. It seems the Australian investing public can't get enough of safe, growing, attractive fully franked dividends. Go figure. At $5.34, Telstra stock trades on a dividend yield of 5.4%, putting the returns on term deposits to shame.
"Budget crisis" could see RBA slash interest rates
Speaking of term deposits, and interest rates, if there is one silver lining it's that if this "budget crisis" does indeed have a materially negative impact on the economy, the Reserve Bank can and will reduce interest rates even further. Yes, Foolish readers. If you thought a cash rate of 2.5% was as low as interest rates could go, I've got news for you — they can go as low as zero, as they've done in the United States of America.
To be honest, that's about as likely as Joe Hockey bringing the retirement age back to 65. And can you imagine what might happen to house prices if mortgage rates were down at 4%? What is absolutely certain is this "budget crisis" talk does bring the prospect of even lower interest rates back into play. It's already showing up in the falling Aussie dollar, yesterday it falling below US93 cents for the first time in two weeks.
I for one can't see how the dollar stays above US90 cents for too much longer. At a time when our economy is facing some serious headwinds — both from a consumer confidence level and from a very real drop in the iron ore price, our largest export — the US economy is continuing to pick up speed, so much so that the talk is not IF interest rates will rise, but WHEN.
Last chance to buy US stocks with your strong Aussie dollar
Currencies don't move in a hurry… meaning those investors eying off US-quoted stocks have still got a chance to snap them up while the exchange rate remains favourable. My portfolio has a healthy mix of ASX and US-quoted stocks. The former generally pay me some very attractive fully franked dividends, the latter offer me direct exposure to the world's largest economy.
Warren Buffett's Berkshire Hathaway is my biggest holding, by some distance. I first bought the stock in February 2000 (the trade confirmation is framed and hangs proudly on my wall) and have topped up numerous times since. All of which highlights 3 important lessons…
1) Long term investing works. Since February 2000, Berkshire Hathaway shares are up 318% versus the Dow's gain of 57%.
2) Buying, and holding quality companies works. If there's ever a company that passes the "sleep at night" test, it's Warren Buffett's Berkshire Hathaway.
3) Adding to your winners works. Many investors make the mistake of adding to their losers but not adding to their winners. It's the equivalent of watering your weeds and starving your flowers. It's never too late to buy shares in quality stocks.
As if to highlight point 3) above, two months ago we recommended Motley Fool Share Advisor subscribers buy Berkshire Hathaway. Warren Buffett is 83 years old. His sidekick and fellow billionaire Charlie Munger is 90 years old. Berkshire Hathaway stock has already appreciated many thousands of per cent in the 40+ years. It's never too late.
What would Warren Buffett do? Buy shares, of course.
As I write, the ASX has recovered from its morning losses, trading back above 5,400. I know these are uncertain times. I know it's hard to get excited about investing when the stock market is going nowhere at best, and at worst, some of your favourite stocks are going backwards.
My portfolio has taken a backwards step or two this month, particularly hurt by a near 10% fall in one of my larger holdings, the ASX tech stock we're convinced can win the cloud computing revolution. Am I worried? Not in the least. On the contrary, if the ASX tech "wonder stock" falls too much further, I'll be in the market to buy some more — why water the weeds?
In October 2008, at the height of the financial crisis, Warren Buffett wrote…"You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy." This "budget crisis" is no GFC. Not even close. But it is bringing its fair share of queasy headlines, and a level of discomfort.
What would Buffett do? He was buying in October 2008, and he's still buying today. I'm no Buffett, but I'm buying too.
