Is today the day?
The day when ASX investors move on from the budget and start spending again?
Spending in the shops, to help our ailing retailers.
And spending on stocks, to help our ailing stock market.
It is coming up to the End Of Financial Year, after all, where everything's on sale, some 60% off AND likely tax deductible.
Step right up, Foolish readers.
Stocks are on sale too. The trick, as ever, is buying the right stocks. More on that a little further down…
Anyway, the ASX is off to a good start so far today, following US markets higher.
Source: The Age
Yesterday afternoon I did my bit for the share market, wading in to buy shares in three high yielding stocks — all paying juicy fully franked dividends. The forecast dividend yields were 4.8%, 5.3% and 7.8%.
Juicy indeed.
Readers of yesterday's Motley Fool Take Stock email won't be surprised to learn there wasn't a single bank stock amongst my new buys.
I'm looking elsewhere for my investing kicks, including smaller-cap stocks.
Speaking of elsewhere, overnight US markets climbed to yet another new record high.
The AFR reports the S&P 500 has risen in nine of the past 11 sessions, and ended at a record high five times in the past six sessions.
If only such optimism were to translate to the local market. The S&P/ASX 200is still way below its October 2007 peak.
On the bright side, there's plenty of upside between ASX 5,400 and its 2007 peak of 6,749.
Out of interest, I ran a screen on S&P Capital IQ to check out some of the big winners and losers since October 2007.
The losers tell a sorry tale, as you would expect, including…
Triple ouch.
You do know Warren Buffett's two rules of investing, don't you?
Rule #1 — Don't lose money.
Rule #2 — Don't forget rule #1.
The winners, on the other hand, are grinners, including…
Stocks can 'only' go down 100%… which is just as well for my holding in Lynas Corp (ASX: LYC), down 86% for me, down 87% since October 2007, and down 95% since its peak in April 2011.
Seems someone wasn't listening to Warren Buffett!
On the flipside, thankfully, stocks can go UP many hundreds, even many thousands of percentage points — turning them into fortune maker stocks.
Like my family's holding in Woolworths (ASX: WOW), for example. It's up over 1500% since the company floated at $2.45 back in 1993. Including reinvested dividends, the gains have been multiplied even more.
That makes up for the odd Lynas disaster… many, many, many times over.
Good old dividends. Beautiful dividends. Let me count the ways I love you…
1) They provide you with income.
2) Through dividend reinvestment plans (DRP), you can automatically let the wonders of compound returns work for you, potentially turning a modest investment into truly life-changing wealth.
3) Fully franked dividends save you tax, and in some circumstances, say for example, in an SMSF that's in pension phase, the tax man will send you a big fat refund cheque.
It shouldn't therefore be a surprise that I've piled more cash into dividend paying stocks.
The other reason is the pathetic interest rates on offer from high interest accounts and term deposits.
Earlier this week I received the dreaded "changes to your interest rate" email from my bank.
You don't need me to tell you which direction the interest rate went.
Here's a clue…
Overnight the European Central Bank (ECB) cut interest rates to record lows, slashing the benchmark refinancing rate to 0.15%.
Yes, Foolish readers… the decimal point is in the right place. At that rate, a $100,000 investment would earn $150 per year.
Dividend stocks, anyone?
If that wasn't enough, and clearly it wasn't for the European economy, the ECB lowered the deposit rate to -0.1%.
Yes, Foolish readers, in a desperate attempt to get banks to lend money to small and medium sized businesses, the ECB will charge banks for parking funds at the central bank overnight.
Welcome to the world of negative interest rates.
Naturally, the Aussie dollar jumped higher. Who wouldn't want to send their money to the "lucky country" when you can earn 2.5% interest here? Compared to 0.15%, and -0.1%, our interest rates are in nose-bleed territory.
But for how much longer?
A higher dollar is not great for the Australian economy. The RBA desperately wants a lower dollar. You can bet your bottom dollar they'll be jawboning it down relatively soon.
Will it work?
I suspect not.
Not in the face of negative interest rates in Europe, and near zero interest rates in the States.
So what's the RBA got left in its arsenal?
It can cut interest rates.
Lest you worry about house prices booming, it can dampen speculation by limiting mortgages — for example by requiring a 20% or more down-payment.
Three can play this interest rate "race to the bottom" game. Come in spinner…
Dividend stocks, anyone?
I'm not saying any of this will happen.
But we're in a global economy. It's a competitive economy. The RBA is not going to sit there and watch the Australian economy suffer because of our comparatively high interest rates.
Still… there is good news.
The high dollar means you can buy even more US-quoted stock for your Aussie buck.
On that point, and with a sense of perfect timing, overnight Amazon.com(Nasdaq: AMZN) shares jumped an impressive 5.5%.
Why was the timing perfect?
Just yesterday, in this very publication, Joe Magyer named Amazon.com as his top US-quoted stock from the Motley Fool Share Advisor scorecard.
Good call, Joe. There's more US-quoted stock picks where that one came from.
As much as we might think it was all down to The Motley Fool, we can't take ALL the credit for the jump in the Amazon.com share price.
Apparently some also goes to high-profile hedge fund manager David Tepper.
Last month he told the crowd at one of the biggest hedge fund conferences of the year…
"I am nervous, I think it's nervous time."
What a difference a few weeks can make.
According to CNBC, after the ECB's radical actions on European interest rates, Mr Tepper is now "feeling a little better."
Good for him. I'm really pleased for him.
I'd feel even better for him if he could just wave his magic wand over my portfolio, sending it 5.5% higher in the process.
Maybe not.
Still, I'll happily stick with my freshly minted fully franked dividend stocks. They may not jump 5.5% in a day, but they should provide me with a healthy, and tax effective income stream for many years to come.
