It's a war out there, Foolish readers.
Fighting for good, we have diligent, frugal, hard working savers.
For evil, we have dastardly borrowers, egged on by central bankers across the globe, borrowing money at record low rates, pushing up house prices, making them unaffordable for all of us.
And stuck somewhere in the middle, the double agents — big, profitable, shareholder-friendly banks, who with one hand are happy to take money from the good and pay them pitiful rates of interest, and with the other, lend it out to the evil at slightly higher rates of interest, having the temerity to turn a profit in the process.
No wonder stocks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) are investor darlings.
Overnight, Wall Street rose a couple of points as the market couldn't work out whether to be excited about a raft of takeover activity, or be scared about what is happening, and what might happen in the Ukraine and Iraq.
Here in Australia, for the second day running, the S&P/ASX 200 is recovering strongly from a poor start, now back in positive territory on the day, retaking the 5,400 mark.
Could this be the start of an EOFY stock market rally? Watch this space, Foolish readers.
Speaking of Iraq, in the AFR, Peter Cardillo of Rockwell Global Capital was quoted as saying…
"Iraq is an excuse at this point for investors to sell at these levels. As soon as there is some selling, buyers come in almost immediately… It's a further indication that this is not a market that will just plunge on geopolitical issues."
Excuses. Aren't they something people make to cover up their own inadequacies?
If you're the type of investor who thinks the situation in Iraq is an excuse to sell, with the greatest of respect, you are likely the type of investor who buys at the top of the market and sells at the bottom.
That said, judging by trading volumes, it seems Australian investors are content to sit on the sidelines — last month, volumes slumped to their lowest May level in five years, according to IRESS data.
Maybe, just maybe, it was the calm before the end of financial year (EOFY) storm?
The weeks leading up to June 30 give all investors a great opportunity to review their goals, ambitions, stock portfolio, individual holdings and asset allocation.
I've made myself one simple EOFY resolution for 2014-15 — less money in term deposits, more money in dividend paying stocks, preferably of the fully franked variety.
My reasoning is simple…
1) Term deposit rates are going nowhere… and perhaps may fall from these already pitifully low levels.
2) In this low interest rate environment, the tax advantages of fully franked dividends are simply too good to ignore.
3) While the market focuses on the top 50 ASX companies, the odd rocket propelled stock like Liquefied Natural Gas Limited (ASX: LNG), up an astonishing 670% so far this year, and the still falling iron ore price, there are plenty of overlooked and neglected dividend paying stocks on special, just waiting to be bought.
As if to emphasise the point that lower interest rates are likely here for longer, just today my old friends at the International Monetary Fund (IMF) cut their growth forecast for the US economy, saying…
"… rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets."
The War On Savers just ratcheted up another level.
That came after yesterday's report in the AFR saying (with my emphasis)…
"Cheap foreign money is allowing banks to cut term deposit rates, forcing savers to delay retirement or spending."
Time to say good-bye to term deposit rates of 3.5% for one year?
It certainly appears to be the case.
Believe it or not, with the RBA cash rate at just 2.5%, up to now, term deposit savers have had it pretty good.
In the US, savers are lucky if they earn 0.5% on their savings. At that rate, $100,000 would earn you the princely sum of $500 per annum… enough to live on for maybe a week, but hold the scotch fillet steaks.
No wonder I'm focusing a chunk of my portfolio on dividend paying stocks…
I mentioned last week I've got my eye on RCG Group (ASX: RCG), the owner of the Athlete's Fool retail stores — the main attraction for me being its 7.6% fully franked dividend yield.
The retail sector is doing it tough, courtesy of the unseasonably warm weather and the confidence-sapping federal budget.
Foolish investors will know it's always darkest before dawn. They'll know retail is a notoriously cyclical sector. They'll know it's a fickle sector, with retailers having few competitive advantages, so will know to buy cautiously, and with their eyes wide open.
With all that in mind, it was no surprise to me that the share price of yesterday's profit warning victim, Super Retail Group (ASX: SUL), rose on the day, despite the owner of Rebel Sports and Supercheap Auto downgrading its full year profit forecasts.
You see, most of the bad news was already baked into the share price. It doesn't take a rocket scientist to know most retailers are doing it tough, most through no fault of their own — they can't control the weather or the politicians.
In another sign this could be close to as bad as it gets for retailers, a report in The Age said low interest rates and a recovery in home building and house prices should see 2014-15 as an improved year for retailers "after a torrid few years of trading."
The article went on to quote from a Deloitte report which said…
"… the Reserve Bank can essentially offset the impact of the budget on incomes by leaving interest rates lower than they otherwise would have been; that is, by raising rates in 2015 rather than 2014."
Another nail in the coffin for savers?
Right on cue, and again to emphasise the point, the Reserve Bank of Australia today said (with my emphasis) the official cash rate will remain unchanged for the foreseeable future.
Looks like we'll have to stick to full franked dividends… like the retailer Scott Phillips tapped late last week as one of his 3 ASX Best Buys Now stocks, exclusively to Motley Fool Share Advisor subscribers.
If this is close to the bottom for retail stocks, the prospects of capital growth for this Motley Fool Share Advisor recommended stock look very good, the forecast fully franked dividend yield of around 3.5% being the icing on the cake.
In closing, you'll be well aware the end of financial year is less than two weeks away.
Love or hate the abundance of EOFY sale offers, one lesser known sale is the one that randomly strikes some stocks.
An example of one potential victim could be Reverse Corp (ASX: REF).
Shares in this risky micro-cap were down 20% in morning trade on low volume, although as of going to press, they're now down only 4%. Although I didn't buy today, and nor do I hold the stock, it seems I wasn't the only one with any eye to a small-cap bargain.
Even when it was down 20% today, the stock of the company behind 1800Reverse — the reverse charge calling service — was up 257% over the past 12 months, and up over 800% since the beginning of 2013.
Reverse Corp, although a very risky stock, has great business momentum. The stock recently peaked at 16 cents, is now trading back down at 12 cents, having been trading at just 10 cents earlier today.
Could this once hot stock be simply a victim of EOFY tax selling, of momentum players bailing out, or even both?
Whatever the case, it's exactly the type of situation I look for at this time of year.
