G'day Foolish readers,
According the mainstream press, markets are supposed to be in a holding pattern pending Joe Hockey handing down the 2015 federal budget.
Someone forgot to tell the S&P/ASX 200 Index. It was off to the races in early trade before remembering the script, now on hold until this evening's main event.
The tension is almost unbearable. What rabbit will Joe Hockey pull out of his cigar this year?
Sorry to disappoint. It's not going to happen. The rabbits have already been released. Give a bit here. Take a bit there. Add it all up, and most people will hardly feel any difference to their day to day lives.
If Joe and Tony Abbott were going to tinker with dividend imputation (franking credits) and capital gains tax, for example, you'd have heard about it by now.
Same with negative gearing. According to a recent report in The Sydney Morning Herald, one in three federal politicians own investment properties, collectively owning a portfolio of 541 properties, conservatively estimated to be worth $350 million.
According to a report in the Murdoch press, Treasurer Joe Hockey owns three properties.
Turkey's don't vote for Christmas. Politicians don't vote to abolish policies they themselves benefit from. Negative gearing, despite the havoc the policy is wreaking on Australian house prices, and therefore the overall economy, is safe for now.
Of course, any independent person with half a brain would look at Australia's over-inflated house prices and give negative gearing the boot.
Guess that counts out the vast majority of our politicians…
High house prices might make existing home owners feel good, and property investors feel smart (they are not — they simply got lucky), but they suck billions and billions of dollars out of the economy.
Instead of hitting the shops and investing in businesses, Australians are hitting the mortgage. Or saving for a deposit.
Banks have been the beneficiaries. The Australian economy the loser. You can't spend property appreciation.
Except, the jig is up for the big four banks.
Last week Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) reported lacklustre results, and National Australia Bank Ltd. (ASX: NAB) put its hand out to ask shareholders for an additional $5.5 billion to boost its capital base.
No wonder the bank shares are officially in a correction, Commonwealth Bank shares being down almost 15% since its March high, and down almost 4% so far in 2015.
Suddenly, the banks are NOT the one-way bet many investors thought them to be, especially the SMSF Army. We've been telling you that for years. Maybe now you believe us.
If the banks can't make hay now, with credit easy, house prices flying, auction clearance rates through the roof, and bad debts about as low as they can go, imagine how tough they are going to be travelling when east coast house prices come off the boil.
Make no mistake. The house-price party can't go on forever. The bigger the bubble, the bigger the bust. Western Australia, anyone?
The end of the mining boom is just starting to impact on Perth house prices. One Motley Fool subscriber posted this on our members-only discussion boards…
"Two months ago our small apartment became free and we put it out for rent. It is in Cottesloe, on Marine Parade 10m from the beach with unobstructed sunset views…
"Ten weeks later, we have spent $6,000 on renovations, dropped the rent a further 20% and had one enquiry. Fortunately this isn't a matter of life and death and we aren't heavily geared or in danger of getting behind on the mortgage. But if we are having trouble with an apartment that usually rents itself…"
East coasters like myself can quickly write off the problem as one for the West Australians to deal with. It's not as if they haven't been here before.
But, it doesn't take much to work out how the pain spreads to the rest of the country.
Commonwealth Bank own BankWest. Westpac and Australia and New Zealand Banking Group (ASX: ANZ) lend to West Australians. You get the drill.
You can't imagine the pain ahead for some poor over-leveraged souls. Bank shareholders take note.
With house prices riding so high, it's no wonder The Australian Financial Review is saying economists are tipping the RBA is unlikely to lift interest rates "until at least 2018."
Somewhat ironically, at a time when bank shares are on the nose, but investors are still desperate for yield, shares in Telstra Corporation Ltd (ASX: TLS), the company formally known as "Australia's favourite yield stock" today fell back below $6.
At that level, Telstra shares yield 4.8%, or 6.9% when grossed up for franking credits. Beats the pants off term deposits. And yields on investment properties.
On the flip-side, trading on a price to earnings ratio (P/E) of around 18, for a slow-growing utility business, Telstra shares are on the expensive side.
Telstra shares are now flat so far in 2015. It's a case of sitting back and enjoying the dividend.
No such problems for Flight Centre Travel Group Ltd (ASX: FLT). Its shares are flying high in 2015, now up almost 40%.
Regular readers may remember back in January this year, Flight Centre shares made Scott Phillips' list of Top 5 Dividend Stocks released to subscribers to our popular Motley Fool Share Advisor premium share tipping service.
I liked the company so much that I added Flight Centre shares to the Jackson Portfolio, paying $33.90 per share. When I bought, Flight Centre shares were trading on a fully franked dividend yield of 4.5%, or 6.4% when grossed up for franking credits.
Fast forward to today and Flight Centre shares trade above $45. What started as a yield trade has happily morphed into a growth plus dividend trade. It's the best of both worlds.
Similarities to the Flight Centre situation are uncanny — a growth company whose shares have been ignored by the market to such an extent that they have now, temporarily at least, turned into a yield play.
Like Flight Centre, I don't expect the fully franked dividend yield of 3.65%, or 5.2% when grossed up for franking credits, to last for long.
Growth stocks masquerading as yield stocks are an investor's gift from heaven. But you've usually got to be quick to grab them, before it's too late.
Until next time, as ever, I wish you happy and profitable investing.