G'day Foolish readers,
The Reserve Bank of Australia meets today.
All 28 economists surveyed by Bloomberg expect them to keep interest rates on hold at two per cent.
I'm not betting against them. It looks like a done deal.
All of which makes this month's RBA meeting rather meaningless. Interest rates on hold. Economy still struggling to transition away from mining. Dollar a little too high. Wait and see. Ho hum.
Still, a small army of economists and journalists will pore over governor Glenn Stevens every word, looking for clues as to where interest rates are headed next.
They can save their eyes and fingers. Interest rates are going down. It's just a matter of when.
The market is already pricing in a 90 per cent chance of interest rates being cut by the end of this year.
Capital Economics economists Paul Dale and Adam Collins believe the RBA will cut interest rates to 1.5 per cent by the end of the year.
The Aussie dollar is falling. Term deposit rates are falling. Unemployment is high and rising. Business investment has crashed to such an extent that it has hit recessionary levels, according to UBS. GDP growth is predicted to be just two per cent per annum.
In short, every signal imaginable is pointing to lower interest rates. The timing of the next cut is the only unknown.
Property investors aren't hanging around to wait for the next interest rate cut. They're piling into the Sydney and Melbourne markets as if mortgages will always be this cheap, and likely soon to be cheaper.
Forget that gross rental yields are a measly 3.4 per cent. The ridiculously generous negative gearing tax break encourages investors to make a rental loss on their investment. And they're doing so, in spades.
It's madness, of course. It's a bubble, obviously. It will end in tears, eventually.
Still, let them play. Let them think they are property barons. Let them pay stamp duty. Let them deal with real estate agents and unruly tenants. Let them fix dripping taps, burst water pipes and replace hot water systems.
All for the 'privilege' of saving a few dollars on their annual tax bill. And thehope that the house price bubble keeps inflating and never deflates, let alone bursts.
'Hope' might be putting it politely. Bubbles do deflate. They can even burst. If it looks too good to be true — and Sydney house prices growing at an annual rate of 15 per cent per annum is clearly unsustainable — it usually is.
Let them play. Let them learn the hard way. Let them learn there's no such thing as a one-way bet, especially when you are borrowing hundreds and thousands of dollars. Even Australian house prices can fall.
And let them leave the share market to me, especially companies outside the ASX 20.
Shares.
Your investment is liquid, requires no maintenance, is cheap to buy and sell, pays you an income in the form of dividends, and in the case of fully franked dividends, means you get a very generous tax break from the government.
In this low interest rate environment, why would you invest anywhere else?
Fear is the only thing holding you back. The fear of losing money, either through picking the wrong share, or through one of those periodic stock market corrections.
Take fear out of the equation, and investing in shares really is a no-brainer decision… more so when compared to the returns on offer from term deposits and investment properties.
Last Thursday, I went on a bit of a spending spree, buying shares in five different ASX companies. No time like the present, especially as the S&P/ASX 200 Index was back trading below 5,700.
One company I added to my portfolio was small-cap tech stock Prophecy International Holdings Limited (ASX: PRO). It was one of the companies featured in 6 ASX Dividend Stocks To Beat The RBA's Record Low Interest Rates.
For me, a company growing sales at over 100 per cent, and trading on grossed up forward dividend yield of 4.6 per cent, and with $6 million in net cash, was an opportunity too good to pass up.
It's only very early days, but so far so good. This morning Prophecy International announced sales growth had accelerated to 117 per cent year to date, and that they are forecasting June sales to be a new record high.
That's confidence, given we are just one full trading day into the month of June. Prophecy International shares are up almost seven per cent this morning.Beats working for a living.
As for the market, dominated by the big four banks, two large miners and a couple of supermarkets, it's on the nose, the S&P/ASX 200 Index being down 46 points, and trading back below 5,700 again.
Looks to me like a temper tantrum, especially given US markets rose overnight, with traders letting the RBA know they want lower interest rates.
It won't happen today, but could happen next month. Markets have a habit of getting their way.
Until next time, as ever, I wish you happy and profitable investing.
