Monthly Archives: February 2015

The bull market seems likely to continue

These are most unusual times for investors. There are many reasons why the equity market should now be in decline but most world stock markets are approaching record highs and will very likely go higher.

The main reason for this is that in a very low interest rate environment investors are looking for a better return on capital and this is most readily available from equities, so cash continues to flow into equity markets. But markets are being further stimulated as a result of the continued money printing by central governments. This started several years ago with quantitative easing from the United States government. Now In March the ECB will start quantitative easing and this can be expected to take European markets to new highs despite the lacklustre economic performance of most countries across the region, high unemployment and the increasing risk of deflation.

With the Australian equity markets outperforming… Continue reading

Expect further falls in the Australian dollar

The Australian dollar (AUD) has weakened considerably in the past few months and it is likely to continue to fall. Consider the following monthly chart of the United States Dollar index. The U.S. Dollar Index is the value of the USD relative to a basket of 6 major currencies. Much has been made of the recent rapid rise of the USD index but it can be seen from the chart that the index at its current level of about 95 is merely close to its long term average and considerably below its recent high of 120 in 2001 – not to mention its historic high of 165 (not shown) which it reached in 1983. USD indexWorld events suggest that it is very likely that the USD will continue to strengthen because the US economy is now quite strong at a time when the world economy is growing very slowly, interest… Continue reading

The bull market and regression to the mean

When we consider the world economic situation we have all of the ingredients for a bear market (high debt, deflation, low growth and high unemployment). But these are not normal times. Investors and retiring baby boomers are driven to find higher returns on their assets in a very low interest rate environment. This demand for equities has pushed most markets to record highs and it seems that the crowd will continue to push the markets higher for at least the next few months.

But consider the markets over the past 5 months. The daily charts below compare the S&P500 and ASX200 indices over this same time period. The Australian market has been in a sideways pattern while the American market has been in a strong bull phase, so the two show very little correlation.   However the common denominator for these two markets now is the crowd of… Continue reading

Where do I invest when the economic outlook is so uncertain?

Where does one invest in the current uncertain economic environment? With the RBA recently lowering the cash rate to 2.25% investors are now looking for investments with higher returns.

It is essential to have a diversified investment portfolio which might include shares, debt securities such as bonds, property, cash and collectibles. Most investors may have sufficient exposure to property through ownership of their own home so will be looking to get a return on assets through either shares or fixed interest debt securities.

Investing in equities.

The Australian share market has had an extraordinary rise over the last few weeks and was further stimulated by the Reserve Bank rate rise earlier this week. The daily chart of the ASX200 index shows the extraordinary trend in our market which has now taken out the previous market highs at A, B and C. Markets which move so fast can be expected… Continue reading

The RBA cash rate, growth and the stock market.

The RBA rate rise yesterday caused considerable volatility on the Australian market with the ASX200 index now at its highest point since the GFC. What does the market reaction to this rate rise mean?

The movements on equity markets anticipate the national economy some 6 to 12 months into the future. The behaviour of the Australian equity markets over the past few weeks would suggest that Australia economy is about to move into a strong growth phase. In fact from the RBA assessment and from the economic data, nothing could be further from the truth. Indeed there is the likelihood of not only higher unemployment in Australia but a recession in the foreseeable future.

It is worth reviewing the RBA statement which accompanied the rate fall. It included the following:

  • Growth is continuing at a below-trend pace, with domestic demand growth overall quite weak
  • The decline in the terms of… Continue reading
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