More people are joining our bull market bandwagon.
That means a time will come when we have to jump off…but not yet.
Those commentators in the mainstream that are jumping on our bull market bandwagon are a weak-willed lot.
They jump on, but on the slightest bit of bad news they flee the scene and head back to their hovels.
We’ll only jump off the bandwagon when it’s full of mainstream analysts who think nothing could ever go wrong again.
But based on what we’ve seen so far, that could be a long time coming…
The one thing you must know about Money Morning is that we don’t pretend to be a god.
We don’t claim to have 100% foresight on how everything will turn out. If we were perfect then all of our Australian Small-Cap Investigator stock picks would be in the money right now.
Instead, of the 32 open recommendations, 23 are up, one is flat, and eight are down. The overall average for the open recommendations is a 20.6% gain.
That’s pretty good in a market where a bunch of folks say it’s impossible to make money…but it’s not perfect.
But that’s the thing with stock investing. You don’t have to be perfect.
What you have to do is spot the key trends and then back them. You won’t get this right all the time either. Again, if we did we’d have a 100% winning record in Australian Small-Cap Investigator rather than a 71.9% winning record.
But if you can spot those trends early it’s a great way to get into a potentially booming market before the rest of the crowd joins the party.
That’s something we did to good effect with dividend stocks in 2012, and tech and biotech stocks in 2013. But you shouldn’t think those were the only sectors we looked at.
One of our best performing Australian Small-Cap Investigator stock tips over the past two years is a company most investors had given up for dead by the time we tipped it in November 2012.
Today it’s up 143.4%.
There have been many other success stories. And it’s all thanks to looking for the big trends. The trend in that instance was low interest rates and the demand by investors for higher risk assets – stocks.
But that’s not the only impact of interest rates. And it’s not the only driver of stock prices.
As the Financial Times reports:
‘Australia’s trade surplus has sky-rocketed to A$1.43bn, hugely ahead of market expectations and its highest since September 2011, thanks to an increase in exports.
‘Economists had forecast a skinny surplus of A$100m in January, partly because of a fall in the iron ore price that month.‘
It just goes to show how tricky it is to predict the future. Economists got their numbers wrong by $1.33 billion.
We don’t know why they bother making those kinds of micro-predictions. They’re too hard to get right. That’s why we stick to the bigger trends and then assess the impact on individual sectors and companies.
Our view has been (and still is) that the world economy would grow due to ongoing low interest rates worldwide, and the huge growth from China as its economy doubles over the next nine years.
And that wasn’t the only good news for the Aussie economy. Again, you can thank low interest rates. Still with the Financial Times:
‘Australian retail sales surged in the first month of 2014, indicating economic momentum continued into the new year after a better-than-anticipated fourth quarter. Retail sales soared 1.2 per cent in January, a ninth consecutive month of gains and the best reading in 11 months.‘
But how is this possible when the unemployment rate is edging up and consumer confidence is so low?
The answer is quite simple. It’s the story that played out in the US markets over the past few years. We can best show you with two charts of select US retailers.
First, a chart showing high end retailers Ralph Lauren Corp [NYSE:RL], Tiffany & Co [NYSE:TIF], and Nordstrom Inc. [NYSE:JWN]:
Those three stocks have gained an average of 366% over the past five years.
Now a chart of lower end retailers JC Penney Company Inc. [NYSE:JCP], Kohl’s Corporation [NYSE:KSS], and Sears Holdings [NASDAQ:SHLD]:
Those three stocks have an average gain of just 10.7%.
We’ve picked those three stocks at random. There may be cases where higher end retailers have done poorly while lower end retailers have done well.
But the overall trend matches other evidence and anecdotal evidence that those in higher income white collar jobs have had a better time of things over the past five years than those in lower income blue collar jobs.
The latest Aussie retail sales perhaps suggest that the local market is following the same trend.
Those with money and a secure future can afford to spend. Those at the other end of the scale – not so much.
Further proof of this is in the latest housing numbers. According to RP Data, Sydney house prices have gained 14.6% over the past 12 months.
House prices can only go up that much if there’s hot money flowing into the market and if interest rates are at rock bottom levels.
In short, this is great news for our forecast of the Aussie market hitting 7,000 points early next year and 15,000 points within five years.
That means it’s still not too late for investors to buy into good valued Aussie stocks. But for those investors who had the poise to back stocks two years ago, they’ve already built up good returns.
That’s why it pays to look past the immediate headlines and look at the broader trends. Right now, the trend for stocks is in one direction – up.
Cheers,
Kris+
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