Two more bits of evidence confirm our stock market view.
Our view is that Australian stocks will more than triple over the next five years.
That may seem an odd comment, seeing as this morning the Dow Jones Industrial Average fell 1.4%. The index is now down 2.4% for the year.
The NASDAQ index fell 1.5% this morning. But for the year-to-date it’s actually up 2.6%.
It goes to show that technology has been a smart place to put your money so far this year. And despite the good run for tech stocks, there could be more good news to come, as this data shows…
So, what were the two bits of data that caught our eye?
Well, remember how the mainstream portrays the current market. The general gist is that markets are in a credit-fuelled bubble, and that China is about to crash.
Now, we won’t argue with the credit-fuelled part of the argument. Central banks have poured trillions of dollars into the financial system. Of course this will drive up stock prices.
At the same time, central banks have held interest rates at record lows. This has forced investors to abandon safer cash-based assets and opt for riskier share investments instead.
However, the point we make is that just because share prices in the US have gone up, don’t assume everyone has taken part in these gains, and don’t assume they’ve gone up everywhere. Also don’t assume that they can’t keep going up if (as we expect) interest rates stay at records lows for decades to come.
It’s an old but true story. Most ‘mum and dad’ investors don’t buy into a stock bull market until the rally is well and truly underway.
That’s because most investors, especially the casual investors, only have a passing interest in the stock market and investing.
They don’t spend 20 minutes a day reading Money Morning. And they most certainly don’t read any of our comprehensive monthly research that delves into the world of small-cap, resource, and technology investing.
Their only source of information on the economy and markets is what they watch on Channel 7 news or what they pick up in the Herald Sun or Sydney Morning Herald.
In each of those they’ll only get what’s already happened. And most likely they’ll only read about lost jobs at Qantas, Ford, Holden, and Toyota.
So you can’t blame them when they say they wouldn’t touch stocks with a barge pole.
What they won’t read or even bother to consider, is how the economy could shape up over the next five years. They’ll just sit on the sidelines and wait for the newspaper headlines to become positive.
That explains this report in Bloomberg:
‘More than three-quarters of Americans say the five-year bull market in U.S. stocks has had little or no effect on their financial well-being, according to a Bloomberg National Poll.
‘Seventy-seven percent of respondents dismissed the 176 percent rise in the Standard & Poor’s 500 Index (SPX) since its March 9, 2009 financial crisis low, according to the poll, taken March 7-10. Barely one in five – 21 percent – said the market’s gains have made them “feel more financially” secure.‘
It beggars belief. The US market has almost tripled in five years and yet 77% of Americans haven’t taken part in the rally.
The report sums up the feeling of many investors when it notes:
‘“I don’t think there’s anything real behind it,” said David Skelly, 47, a policeman in Kankakee, Illinois. “It’s just an artificial boom.”‘
David Skelly sounds like how we felt about three years ago. It was an artificial boom, but we had a choice. We could either sit on the sidelines and moan about the terrible consequences of money printing, or we could try to beat the central bankers at their own game and go along for the ride…and the stock market gains.
As you can tell, we opted for the latter. And we’re glad we did.
The Aussie market may not have put in the same gains as the US market over the past three years, but putting cash in stocks has been much better than the alternative.
That’s especially so if you managed to catch the ‘dividend rally’ in 2012 and 2013, and if you caught the mini tech boom from mid last year.
And if Revolutionary Tech Investor analyst Sam Volkering is right, after the recent pullback in tech stocks, it’s a great time to back some great stories at a discount to where they were trading just a few weeks ago.
But that’s not the only reason to like this market today. Another report from Bloomberg highlights the crazy talk about a potential China market crash. As we’ve repeatedly pointed out, China’s market has already crashed:
‘The world’s most-profitable banks have never been so unloved by stock investors.
‘China’s four-biggest lenders, which reported $126 billion of earnings in the 12 months through September, sank to the lowest valuations on record in Hong Kong trading yesterday. The MSCI China Financials Index dropped to an almost decade low versus the global industry benchmark while the market value of Industrial & Commercial Bank of China Ltd., the nation’s largest lender, fell below net assets for the first time on March 12.‘
You can see how three of China’s biggest banks have fared in the chart below:
The Industrial & Commercial Bank of China Ltd [SHA:601398] has fallen 34.6% since late 2010. That doesn’t mean it can’t fall further, because it could. But we still say that talk of a crash is somewhat late. We’ll repeat, China’s market is down more than 40% from the 2009 rebound high.
And let’s put the bank profit numbers in perspective. China’s four biggest banks locked in profits of US$126 billion for the 12 months to September 2013. By contrast, the big four Aussie banks ‘only’ made profits of US$24.7 billion (AU$27.4 billion).
We’re going out on a limb here by saying that talk of a China crash from today’s level is overstated.
The mainstream can go on as much as it likes about China crashing and the spat between Russia and Ukraine. We’ll just say that from experience, investing through the rear view mirror rarely leads to investment rewards.
But if you have the foresight to look ahead, sure you’ll go through plenty of bumps and rallies along the way, but in both the short and long term you’ll find that it’s a much more effective way to invest.
Aussie stocks are down today…but we’re buying. The stock rally may have started last year, but it’s far from over.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: 574 Years in the Making