General Market Outlook 2006

[RichKid]

A bullish article to get us going on what to expect for 2006:

The year ahead with Alan Kohler

Has Australia's golden run ended? After three years of beating the world by investing locally, is it time for investors to leave home? No, says Alan Kohler, publisher of independent investment newsletter, Eureka Report, and commentator with the ABC and John Fairfax. The Australian market is likely to keep producing good returns and to at least be a world-matcher, if not a world-beater (apart from the all-conquering Japanese sharemarket).

Not only that, there are three booms that have only just begun: resources, aged care and the Internet.

2005 ended the big debate among professional investors as to whether it is time to start shifting money into 'international equities'.

In my view there is no reason to run away from Australia and scatter your money around the rest of the world via managed funds that incur a charge. Yes, on one hand, Australian shares have had a fabulous few years and many are not cheap. On the other hand you know the companies - you shop in their stores and you buy their products - you can buy them with Australian dollars and you get Australian dollars when you sell them. There would have to be an attractive proposition somewhere else to offset those advantages.

And anyway, the difference in prospects for Australian companies, according to analysts, is too small to get to concerned about. The average one year earnings forecast for Australian firms is currently 11.4%; for the rest of the world it is 12.8%. And that difference, small as it is, will probably be accounted for by changes in interest rates: markets have priced in steady rates in Australian in 2006 and a 0.35% average increase in rates elsewhere in the world.

In other words, there is little reason not to expect another year of Australian out-performance in 2006, because of strong earnings growth, stable interest rates and, probably, a weak currency.

The only caveat I would place on that is Japan. It is likely that the Japanese will be the best performing market in 2006 just as it was in 2005.

But where exactly should you focus your investing in Australia in 2006? Factors to keep in mind include the impact that management fees will have on potential returns and risk reduction through diversification. Here are my picks for the three booms that have only just begun:
1. Resources

Mining and energy companies are currently valued for a decline in commodity prices next year. The extent of those can be judged from a research note put out last week by UBS, in which the analyst keyed current spot prices for commodities into the firm's valuation model instead of 2006 forecasts.

As a result of doing the valuation, BHP Billiton changed from $18.61 to $43.86 (the price now is around $23.30); the valuation of Rio Tinto doubled from $51.21 to $109.51 (current price around $69); the valuation of Zinifex goes from $3.74 to $11.09 (current price around $6.80).

This indicates a key decision for an investor to make, is whether commodity prices will, indeed fall next year. Do you believe Marc Faber's (he's the legendary Hong Kong based investor) hypothesis that real commodity prices are around 200 year lows and have begun a long term uptrend, or do you think the boom is close to ending because the Chinese miracle can't last? Personally I think it can last and I'm with Marc Faber.
2. Aged care/reverse mortgages

My parents are moving into a retirement village owned by Primelife Corporation. It is a wonderful place – and hugely profitable for Primelife. After they bought a 49 year lease on a unit for $260,000; the company takes a monthly fee, plus a deferred fee of 25% of the original purchase price when the lease is onsold, plus 75% of any capital gain. Primelife is expanding rapidly and demand is strong. I have personally invested in FKP Property Group because of the quality of its management and the spread of its businesses.

These sort of retirement villages are part of a big trend that has only just begun: the spending by retired people of their children's inheritances. I don't mind my parents going into a deferred arrangement with Primelife Corporation because I want them to be happy and comfortable in their old age, and I know they will be. All of their friends are going into the same or similar villages. I'm sure most children in my position would feel the same. By buying shares in these type of companies, you are investing in the companies that will collect the money when our parents move into a nursing home or pass away.

And then there is health care, which will grow as more and more people move into the older age bracket.
3. The Internet

Six years ago it was thought that making money from the Internet would be easy: stocks boomed because they had a loose association with the Internet and little thought was applied to what was really happening.

We now have Internet Version 2.0. Online classified advertising is booming and so is online display advertising (banner ads on websites). This is the third boom that has only just begun.

The Packer and Murdoch families have positioned themselves for it by, among other things, by buying leading online classified advertising sites. (carpoint.com.au seek.com.au, realestate.com.au). Possible ways of positioning yourself may include following their lead into these companies; Seek Limited and Realeastate.com.au Limited or by buying their companies; Publishing & Broadcasting and News Corporation. http://www.asx.com.au/resources/newsletters/investor_update/20060110_alan_kohler.htm

 

[brerwallabi]

Three words
Zinc and Gold
See you all Dec31 2006

 

[wayneL]

I'm still an Ãœberbear

But I think Brer's on the right track.

 

[michael_selway]

Three words
Zinc and Gold
See you all Dec31 2006

I agree with that!

End of 2006: Gold 650+, Zinc 2300+, Silver 10+

Also Silver is inline with Gold I believe? ZFX has all 3 and unhedged!

 

[wayneL]

For your perusal:

http://www.marketwatch.com/news/sto...B22-48C7-B0D4-11CB7D59F621}&siteid=mktw&dist=

Meltdown in 2006? Cast your vote!
The 'survivability of mankind' is at stake: are you ready?

ARROYO GRANDE, Calif. (MarketWatch) -- "This is the first scenario I've seen where I question the survivability of mankind," said Richard Rainwater in a recent Fortune interview. He's No. 112 on the Forbes 400 list of America's richest, worth $2.3 billion made in oil and real estate: "Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest......."

 

[Milk Man]

I think this is the most important part to note .

20 triggers for the coming collapse

1. Oil & energy as the trigger. Warnings: Crude at new records. Gas-guzzlers still feeding big egos. GM, Ford troubles. New political dangers: Venezuela, Bolivia, Russia's natural gas threats to Ukraine.
2. Foreign trade deficit as a trigger. Warnings: Recent monthly deficits top $65 billion. This year's deficit will beat 2004's $617 billion. Foreigners now own $2.5 trillion of America.
3. Federal budget deficits. Warnings: Federal debt now $7.8 trillion. Add another $400 federal deficit this year. By 2010, interest on debt will equal our defense budget.
4. Corporate pension defaults. Warnings: Congress lets pensions use absurd estimates of future returns, adding problems on top of problems. Airlines, auto, others heavily burdened, default to taxpayers.
5. Government pensions deficits. Warning: A near $400 billion mess draining local taxpayer resources.
6. Weak U.S. dollar as trigger. Warnings: Foreign nations may replace dollar reserves. Even Warren Buffett is now making foreign currency hedging bets of $20 billion.
7. Social Security deficit. Warnings: We have no choice, cut benefits or raise taxes; but politicians hate both in an election year, so it'll just get worse.
8. Health-care insurance costs. Warnings: Employees' costs increasing. Costs feed inflation. 43 million uninsured.
9. Medicare as a trigger. Warnings: Going broke faster than Social Security. Prescription drug benefit adding an unfunded $8 trillion. Long-term estimates of $36.6 trillion.
10. War and military defense deficit. Warnings: Iraq and Afghanistan wars cost over $200 billion a year. And lately we hear of new plans to invade Iran next.
11. Homeland Insecurity triggers. Warnings: Minimal legislation to protect ports and chemical plants. Federal budget cut border patrol 90%. Vigilantes patrolling. FEMA an under-funded disaster.
12. Class gap widening. Warnings: CEOs and the rich get increasing share of wealth, ownership and tax cuts, while labor's income is reduced and latest budget cuts mainly hurt lower economic classes.
13. Congressional pork-barrel. Warnings: Pork, tax cuts and out-of-control spending. And with no veto threats, Congress runs amuck like teenage addict with stolen credit cards.
14. International credibility. Warnings: Image problems: Wiretapping, Abu Ghraib, Gitmo, secret prisons, and more.
15. Real estate as a trigger. Warnings: Speculation. Cheap money. Home-equity loans used to fund current expenses.
16. Personal-savings shortfall. Warnings: National savings rate now below zero, down from 8% in early 80s. We're now obsessed consumers, blind to saving for tomorrow.
17. Consumer-debt bubble. Warnings: Americans are living beyond their means. Consumer debt is $2 trillion, an all-time high. Personal bankruptcies rising.
18. Political scandals and trials. Warnings: Libby, DeLay, Rove, Scanlon, Abramoff, Frist, Ney; the list is growing.
19. Hedge fund risks. Warning: Doubled since 2000 to over $1 trillion as pension funds, discouraged with the stock market, are taking bigger risks, further endangering retirement funds.
20. Excessive P/E ratios. Warnings: Not just Google at 50 times; the stock market is about 30% overvalued.

 

[michael_selway]

For your perusal:

Meltdown in 2006? Cast your vote!
The 'survivability of mankind' is at stake: are you ready?

ARROYO GRANDE, Calif. (MarketWatch) -- "This is the first scenario I've seen where I question the survivability of mankind," said Richard Rainwater in a recent Fortune interview. He's No. 112 on the Forbes 400 list of America's richest, worth $2.3 billion made in oil and real estate: "Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest......."

http://www.marketwatch.com/news/sto...B22-48C7-B0D4-11CB7D59F621}&siteid=mktw&dist=

OK, so the collapse is coming, that's a given in his scenario. But still, two crucial uncertainties remain: When will it start? And what will trigger it?

My prediction: There's an 86% probability that America will collapse into a major economic recession and a sustained bear market in 2006, far worse than the dark days of 2000-2002 with its $8 trillion loss of market cap.

Hi Waynel, thanks for that

I agree with the Bear Market, but IMO i think it will be in 2008 (after Beijing Olympics). Dow will be around 12000+, All Ords around 5200+. Both will lose atleast 30%+ and last for at least a year or 2. Resource bubble bursts and commodity prices come back down to reasonable levels. All those 20 reasons will apply to the 2008 Bear Market also.

But before the Bear Market, there are still superior gains to be made, so dont miss out as these wealth creaton opportunites are rare.

Thanks

MS

 

[GreatPig]

Some interesting confluence in the XAO.

The last two major corrections were about 6 months apart. Six months again from the last one will be around late March - early April.

The time between consolidation periods of the current uptrend has been about 1.5 months. That amount of time again from the last one will be around early March.

Breakouts from the last major low and following consolidation periods have been on the 200 point levels (4400, 4600, and 4800). The last one formed a micro-triangle, which might imply a half-way point between the previous one and the next one. Both indicate the next consolidation might be at the significant 5000 level.

So by turning the tea leaves a few times and checking the alignment of the stars, I predict the 5000 level will be reached in early to mid March with a significant correction after that in late March or early April .

Which just happens to be when I'll be holidaying in Japan, and will most likely have sold out all my trading portfolio since I probably won't be able to watch things while I'm away.

Now, if everything can just go to plan, I should be nicely cashed up during the next significant correction .

Cheers,
GP

 

[johnno261]

As per my post last year to Wayne L, I too think a correction at the end of March/April.
As for a crash, I dont think so until 2007 last quarter or early 2008.

 

[michael_selway]

As per my post last year to Wayne L, I too think a correction at the end of March/April.
As for a crash, I dont think so until 2007 last quarter or early 2008.

Wow i kind of agree with that also, the crash will probably happen after 2008 Beijing Olympics.

 

[TheAnalyst]

Some interesting confluence in the XAO.

The last two major corrections were about 6 months apart. Six months again from the last one will be around late March - early April.

The time between consolidation periods of the current uptrend has been about 1.5 months. That amount of time again from the last one will be around early March.

Breakouts from the last major low and following consolidation periods have been on the 200 point levels (4400, 4600, and 4800). The last one formed a micro-triangle, which might imply a half-way point between the previous one and the next one. Both indicate the next consolidation might be at the significant 5000 level.

So by turning the tea leaves a few times and checking the alignment of the stars, I predict the 5000 level will be reached in early to mid March with a significant correction after that in late March or early April .

Which just happens to be when I'll be holidaying in Japan, and will most likely have sold out all my trading portfolio since I probably won't be able to watch things while I'm away.

Now, if everything can just go to plan, I should be nicely cashed up during the next significant correction .

Hey GreatPig can you stop giving my March trading strategy away.......

 

[GreatPig]

Okay, my tea leaves just issued an update

No 5000 yet, but some clear RSI divergence with a possible head and shoulders forming (too early to really tell, but the next few days should show if it's a right shoulder or just a pause on the way up further).

A correction now I think could return the XAO back to around 4620, which just happens to be at the trend line across the base of the last two major corrections (May and October), also at the resistance level of September and November, and yet again at about the measured fall of a head and shoulders - so three indications of possible support around that level.

I'll be keeping a close eye on Monday.

Cheers,
GP

 

[RichKid]

An article by the Wise Owl tipsheet in the ASX Traders update with a technical and fundamentals view of the All Ords. Shows a chart of moderate pe's of around 15 for the general market: http://www.asx.com.au/resources/new.../20060314_aussie_market_in_bubble_wiseowl.htm

 

[GreatPig]

The right shoulder failed to develop, so we're back to being very close to 5000, although I think Monday might be down a bit (it generally is after one of those inverted hammer things).

And the RSI has moved back up through the divergence trend line, so maybe we're still hot to trot.

Now I just have to decide what and how much stock to hold while I'm away for a couple of weeks

GP

 

[professor_frink]

first close above 5000!
:bananasmi

 

[nizar]

From FN arena weekly insights:

Many among you will remember, no doubt, that at the beginning of the year most experts were predicting an index between 5000-5250 by year end. The recent reporting season has supported further buoyancy. Assuming the US, Iraq, Iran and China stay out of trouble, there's no reason why the local share market could not continue its run.

At least that's the view brought forward by the likes of AMP Capital’s Head of Investment Strategy & Chief Economist, Shane Oliver. Oliver believes there is a fair chance all this may end up in a bubble, ultimately, but we're not even close to it right now. And there are not just a few others who support that view.

Oliver thinks the share market will be at fair value at 5500. The graph that accompanies his latest assessments on the topic even suggests the S&P/ASX 200 could well pass the 6000 over the next year or so, and it would still be justifiable.

He explains the outperformance of Australian shares over the past years compared to markets in the US and Europe as simply "catching up". Australia missed out on a genuine tech bubble. We are the place to be for leverage to China's seemingly unstoppable hunger for resources. But above all, the share market has continuously lagged corporate profits since 2001. And that is still the case. The last two years the index has advanced by 45%, corporate profits as reflected in the national accounts show an improvement of 47%. Last year, the index gained 17.6% - earnings per share rose by 22%.

Our average dividend pay out is much higher as well. We got used to share price valuations relatively at a discount to valuations elsewhere, Oliver explains. So we're still simply "catching up".