Shares - no more volatility

[Gundini]

I am still convinced there is more short term pain to come for those invested in the market.

While Chinas index is trying to kickstart the world economy, the US index, Eur, and Jap, are treading water and getting tired.

It is not going to take much to spook this market...

I'm still in the leg down mode.

 

[MRC & Co]

Yes, those are the guys that got us into this mess!

And the guys who provided a bull market nobody complained about.

 

[MRC & Co]

It is not going to take much to spook this market...

Like the worst GDP figures for Japan since 1974? I'm wondering what it will actually take to spook this market for another leg down...........

One thing is for sure though, after all this mining hype with RIO etc, the Aus Market is too high. Though with this latest buy up from China, this mining rally may kick on for a little while yet.

 

[nomore4s]

Like the worst GDP figures for Japan since 1974? I'm wondering what it will actually take to spook this market for another leg down...........

One thing is for sure though, after all this mining hype with RIO etc, the Aus Market is too high. Though with this latest buy up from China, this mining rally may kick on for a little while yet.

I actually think we are going to see some sort of rally shortly, back towards 4000 maybe as high as 4300 but we could see a retest of the lows first. But in saying that we could also break to the downside but atm I favour a break higher.

 

[wayneL]

This is becoming a hard market to pick (as if you can ever pick the market )

On value basis and in isolation, and on looking forward to the prospects of diminishing earnings for most companies... even possible depression, the market is clearly still way overvalued. Indexes "should" be taking where the sun don't shine.

But complicating matters are the CBs actions in trying to avert deflation; i.e. zero or near zero interest rates and "quantitative easing". AKA the rape and pillage of the prudent in order to prop up the profligate.

For those with cash, it's a tough call.

If the CBs lose the deflation battle, cash will indeed be king, even with crap interest rates.

If CBs manage to touch off the inflation bomb, savers will be "rooned". Meanwhile, savers who are living off yield (retirees etc) are having to dip into their capital, a double betrayal most foul by those with their greedy hands on the fiscal and monetary levers. This means many savers are being forced by circumstance to put their capital base at higher risk in order to get some sort of yield.

Gu'mint bonds may yield slightly higher, but capital will be decimated if interest rates start to fly. Corporate bonds.... well, that could be playing poker with the devil.

That leaves the share market. With the promulgation of the theory that the market has reached a bottom and is cheap, I think savers are propping the market as savers start chasing dividend. The "bottom" theory is BS, but could be self-fulfilling.

It's easier if the investor is comfortable with moving capital around swiftly, but let's face it, the vast majority of people (and their BS advisors) are not capable of doing this in an expeditious fashion; and even if they try will likely do it at the worst possible time.

The share market is an unfaithful lover, but it's the devil most people know. there is probably not enough faith to push to higher levels, but perhaps enough for folks to buy the dips.

Things get interesting if/when dividends are cut en masse.

 

[nomore4s]

Things get interesting if/when dividends are cut en masse.

Good post Wayne

This is also when I think we will see the next major leg down. ATM the banks and most blue chips look like holding the D/Es to the current high yields (close enough anyway), this makes these blue chips look cheap especially considering the low returns on cash atm.

 

[wonderrman]

CBA have already flagged a diminished dividend next time around. They are not likely to be the only bank to take such a position.

Yes that is true but the current market yield is 8%. If yields are halfed it would be 4%. Cash will be getting you something like 2% by year end. 4% is more then 2% is isn't it?

 

[MrBurns]

This is becoming a hard market to pick (as if you can ever pick the market )

On value basis and in isolation, and on looking forward to the prospects of diminishing earnings for most companies... even possible depression, the market is clearly still way overvalued. Indexes "should" be taking where the sun don't shine.

But complicating matters are the CBs actions in trying to avert deflation; i.e. zero or near zero interest rates and "quantitative easing". AKA the rape and pillage of the prudent in order to prop up the profligate.

For those with cash, it's a tough call.

If the CBs lose the deflation battle, cash will indeed be king, even with crap interest rates.

If CBs manage to touch off the inflation bomb, savers will be "rooned". Meanwhile, savers who are living off yield (retirees etc) are having to dip into their capital, a double betrayal most foul by those with their greedy hands on the fiscal and monetary levers. This means many savers are being forced by circumstance to put their capital base at higher risk in order to get some sort of yield.

Gu'mint bonds may yield slightly higher, but capital will be decimated if interest rates start to fly. Corporate bonds.... well, that could be playing poker with the devil.

That leaves the share market. With the promulgation of the theory that the market has reached a bottom and is cheap, I think savers are propping the market as savers start chasing dividend. The "bottom" theory is BS, but could be self-fulfilling.

It's easier if the investor is comfortable with moving capital around swiftly, but let's face it, the vast majority of people (and their BS advisors) are not capable of doing this in an expeditious fashion; and even if they try will likely do it at the worst possible time.

The share market is an unfaithful lover, but it's the devil most people know. there is probably not enough faith to push to higher levels, but perhaps enough for folks to buy the dips.

Things get interesting if/when dividends are cut en masse.

Yes good post and I agree with all of it.

Those with cash are between a rock and a hard place at present.

If, as you say the market, is overvalued because of probable future dividend yields falling then I for one will stay out , I know the market may go up anyway because people will chase anything better then 2% but I wont be one of them.

I still think buying property with cash is the way to go if you can hold out till the market bottoms, once again it's being artificially propped up by that loose cannon KRudd.

I've never seem so much intervention in an economy and I have a strong feeling there will be a price to pay.

 

[Trembling Hand]

Reduced volatility for sure but we still have elevated levels. I guess its all relative and we are more likely to compare to the most recent data which as we know was extraordinary (08). On a longer term view we are still getting rather large weekly moves when expressed as a %.

Below is a chart of weekly high low range going back to 18/6/04 (remember the good old bull days ) with a 10 week average in red. As you can see it jumped up in late 07 and its making higher Lows, I think that's still an up trend in volatility.

But is it about to return to "normal"???

 

[jonojpsg]

Yes that is true but the current market yield is 8%. If yields are halfed it would be 4%. Cash will be getting you something like 2% by year end. 4% is more then 2% is isn't it?

Don't forget also that most divvies are fully franked which adds another 30-45% to the actual yield. Say CBA cut their div in half to 4% and your tax rate is 30% then you actually earn 5.2% don't you?

Definitely better than 3.5% in the bank which then gets taxed at 30%!

And for retirees who buy in now, if the capital value drops then picks back up again over the next 3-5 years, so what? As long as div yield is around 4-5% ff then they should be OK. Honestly, can anyone see CBA dropping divs more than 50%

 

[Aussiejeff]

Yes that is true but the current market yield is 8%. If yields are halfed it would be 4%. Cash will be getting you something like 2% by year end. 4% is more then 2% is isn't it?

Then again, a gummint guaranteed 2% of SOMETHING might look better to some than a possible 4% of sweet FA with the way many stocks are performing!!!

Even the Big 4 banks SP's are still struggling after being given a zillion FREE Get Out Of Jail cards by the Joker, Swan.

 

[Aussiejeff]

Don't forget also that most divvies are fully franked which adds another 30-45% to the actual yield. Say CBA cut their div in half to 4% and your tax rate is 30% then you actually earn 5.2% don't you?

Definitely better than 3.5% in the bank which then gets taxed at 30%!

And for retirees who buy in now, [size=+2]if[/size] the capital value drops then picks back up again over the next 3-5 years, so what? As long as div yield is around 4-5% ff then they should be OK. Honestly, can anyone see CBA dropping divs more than 50%

Hi jonojpsg.

I adjusted one tiny little word in your response that might actually be important.... the dreaded what "if" also applies to dividend yield possibilities... how do you know div yield will be ok at 4-5%?

There seem to be a few divvy "shocks" floating on the cesspool of late...

 

[MrBurns]

Don't forget also that most divvies are fully franked which adds another 30-45% to the actual yield. Say CBA cut their div in half to 4% and your tax rate is 30% then you actually earn 5.2% don't you?

Definitely better than 3.5% in the bank which then gets taxed at 30%!

And for retirees who buy in now, if the capital value drops then picks back up again over the next 3-5 years, so what? As long as div yield is around 4-5% ff then they should be OK. Honestly, can anyone see CBA dropping divs more than 50%

Superfunds pay tax at 15% so thats bugger all in the scheme of things.

 

[wayneL]

Don't forget also that most divvies are fully franked which adds another 30-45% to the actual yield. Say CBA cut their div in half to 4% and your tax rate is 30% then you actually earn 5.2% don't you?

Definitely better than 3.5% in the bank which then gets taxed at 30%!

And for retirees who buy in now, if the capital value drops then picks back up again over the next 3-5 years, so what? As long as div yield is around 4-5% ff then they should be OK. Honestly, can anyone see CBA dropping divs more than 50%

The possibility is that CBA makes a loss for a half or three... and doesn't pay a divvie for some time. However improbable you think it, it's more possible than you may realize.

That would be utter disaster for retirees. 4-5% yield does not represent good risk premium on that basis.

Junk bond ETFs are yielding 13% and are probably no more risky than CBA. There are option based ETFs yielding 9% which are up YoY.

Them's good risk premiums.

 

[MRC & Co]

But is it about to return to "normal"???

Errrr, that's a scary thought!!

But will be ok if it decimates most day traders and you get some decent paper flows again without all the noise.........

 

[wonderrman]

I've never seem so much intervention in an economy and I have a strong feeling there will be a price to pay.

Interesting you say that, the head research man at Bell Potter doesn't think there has been enough. In crisis of yesteryear he says governments have had to spend 13% of GDP to solve the problem. So far US and UK combined have only spent 7%.

The guy also states that government injection of capital for deferred shares in the companies need to happen to make them liquid. Then the company can buy them back off the gov in future times.

I usually don't like to listen to/read what analysts have to see. This guy seems to know what he's talking about though and the info he presents is pretty logical.

http://www.bellpotter.com.au/AVI_Restoring/bell_potter.wmv

 

[Trembling Hand]

Errrr, that's a scary thought!!

Yes thats is a scary thought. Index Futs trading with a 2% range per week would suck.

 

[MrBurns]

Interesting you say that, the head research man at Bell Potter doesn't think there has been enough. In crisis of yesteryear he says governments have had to spend 13% of GDP to solve the problem. So far US and UK combined have only spent 7%.

The guy also states that government injection of capital for deferred shares in the companies need to happen to make them liquid. Then the company can buy them back off the gov in future times.

I usually don't like to listen to/read what analysts have to see. This guy seems to know what he's talking about though and the info he presents is pretty logical.

http://www.bellpotter.com.au/AVI_Restoring/bell_potter.wmv

Maybe I should have said so much publicity about intervention.

 

[MRC & Co]

Yes thats is a scary thought. Index Futs trading with a 2% range per week would suck.

Especially at 2000-2500 points later this year!!!

 

[Trembling Hand]

Especially at 2000-2500 points later this year!!!

Yes I was going to mention something along thiese lines.

LOL, everyone will become scalpers. Even the god of trading himself