Investors bet RBA will do 'whatever it takes' to support ASX, bonds

Discussion in 'Sharemarket News & Market Analysis' started by oracle, 13th Jun, 2019.

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  1. oracle

    oracle Well-Known Member

    16th May, 2007

    Full article here (Behind paywall)

    From another article

    Jobless rate must fall below 4.5pc to halt RBA cuts

    Full article here (again behind paywall)

    Basically, what I am reading and seeing is a situation in Australia that happened in US several years ago before they cut interest rates to zero and embarked on QE1 and followed it by QE2. What we don't know is to what extent QE will be embarked on by RBA but looks like it is becoming inevitable to bring back inflation within RBA's target range of between 2% and 3%.

    One thing is for certain..Savers will be the biggest casualty because deposit rates are going to be close to zero for a while.

    Secondly, should we get used to markets to remain expensive when measured against historical measures like P/E ratio? Why would you want to invest in bank term deposit earning 1% when you can buy index earning 3% fully franked or individual shares earning 5%+ fully franked?

    Observer, sharon, Blueskies and 5 others like this.
  2. Simon Hampel

    Simon Hampel Founder Staff Member

    9th Jun, 2005
    Because when things get really bad, those yields will be under pressure - some companies will start seeing ongoing losses and some may even go out of business, thus making those shares worthless.

    If capital preservation is critical - then investing in shares is not a good substitution for cash in the bank.
    Anne11 likes this.
  3. willair

    willair Well-Known Member Premium Member

    30th Sep, 2009
    ..AFL Grandfinal Brisbane ...
    Just going by the past few weeks on several ASX listed banks then it seems a lot are already going from fixed term to stand alone top 20 companies investments ,as long as they understand life is not kind or fair..
    Silverson likes this.
  4. PandS

    PandS Well-Known Member

    14th Feb, 2017
    Depending at what stage in life you are at that determine how you invest your money
    when you young and still have plenty of time you can afford more risk and chase the return
    if **** fall over you have time to make back the loss

    when you are in your 50s, 60s and 70s you want pay extra attention to capital preservation because you got little chance to make back the money if you lose a lot of capital.

    You can see many baby boomers retiring already acting on this, they cashing out of their properties gains and safe guard their capital, cos if there is a big fat fall out in properties
    they would lost all the hard earned gain with possibility of high up keep and low yield and time is not on their side

    Not many people paying attention but this is also why properties are not going any where fast
    you got hundred of thousands of baby boomers cashing out their windfalls and not enough
    buyers to fill the gap.

    The previous boom are driven by boomers in their younger years buying up, now they cashing out.
    turk and Brumbie like this.
  5. Snowball

    Snowball Well-Known Member

    28th Dec, 2016
    Both Buffett and Jeremy Siegel have suggested that even a PE of 20 (earnings yield of 5%) is not overpriced given the extremely low level of interest rates.
  6. MWI

    MWI Well-Known Member

    17th Jul, 2017
    Lower North Sydney NSW
    I agree with the stages in life, the younger you are the more you have time to accumulate, hence yes capital preservation is the key the older you become!
    In regards to baby boomers cashing out of their properties gains, well some may be doing so I agree, some will downsize, but wouldn't more baby boomers cash out from Super instead?
    Super laws mandate a higher % of withdrawal levels the older you get, and I presume or assume that more asset allocation would be in ASX rather than property?
    I googled it so unsure how reliant this data is but around 6.9 trillion is in property (unsure the date whether 2018 or 2019?) and around 2.7 trillion in Super as at 2018?
    Now if around 65%-70% are OO, that's 4.485-4.830TR in OO and leaves around 2.415-2.070TR for investors for IPs, assuming ALL investors cash out! Hence this would be a slightly smaller value than 2.7TR in Super!!!
    I don't know I maybe wrong? Does anyone know what total value is in Super as opposed to property in Australia?
    If that is so I would keep an eye on what actually happens to assets in Superfunds, especially if Super laws mandate higher withdrawals at older ages.
    What do you think, where is greater exposure in capital preservation in the longer term?
    Currently I assume in Super assets than property as even older people need roof over their heads, property is not as liquid hence harder for ALL to sell out at once, banks still lend more against property than shares - so I assume they consider this less risky class, but these are interesting times indeed, in what RBA will do?
  7. Blueskies

    Blueskies Well-Known Member

    24th Aug, 2015
    QE in Australia is actually going from laughable to a realistic proposition. Very hard to know how to invest at the moment. Both global and local headwinds are growing but the fed banks and gov responses are to keep the party going.

    Trump kicks off a $500 billion global trade war when equity valuations are already at all time highs, but the US fed does a rates 180 and the S&P500 has its best month for the year?!
    gman65 likes this.
  8. spludgey

    spludgey Well-Known Member

    18th Jun, 2015
    Bring it on!
    Last edited by a moderator: 15th Jun, 2019
  9. gman65

    gman65 Well-Known Member

    23rd Jun, 2015
    Yes doesn't make sense does it.. this sort of volatility is often seen just before large equity crashes happen.

    A lot of sharemarket values not matching the real world right now.. people are piling into banks as deposit rates are so low, and bank profits are not growing.
    Blueskies likes this.