A chat about the markets

Reaper

Both charts seem to support my view that the stock market will be going sideways for the foreseeable future, albeit taking a roller-coaster ride on the way.

I have largely been playing the income game recently going for the high yielders with good dividend cover, and fixed interest company bonds and prefs.

It a rather obvious strategy which plenty of others are doing but I can think of little else. The only other strategy I can see in these sort of conditions is trying to buy on the dips and sell on the peaks, but that's not as easy as it sounds and I think I will give it a miss.

Of course if you disagree with what the future holds and think we are headed for either disaster or recovery then you could be more bold.

BLB53

Markets appear to be range bound - ftse trading between 5,300 to 5,800. Until the problems with soverign debt and euro are resolved I suspect this will continue for some time - 2 or 3 years.

My strategy is to remain mostly in equities, but buy quality dividend yielding shares or investment trusts. The largest factor in any gains over the coming few years will be from dividends rather than capital appreciation.

Good article along these lines in FT today, worth a look.

gadgetmind

srcandas wrote: »

Anyone else feel a change is brewing and are changing their strategy or am I imagining it? :beer:

My strategy over the last few years has been to be mostly in equities (about 80%) with a good geographic spread.

What we've seen over the last couple of years is the markets responding less when bad news comes in but responding strongly to the upside to any good news. This suggest that a lot of bad news is priced in, including the default of a few countries and the failure of a few banks.

If you feel that this worst case is inevitable, continue to sit on the sidelines, but if you feel that Europe will muddle through, then it might be time to change tack.

My buying over the last month has been in EM, UK mid cap, and Europe. Yes, Europe. I bought TR Property, Henderson European Focus Trust, and a few other bits and bats.

TBH, the US scares me more than Europe!

bigadaj

Many things are scary currently, take your point on the us, as the deficit there keeps on growing and just seems to be ignored. Still so long as the Chinese and oil sheikhs are happy to pay for it then the yanks can keep on spending.

Coastlines chart looks scary, potentially another decade of flat markets.

I wonder what people's thoughts are on sovereign debt, how this will unravel and the effects. Despite my agreement about the us deficit, then things look as though there will be an automatic flight to quality, well size in any case. No one can afford to let the yanks fail, whereas leaving Greece, Portugal etc go to the wall would have little impact if the banks get protected, as they no doubt will.

Is the answer to focus on quality northern European companies possibly, as the yield on perceived safe economies means that Capital losses on Germans bunds, uk bonds etc are bound to occur?

coastline

It looks like the markets sell off until investors get action from the authorities...FED ..ECB etc....its happened all the way through since 2008...
Just looking at the latest situation in Europe the markets sold off on the Greece and Spain problems until a meeting planned by world leaders...its a shift from uncertainty to certainty..not that the problem is solved just a bit of action..
As posted about the USA...their austerity plans haven't even started...they've delayed then until after the elections...well they would I suppose they'll need to tell a few pork pies to win...all a game..

srcandas

gadgetmind wrote: »

the US scares me more than Europe!

Yup it does look scary but equally if the US tumbles pretty much everything else does at the moment.

One of my fundamentals is to look at trading relationships in the world and while accepting there is a global effect these days there will be relationships in better and worse states.

That's why I've gone China, Australian mining and emerging markets (although the later 95% debt as opposed to equity at the moment). Sounds risky but I have a wedge of Vanguard 20% lifestyle to steady the ship.

I had thought of sitting on the sidelines (at this mo I have 40% in cash) but with low cash return, and if BLB's defined bottom exists, then I will lose little waiting for the upturn that must come.

If I sit it out I might miss the early boat

srcandas

Sorry missed the question I wanted to ask thinking about trading relationships

I remember an american switching all his investments in the 70s. The trigger was that the number of jumbo jets crossing the Pacific for the first time surpassed the number crossing the Atlantic (74 or 76 I think).

My trigger for China was when they started talking about replacing lost European demand with domestic demand.

I guess the trigger to get out of the US will be when they do start to tackle that deficit issue

Anyone got any specific triggers?

coastline

Back to the first chart...

http://www.chartsrus.com/chart.php?image=http://www.sharelynx.com/chartstemp/free/chartind1CRU.php?ticker=^FTSE

If you look at the period 1986-1992 it looks a bit like the period we are going through now ..
The market in 1985 was below 1500 then surged in 1987 on for it to be taken all the way back again..a move of over 70%.
The move from 3500 recently to 6000 isnt much different...so with that in mind any disaster might be short lived...
I've just put 500 in year 1970 into an inflation calculator and it came up with 6480 now...wether that means anything who knows ..
Why can't we just get 10% every year and be happy...;)

pqrdef

It's all psychology. Bad news knocks us down for a bit, and then we perk up, even though the facts haven't changed. We're expected to get over it. Markets seem to be the same, for no rational reason.

Reaper

bigadaj wrote: »

I wonder what people's thoughts are on sovereign debt, how this will unravel and the effects.

First there are the small basket case countries like Greece. In the long term I expect them to default and leave the Euro (though I think Greece will attempt to default and stay in) but being small economies the Eurozone can afford to keep bailing them out for years and will do so, and it won't be a disaster even if they do default. So I think they can be ignored for now.

Then there are the bigger developed economies outside the Eurozone, such as the UK. I expect inflation to be used as a tool to reduce debts, helped along with more QE, though they will never admit that is the plan. I think this fear of inflation is what is keeping fixed income yields (excluding government ones) high. People are afraid of being in fixed income if inflation and interest rates rise. Personally I expect poor growth and periodic recessions to keep a lid on it for the next few years which is why I am buying. However I do worry we could switch very fast from recession to high inflation (and quite possibly stagflation) when it happens. So I am prepared to sell out at the first hint of change.

The US is a special case. One day it will unravel but its status as the world's reserve currency gives it unique advantages so I don't foresee a crisis round the corner.

I think the larger European countries (Spain, Italy) are currently the biggest threat, but I expect the Eurozone to keep chucking good money after bad to put off the day of reckoning and desperately hope recovery arrives to save the day before the tax payers refuse to keep bailing.

So in summary things will carry on as they are for the short and mid term. I can't predict the long term, so I'll worry about that later.